Simplifying banking: Borrowing best practices from other industries

What banks can learn from other industries as they tend towards greater simplification
By Manish Jain, Industry Principal, Infosys

‘If bankers can count, how come they have eight windows and only two tellers?’ goes an old banking joke. But it may well be time to update the window-teller incompatibility for the current socio-digital banking era. Too many banks make the headlines when poor social media skills show then as outdated and out of touch.

Social media as a service channel is still an evolving concept for many industries. Some categories, like retail for example, fare comparably better and can serve as a functional benchmark for the banking industry. But beyond customer service or social strategy, banking can benchmark other industries for operational insights, particularly as the demand for simplification of their business and processes becomes greater.

What banks can learn from retail

The retail industry presents banks with several lessons on how to be loved by consumers. One way is for banks to provide consumers with new high value services at reasonable prices. A second option is to embrace the concept of instant satisfaction (here, now, any time, any place), something most retail consumers are used to. Instead of purely selling financial products, banks should also position themselves as offering guidance and advisory. When interacting with customers, high-touch is as important as high tech, because retail studies show that customers will travel further to an outlet, if the quality of the services is good. Also, rather than selling, like modern retailers, banks should focus on enabling buying using a real and integrated multi-channel strategy. This may include co creating products or services alongside their customers.

Automotive product development lessons

A 2009 study of customer trust across industries revealed that auto companies and banks were equally distrusted in the United States. The same survey, four years later, ranks banking and financial services at the bottom, outranked by the auto industry by 22 per cent. A contributing factor for the improvement in trust in the auto industry could be the growing emphasis on addressing customer pain points such as risk and negative credit. A successful example is Hyundai’s Assurance programme, launched during the peak of the global financial crisis four years ago to help consumers in financial difficulties. Auto companies have gone significantly beyond fundamental customer orientation to arguably become the most active industry to integrate the still evolving concept of co-creation into their product development strategies. Thus far, co-creation has taken the shape of car design contests, in-car app development efforts and even the distributed development of an entirely new car. In all these cases, it has opened the doors to a simpler route to product development.  Banks too could adopt simpler, scalable models of product innovation even while inviting customer contribution. This could include co creating banking products with consumers as well as transforming current banking processes (application and data) in order to improve customer experience. For example, a ‘welcome kit’ when opening an account.

Simplified operations in aviation 

The structural parallels between these industries are fairly obvious – an intensely competitive playing field, absence of distinct differentiators and an operating environment where every error is charged directly to the bottom-line. Not to forget the common emphasis on safety.

Automation, using online channels, mobile phones, and kiosks, has helped simplify processes and manage labour costs in the aviation industry. According to a recent survey, all major airlines are planning a push to self-service options with 80 per cent planning to use kiosks as sales points, and 70 per cent intending to sell tickets on the customer’s mobile phone. This will not only cut costs but also further simplify the ticketing process. This holds an important lesson for the financial sector, where assisted branch transactions – which cost 20 to 40 times more than self-service transactions – are still the preferred mode of business. Banks can borrow heavily from such self-service trends to focus on simplifying their distribution and optimising their servicing strategy. For example, managing underlying sub-systems so that when a customer updates their personal details with the bank it is changed instantaneously across all banking platforms.

Another global aviation practice may be food for banking thought. When CITI Bank US announced plans to charge customers for debit card purchases, it led to a nationwide consumer protest movement. Yet we travel in times where airlines charge for check-in and carry-on luggage as well as choice of seat among other features. Here again, banks can probably draw inspiration from the example of Southwest Airlines to develop a differentiated, yet simplified strategy. The brand has become an aviation case study for building a simplified, low-cost profitable model. The airline uses only one type of fuel-efficient aircraft (read: less in training, maintenance, spares and fuel costs), a point-to-point route structure (read: no cost of operating hubs), one service class and zero frills (read: no meals or even assigned seats). The lesson here is that there is limited use in increasing complexity by adding on artificial product or service choices, when a single proposition is enough. Many banks are offering packages in the name of customer experience however these are often based on complex pricing which often confuses the customer and banking front line. Value for both the bank and customer could instead be achieved by simplification of product. In India for example, the State Bank of India offers a simple mortgage product linked to an operative account; it is a clear example of how a product bundled with term insurance and general insurance of the mortgage can be simplified.

Learning from manufacturing  

Banking operations are similar to factory processes that have to be managed in terms of quality, cost, and delivery performance. A world class manufacturing practice that banks can emulate is the just-in-time (JIT) system pioneered by Toyota of Japan, which minimises wastes and inventory by producing, processing, or purchasing only what can be consumed and used by the next process. Banks can use JIT to create value for themselves by eliminating high levels of unnecessary inventories, enhancing P&L or creating new products. Internally, JIT can also assist with bank capacity planning, line balancing, efficient layouts, inventory control, quality control, and job sequencing.

Banking and moments of truth

In 2005, P&G released a new phrase into the marketing lexicon – the First Moment of Truth (FMOT) or the in-store moment when a shopper finally makes the purchase decision. Soon, other moments of truth followed, pertaining to different points in the customer journey, namely when the customer first discovers a product; experiences consumption or service support; and finally shares the consumption experience with others.

Take for example, a bad customer service experience. Today, this would in all probability result in a broadcast over multiple online social sites. A collection of all such customer experiences would constitute the “Zero Moment of Truth” for another prospect still in the research phase. This essentially means that the brand in question might well be eliminated right at the discovery stage. Most industries, including Consumer Packaged Goods and Quick Service Restaurants, are now focusing on delivering a holistic experience across different points in the customer journey. It is therefore imperative for banks to map the effectiveness of their processes and structures based on customer experience rather than technology deployed. Starbucks, for example, has created ‘My Starbucks Idea’ which allows customers to contribute ideas about new products or beverages as well as voting on which products they like best. This benefits not only the customer who has a say in what they can purchase, but also the company who has the confidence it is launching a ‘requested’ product. Banks could look into adopting parts of this customer-driven approach, for example customer feedback on accounts, to present a simpler, more intuitive approach to business.

The next frontier

There are precautions however that need to be taken when undertaking functional benchmarking. Banks should study and adapt best practices, not blindly copy them. The concept of the ‘six items or less’ express lane at the supermarket, for example, is practical for the grocery industry as additional items take more time to process. In banks, a client with two transactions can take much more time to serve than a customer with 12 transactions, due to banking transactions varying widely in scope and requirements. In such a case, this supermarket strategy would not be advisable to adopt.

In conclusion, functional benchmarking can raise performance standards in any industry. Banks can well borrow best practices from diverse industries – social channel management from retail and cost and quality control from manufacturing – even as they look to simplify their businesses and push growth.