By Paul Fermor, UK Solutions Director, Software AG
The rise of innovations such as decentralised finance, super apps, and the metaverse have provoked a raft of new ideas about how the industry can be reimagined. But as banking and financial services prepare to harness these new paradigms, it can be easy for the industry to lose sight of the basic requirements that customers have come to rely upon.
What the customer requires…
An aspect which is attracting increasing focus is customer centricity and customer experience (CX). This is principally about the art of creating financial products and services that customers want or need and making the process of engaging with them either frictionless or positively enjoyable.
Introducing products and services that deliver enhanced experiences is not only good for customers, but it directly benefits firms too. With the right insights, financial services organisations can engineer solutions that address the perennial problem of attracting and retaining customers, whilst increasing operational efficiency in the process. A great deal of effort is being expended with 75% of banks actively investing to create new customer-centric services. However, poor customer satisfaction often centres around perennial issues such as a lack of transparency and flexibility, sharp practice, and inconsistent competence from service staff.
…and the industry needs…
For regulators actively encouraging competition between banks, the switching statistics are often a source of great frustration. Approximately 40% of UK customers have never switched banks, and of those that have, nearly 40% of those are unlikely to switch within a 10-year period. However, behaviours change with culture and culture is shifting. Generation Z customers, whose expectations have been entirely driven by digital-first experiences, are most likely to change banking providers. Whilst the likelihood of switching tends to decrease with customer age, digital experiences outside of financial services are creating a more discerning customer base that is less tolerant of poor experiences.
Accordingly, the introduction of new services and better experiences is a commercial imperative for incumbent banks. Whilst these may help retain customers and fend off competition, only 17% feel “very prepared” for a new breed of customer-centric business models. So, how can firms go about delivering a win-win strategy for CX which can simultaneously improve customer satisfaction and operational efficiency? It’s fundamentally about maximising situational awareness from seamless flows of operational data, enabling services to be continuously refined, or re-engineered in response to changing customer behaviour and expectations.
Unearthing deeper customer insights
It’s hard to build compelling services when you don’t really understand the customer. Building effective data & application integration infrastructures can break down data silos and mitigate many of the issues associated with a firm’s internal view of the customer. However, firms must recognise that their view of the customer is likely a limited perspective. To get a fuller picture, firms need to expand their horizons to understand their customers’ overall financial activity.
In 2018, Open Banking paved the way for banks to share customer account transactional data with intermediaries to promote competition and encourage better financial decisions. Data from the Open Banking Implementation Entity (OBIE) shows accelerating customer uptake; as of January this year, there were at least 5 million open banking users in the UK, or around 10.6% of the banked population.
Open Finance is a more ambitious initiative to extend the concept to a much wider range of financial activity. This creates a significant opportunity for firms to develop a richer understanding of their customer’s financial activity beyond what is happening in their current account. For example, the revised Payment Services Directive (PSD2) enabled customers to share their financial data with trusted third parties, improving financial decision-making from new aggregated insights and functionality. It is estimated economies that embrace data-sharing initiatives within finance could boost GDP by between 1 and 5% by 2030.
Data-driven insights are the lifeblood of good CX and, where possible, financial services firms should leverage the opportunities presented by open finance, delivering everything from smart payments to intelligent money-management advice.
Nothing is ever perfect. Despite the best of efforts and intentions, new services will likely be a constant work in progress. It’s hard to improve services in an information vacuum, so firms also need to understand how their customers interact with their services. Surveying the customer base is rarely an effective way to gather feedback or derive insight when only 7% of the user base is typically considered. Unsurprisingly, only 16% of CX leaders feel that survey data provides any useful diagnostic value.
For increasingly effective insights on customer experience, highly instrumented service platforms must be created, allowing integration infrastructure to channel usage data into centralised data repositories for subsequent analysis. In parallel, banks also need the data management capabilities necessary for good governance. By wrapping adequately instrumented API gateways around new services, they can acquire a comprehensive picture of who accessing data and how that data is utilised. This is vitally important in the context of shifting regulations, which increasingly require customer data to be managed responsibly and transparently.
Exploring every type of insight
Due to the increasing availability of cost-effective computing and data storage resources, there has never been a better time for firms to exploit analytical initiatives to realise improved business outcomes. For many problems that are analytically well defined such as risk calculations and asset allocation, there is already a huge pool of existing numerical tools to tap into. However, in the past when trying to solve ill-posed problems such as trying to predict customer behaviour, the tools have been less capable. People problems are just plain hard and awkward. Machine learning has proven revolutionary in this context because it has provided structured, repeatable methods to address problems that were hitherto intractable for classical numerical approaches.
Advanced analytics has enabled significant outcomes across business domains including marketing, sales and compliance. Often, many analytical initiatives implicitly target the exploitation of durable insights, where the insight is relatively static over time. This is the basis for what most people recognise as “business intelligence” and might include the breakdown of market constituents or the classification of customers into discrete groups. The problem for firms solely pursuing this approach is that they are likely to be missing valuable opportunities.
Insights exist across a spectrum of defined lifetimes, during which one must identify & exploit them to realise a beneficial outcome. If firms wish to increase the volume of insights they can exploit, they must extend their activity beyond durable insights. This will enable them to exploit the perishable insights within their operations that exist at the shorter end of the insight lifetime spectrum. This is particularly important in the context of customer engagement with service platforms, where being able to infer that a customer has an issue in real-time and providing immediate mitigation is the difference between a customer that drives a positive or negative net promoter score. Over 60% of surveyed firms are beginning to prioritise the ability to react to CX issues in real-time, but only one in eight of them expressed certainty in their existing systems to support this goal.
Harnessing open data ecosystems, capable hybrid integration and real-time analytical capabilities is a prerequisite for organisations preparing to enhance their customers’ experiences. But the scope for improvement isn’t limited to customer experience, which is just one of many operational aspects that organisations must continuously review and upgrade. The solid data and analytical foundations used to address customer experience are also foundational to addressing many other challenges within the financial industry.
Excellently researched and highly reader friendly timely article by Paul Fermor. I agree with all the observations. I would like to add a new dimension to this story as below for international banks: International banks will do well to set up their “Global Capacity Service Centers” in Bengaluru, India (GCCs) – coming up as a cost effective, multipurpose talent center for advanced technology and systems, R&D activities in AI, IoT, machine learning and high end software development. Currently, India has around 1,450 GCCs with a total revenue contribution of $35.8 billion, according to a quarterly trends report released recently by IT industry body Nasscom and tech consultancy Zinnov.
For international banks, such a capacity center could deliver global support, client due diligence and advisory services for corporate and institutional banking, retail banking, compliance, human resources, risk management and finance using the latest technologies and practices in data, robotics and software development. In addition, these could also house activities in specialised areas including data analytics, software development, anti-money laundering, financial crime surveillance and financial control – enabling the international bank to achieve numerous benefits including efficiency gains and economies of scale in transaction monitoring, centralised client due diligence and the co-location of specialised risk management professionals. Today GCCs are now increasingly focusing on high value activities such as IP-creation, building competencies around emerging technologies, setting up COEs and taking full ownership of vendor management. Today, GCC service providers in India support their parent companies to overcome the challenges of the post-COVID business landscape by spotting early trends and conceptualizing new services, running critical processes by hosting and orchestrating the complex infrastructure such as supply chain management. GCCs actively use technologies such as AI, IoT, machine learning and Cloud and thus increased digitalization translates to cost effective solutions. My research indicates to me that with a hybrid work environment now fast becoming the norm, GCCs will be able to offer critical remote support to the parent company or international bank located overseas. Recently I was recently invited by the Department of Electronics, IT, BT and S&T, Government of Karnataka and Karnataka Digital Economy Mission (KDEM), Bengaluru, India for a first conclave where they talked about the activities of GCCs in Bengaluru, an activity which is well over 2 decades here and great value has been created, both for the organization as well as for Karnataka and India. Today the GCCs are not only supporting various services to their parent organization, but also creating new products, service models and IPs. Thus GCC would be a cost effective solution for international banks with availability of necessary infrastructure, talents in all spheres including software development, data analysis, HR, marketing, start up and entrepreneurial activities. Ramesh Kumar Nanjundaiya.