Many banks are taking shortcuts with digital innovation – with a ‘me too’ follower approach, or outsourcing innovation to a digital agency. This approach will isolate the bank from the customer, leading to customer attrition. Alex Bray, Retail Channels Director at international banking software provider, Misys, evaluates how banks need to take a different approach to innovation to create digital differentiation.
Internet Banking and Mobile Banking are fundamentally different to most of the functions within a bank. Digital Channels teams exist in a lightning fast market, where the pace is set in Silicon Valley’s fizziest start-ups and sustained by the goliaths of Web 3.0 – such as Apple, Google and Amazon. The pace of change in the financial services industry impacts banking operations or operational risk at a more sedate pace. Here, significant change is more likely to originate from regulators rather than competitors.
As a result of these differences, few banks have been able to foster the culture of rapid innovation necessary to deliver a sustainably differentiated digital channel experience to customers. At a recent Misys Customer Advisory Board, a number of banks highlighted that customers feel that online banking experiences are becoming commoditised.
And this is happening at the worst possible time. Customer faith in banks is already very low. New entrants are nibbling at the most lucrative segments of banks’ customer bases. One or two mega-players are starting to invest. Most banks could find themselves squeezed on all sides in the next 12-24 months. So what should banks do to defend and grow their customer base?
1. Start innovating
Banks must regain their verve for innovation – particularly in digital channels. If traditional retail banks harness the same levels of enthusiasm and willingness to experiment as the disruptive ‘new finance’ start-ups, then we will see banks delivering on the promise of a differentiated digital channels proposition. Just take a look on Apple’s App Store – the majority of the highly-rated banking or personal finance apps on the market are not built by banks.
Innovation need not be an enormous expenditure, rather banks can invest in many small innovations, beta test them and focus investment where customer feedback is positive. Banks can also use crowdsourcing as a way to test customer sentiment. First Direct Bank (a part of HSBC) in the UK has done this successfully with their First Direct Lab.
2. Be brave
The essence of innovation is being bold, and challenging the status quo. This will always incur an element of risk. But at the same time, banks can in mitigate that risk by paying attention to successes in non-financial services companies. One good example is gamification – the use of the principles of gaming in delivering a customer facing process. Gamification has proved very effective boosting customer engagement and retention, whilst also making use of social networks for word of mouth marketing.
Again rather than taking a big risk with a large investment, banks can look at cloud-hosted solutions that lower the cost of entry and enable them to grow organically as adoption rises. Also, banks can mitigate any risk by working with partners and customise or extend innovative packaged solutions for their local market. DSK Bank, the largest retail bank in Bulgaria has just launched a unique mobile savings application developed by Misys – BankFusion Gameo. The cloud-hosted app harnesses elements of gamification to improve DSK Bank’s customer experience, while uncovering valuable sales leads for the bank through greater customer insight.
3. Don’t give it away
Banks are sitting on a data gold mine. This data is the key to unlocking the best possible experiences for bank customers. Don’t give it away! I have heard some banks talk about exposing their APIs – and a couple of financial services companies have started to do so. The idea is to allow digital agencies to come up with wacky and creative ideas to use the bank’s data. The argument goes that this would let the banks focus on what they do best – and leave innovation in the hands of ‘more creative types’. I disagree.
Banks should not give their data – their key advantage – away to third parties. Instead, leading banks will use that data to learn even more about their customers. Yes, banks should work with partners who have expertise in digital channels innovations, but banks should continue to own the end-to-end customer relationship and all the related data. This data can then be used to personalise customer experiences as much as possible – giving the bank the edge in the war to stand out.
Despite the changes of the last few years, even as the market has become more competitive, there is still everything to play for. Banks will stand out from the crowd if they keep innovating, are brave about those innovations and keep control of their data. Those banks will be known for providing useful innovations that improve the customer experience, while delivering ROI for the bank.