By Anthony Jabbour, Chief Operating Officer, FIS’ Banking and Payments Business
Young banking customers are crying out for more personalised advice and financial services. That’s according to our most recent study, which surveyed 8,000 banked consumers in eight countries: the United States, the United Kingdom, India, Canada, Brazil, Germany, Australia and Thailand. The 2017 FIS Consumer Banking PACE Report—which measures bank performance against expectations in 18 service attributes—found that 27 percent of senior Millennial (26-to-36-year-olds) and 23 percent of Gen X bank customers find it difficult to determine what the best investments are for them personally.
The research comes as Gen Xers hit their peak earning and spending stages of life, with average incomes of more than £34,000 per year in the UK. Senior Millennials are close behind. Yet, as PACE finds, both groups are three times more likely to contact their bank via mobile devices and online than via branch or ATM, with 30 percent of Millennials and 29 percent of Gen Xers saying that they struggle to find time to physically visit a bank branch.
The PACE Score throws light onto a retail-banking market that is in the throes of genuine transformation. The advent of simple online banking has already hit brick-and-mortar retail branches—with some 1,046 bank branches closing across the UK during 2015 and 2016. The combination of regulatory pressure and technological innovation are driving even more disruption, as banks across Europe accommodate the new Payment Services Directive (PSD2). PSD2 is designed to open up banking by increasing competition, reducing fees on cross-border transactions and promoting the open use of customer banking data. At the same time, the UK is accelerating the adoption of Open Banking standards driven by the findings of a recent investigation by the Competition and Markets Authority (CMA).
It is, of course, the early days for Open Banking. But one thing is clear from PACE: winning in retail banking isn’t just going to mean providing a slick app; it will require banks to introduce genuinely personalised offerings and financial advice, informed by customer data. The market is clearly there. The PACE findings show that meetings with financial advisors remain popular across generations, indicating continued demand for personalised services. Aggregator websites and apps are already emerging to furnish customers with their spending data in an accessible interface (including, for some, as simply as via texted updates), as well as giving customers a more complete and comparative view of all the accounts they hold with different banks, helping them to make better financial choices.
A changing industry
With the advent of Open Banking beginning to drive different operating models within banks, Open APIs (application program interface) are increasingly allowing banks and financial-services providers to tap into broader networks to create solutions more relevant to Millennials and Gen Xers. Millennials are coming into their peak-spending life stage, so making the most of the opportunities that Open Banking provides is crucial. The PACE survey confirms that consumers worldwide prefer to turn to their primary financial institutions for advice, but those institutions must be prepared to serve their needs immediately or risk losing the business.
Recent research from the British Bankers’ Association found that customers will access their accounts via mobile devices 895 million times this year. By 2020 that will rise to 2.3 billion times, so making sure that personalisation is backed up by mobile innovation is vital. On this front, the PACE study shows that the challenger banks are outperforming High Street banks on connectivity, omnichannel service and digital payments. (Overall the UK lags behind the US and Germany—both top scorers for performance against consumer expectations in this year’s index—but it is closing the gap.)
Few would dispute that the future of retail banking is ecosystem-based, with banks and other businesses connected to fulfil the demands that customers demand in their digital lives— even across borders. And in light of this, banks will need to rethink their operating models to better understand what products they are bringing to the marketplace. Indeed, it is arguable that increasingly the traditional landscape of banks distributing their financial products and services via their own channels— with direct customer engagement—may be replaced by a bank marketplace powered by aggregated data, with third parties owning the customer relationship and providing access to products from different providers.
To win in this environment, banks will need to make use of artificial intelligence (AI) and machine learning (ML) to help anticipate customers’ needs, be more responsive and target investment advice. Why? Banks that don’t grasp this opportunity risk missing out on helping these customers when it matters, around key life events; a fifth of Millennials, for example, are planning to buy a car or a house in the next two to three years.
With challenger banks leapfrogging legacy-infrastructure issues, a major question for High Street retail banks is how to address the demands that the move to Open APIs make of banks’ technology infrastructures. Banks must also adopt new operating models, and find ways to source the innovations they need to compete in a sustainable way. Banks also need to be asking whether they are doing enough to engage the developer community, and what more they could do. Many, of course, are already using hackathons to do precisely this: RBS’s (Royal Bank of Scotland ‘s) Bank of APIS, for example, is driven by 48-hour hackathons, with a team of coders, designers and business people creating a working prototype to showcase. Challenger banks, meanwhile, are building public APIs that enable third parties to build on top of their platforms.
Revolutionary is a word that gets used far too lightly. But if not revolutionary, the advent of Open Banking is certainly going to be transformational. The CMA describes the opportunity in their retail-banking report like this: “The timely development and implementation of an open API banking standard has the greatest potential to transform competition in retail banking markets….paving the way to the development of new business models offering innovative services to customers”. To deliver on this vision successfully, banks must embrace the challenge of bringing personal banking advice and tailored services into the digital age.