Has retail banking’s digital journey stalled?
The banking sector has long been recognized as leading the financial services market when it comes to meeting customers’ expectations for online services. With the penetration of smartphones, banks recognized the brand value of digital banking and the attraction of mobile apps early on – particularly in the context of the sharp reduction in real estate. But has the full promise of digital for today’s retail banking customers been delivered?
Since open banking legislation was passed, UK banks have made significant investments to ensure compliance and prepare systems and processes. The Second Payment Services Directive (PSD2) enshrines a radical idea by requiring banks, subject to permission, to give any third party access to use payments data and launch transactions from a customer’s bank account. The end of 2019 saw an early milestone, with one million UK retail banking customers now taking advantage of open banking. Yet, for most of these customers, the ability to add accounts from different banks into one app is useful, it’s hardly revolutionary.
Challenger banks have, of course, played a key role in pushing the boundaries of day-to-day digital services, offering customers smart, fast, interesting tools to better manage their spending and set aside savings or charitable donations by topping-up payments. While incumbents have dipped their toes into this kind of innovation, they have tended to rely on the fact that banking consumers often stick to what they know – as the attendees at a recent roundtable hosted in London by Atos and The Banker reminded us.
 Open Banking 2019 Review, Open Banking
When it comes to more complex transactions, such as applying for a mortgage, there’s still a long way to go. Existing processes have, for the most part, merely been digitized; banks are still only scratching the surface of a truly integrated, frictionless, end-to-end, omni-channel customer experience for mortgages or loans. For applicants today, it can be difficult to talk to the right person and retain all the relevant information in one place online; interactions can be disjointed and there are still reams of paper involved.
It’s certainly true that regulatory obligations can compromise customer experience. Bankers at our roundtable spoke of the conflicts between security measures, regulatory requirements and customer-centric service design, particularly for more complex services. Money laundering regulations, for instance, have impacted the experience of onboarding new customers. In response, there is a need to be innovative in interpreting the law correctly and involving all stakeholders in designing new solutions. Widescale channel shifts are possible: one bank has replaced the vast majority of letters posted to customers – 10 million a week – to online communications, with almost 85% of the bank’s communications now online.
Next wave of disruption
With the impacts of open banking still being assimilated, banks may only just be starting to view it as a platform on which to differentiate themselves. We’ll see innovation to deliver customer journeys less around banking and more around lifestyle goals, such as travel, relaxation and getting more from their money. Challenger banks are already active in this space, offering services, often targeted at younger demographics, to help with better financial planning, such as an in-app option to switch energy providers. Yet what’s ahead, with the advent of open finance, will bring even greater disruption. The ability to model and offer advice on a collated view of all assets and liabilities will change the competitive landscape – and place even greater pressure on incumbents to respond. With more and more open data available, commissioned services will emerge that analyse the entirety of a customer’s spending and identify where they can save money.
As this new wave of disruption hits, success for institutions will depend on taking a fresh look at their business models and customer journeys to identify the value and the pain points, use data, analytics and artificial intelligence (AI) to understand individual customer needs, and implement point solutions that deliver commercial value while putting customers at the heart. One prevailing industry issue is the need to win and build trust, which will only be helped by banks bringing to market services that are relevant and add real value to their customers.
Employees are critical on this transformation journey; as we know from our work with customers at Atos’ Customer Experience Labs and through our voice-of-the-employee programmes, they have invaluable frontline knowledge that can be critical to service redesign. Employees are also, even with digital, the face of the bank; the relationship manager model will still exist, and employees can play an important role, for instance, in explaining to customers the benefits of open banking.
At the same time, the challenges of legacy systems and siloed organizations must urgently be addressed through digital transformation. And collaborating with digital service providers and niche partners will help drive innovation. With recent regulatory and technological changes levelling the playing field for new competitors, now is the time for retail banking operations to re-set – or re-start – their digital journey.