Last year, retail banks increasingly debated how they would cope in a post-Payments Service Directive II (PSD2) world. The directive (which came into force on 13th January 2018 in the UK) is shaking up the financial industry, as high street banks look set to go head to head with tech giants and FinTech start-ups. In a move designed to create a more competitive landscape and provide consumers with a more extensive and cost effective array of financial services and products, retail banks need to be thinking seriously about how they will operate throughout 2018 and beyond.
Find out more from your data
FinTech startups have already shown how that providing tailored advice and products can win increased customer loyalty. You only need to look at the interest being shown in Squirrel and Monzo to see that consumers value having a dashboard that can help them monitor their spending and understand where they might be able to save. This desire for bespoke guidance was reinforced in recent GFT research when we found that over half (55%) of consumers would feel comfortable with the bank monitoring their spending habits, if it was then able to improve their disposable income through personalised offers, money saving tips, real time reminders and updates.
Banks are sitting on a goldmine of customer data which they should now plan to leverage. First and foremost, they should improve the experience of their customers through the greater use of transaction metadata gained from smart transaction management (STM) and personal financial management (PFM) tools. They should also consider alternative sources of insight, such as customer’s social media activity.
Data from social media channels could now prove invaluable. It can be used as a means to assist account opening, for background checks on loan applications, or simply as a means to further improve the customer experience. The drive by banks to aggregate customer data, to encourage customers to develop an ‘anchor relationship’ is well underway and is forming a long list of ‘me too’ functionality around customer experience and insight now seen as critical, even if it provides limited long term differentiation.
Banks can only stand to gain if they are able to build a detailed and accurate picture of their customer’s behaviour. In 2018 we are beginning to see a surge in those willing to work with the new paradigm of ‘Fast Data’ – quickly gathering, assessing and overlaying data from different external, web-based sources in real-time with an automated process to guarantee quality and consistency. The maturity cycle is rapidly advancing in this area and looks set to deliver significant benefits over previous more manual methods of gathering data.
GFT have developed a number of Know Your Customer (KYC) and customer analytics tools that can help banks to deliver these kinds of personalised services. Emerging GFT tools and assets include ‘Friendlyscore’ a real-time credit scoring mobile app to enrich the retail store journey and ‘Brandchats’, enabling a deeper KYC analysis from public social network content.
New models to provide alternative Services
Now with PSD2 beginning to take effect, consumers will gradually see a range of different financial services and products emerge. Faced with increased competition, retail banks need to ensure that they too are offering the different types of personalised services that their customers are likely to want in the future. If they fail to do so, they may find that their customers (in particular the younger, more mobile customers who have not had a very long relationship with the bank) decide to move their account elsewhere.
To meet this challenge and free up the investment necessary to provide agile cost effective operations, banks should move away from a ‘full stack’ technology environment that requires them to own all of the technology required to offer a service, to one where they can ingest other services they do not own. In this way, the Banking as a Platform model (BaaP) can efficiently provide added value services for customers, meeting their existing and future needs, using a combination of their own technology, but most importantly, via third party solutions. An example of this working in practice is how banks are utilising TransferWise’s technology to conduct international payments, rather than having to build and maintain the infrastructure to conduct this task themselves.
Through a platform banking model that is open, banks can provide their customers with enhancements to existing services and all of the new services they might need in future, without the heavy burden of the associated infrastructure costs of doing so. More importantly, they can also use the time and cost savings created to focus on enhancing their customer service even further. Fidor Bank (from Germany) is a great example of how a bank can operate with such a platform approach, relying heavily on application programming interface (API) enablement, allowing them to innovate rapidly and provide new services based on what customers really need.
In our recent Banking Expert survey, we found that a third (33%) of banks currently have a BaaP strategy in design and / or implemented already, with a further 17% having an agreed plan for one, but still need to implement it. This is a promising start, but if retail banks are truly to service their customers’ future needs, all players in the market will need to have a strategy underway throughout 2018 to ensure that they do not begin to lose their customers to other more agile financial service providers.
Changing the culture
One consequence of PSD2 and BaaP is that they push the financial industry further towards the model of ‘open banking’. In addition to updating their technology and platforms to enable them to compete in this new environment, banks need to examine their products, services and operations in order to embrace potential new opportunities. Each bank needs to review their existing and their desired future state, to determine if they are able to adopt a multi-brand approach, new ecosystem marketplaces, or the monetisation of APIs as products. Unlocking the value in open banking models – looking beyond the obvious data and customer experience value is key for the future success of banks.
Exploring ‘marketplace’ initiatives and new utility models anchored in the concept of the API as a ‘product’, delivered through developer-friendly portals, will be a major feature going forward. This will drive increased modularity for the value chain of the bank, opening up new income streams, and driving volume based traffic in order to help cut the unit cost of manufacture for financial products.
Open banking is a new way of approaching the provision of financial services for customers, and as such, it demands a new way of thinking and new ways of working. Organisations need to develop so that they are both technically and business enabled. This means that future teams will be hybrids – they are going to be more agile and have a mix of skills and people. However, this hybrid approach is one that cuts across the more traditional financial services methodology with its typical siloed organisational structure. Organisations will need to think about the product, the customer, about the elements of APIs as a product, and how these elements can be assembled in various ways to drive value. Technologists and business leaders need to come together and collaborate to achieve this in a collaborative experience that is so important for financial services firms to get right.
The key priority for retail banks in 2018, is to be entrepreneurial. They may have historically been entrepreneurial within the confines of product innovation, but now they need to drive an entrepreneurial spirit into their go-to-market strategy by reinventing and improving their technology and business structures. Only then will they be able to maximise the opportunities offered by what may well become known as the era of a new open banking revolution.