The following is a guest post by Sandesh Sharanappa.
The banking industry is poised for a sea change as a result of the changing global and national regulations, demanding customers, disruptive technologies and the arrival of non-traditional players offering retail banking services. The industry faces a challenge in providing seamless customer experience, becoming truly customer centric, capitalising on social media and potentially big data opportunities. In earlier articles in this series, we have highlighted the need for banks to follow an omni-channel approach and what banks can learn from the retail industry. In this article, we will explore what that means in terms of creating new operating models for European retail banks.
Disruptions in the retail banking industry have created opportunities for innovative established players to cement their position and for new entrants to get a foothold. These disruptions play out differently within three broad segments of players in retail banking: Retail Banks, Direct Banks and Retail Banking Service Providers.
Retail Banks are a one stop shop for all consumer needs including transactional accounts, loans and cards. Although retail banks have an endemic focus on the branch, banks such as BBVA and Credit Agricole have been reasonably successful in promoting other channels. BBVA has piloted Easybank, its innovative branch model which enables self-service and improves transparency and collaboration between the staff and customers. BBVA has revisited the concept of self-service banking to create new customer-friendly ATMs. It has also used gamification techniques to encourage customers to take up online banking.
Credit Agricole has taken customer focus a step further by co-creating applications in workshops with its developers across many locations in France. As a result of these workshops, 19 mobile applications were developed within 6 months. These applications have helped Credit Agricole to rapidly identify and cater to customer needs. For example, the bank’s application store has a mobile application for visually impaired users helping them to choose suitable colour combinations and fonts. Banks in the UK tend to have more commoditised offerings and are struggling to differentiate themselves. Barclays has been leading in provisioning new services including mobile and contactless payments solutions ahead of most of its competitors.
Direct Banks offer many of the services offered by retail banks, but with no or very limited physical branch presence. mBank and Fidor are considered to be the most innovative direct banks in the region. mBank, the 3rd largest retail bank in Poland, recently launched the first phase of a transformation program covering event driven CRM, Personal Finance Management (PFM) features, merchant-funded transactional marketing, gamification, social payments and ability to talk to the bank’s experts on video. These initiatives will result in increased customer engagement, new revenue streams and improved cross-sell conversions. German based Fidor bank provides a range of services including peer-to-peer lending, e-wallet, precious metal and virtual currency trading on a single platform. Web 2.0 forms the core of Fidor bank’s strategy, approach and philosophy. The bank’s customers can interact with fellow customers and staff on Facebook and online forums. The interest rate of its FidorPay account is even tied to the number of likes Fidor page receives on Facebook. For every 2000 likes, Fidor increases the interest by 10 basis points per year, capped to a maximum of 15 per cent.
Retail Banking Service Providers
Retail Banking Service Providers are essentially e-commerce initiatives offering banking services such as transactional accounts and payment processing. Payment network services, telecom service providers and innovative start-ups are all offering a wide range of retail banking services including payment processing, wallets, alternative banking and lending.
Payment processing networks Visa and MasterCard offer a range of hardware and software services to further strengthen their dominant position. Visa and MasterCard both offer contactless mobile payment services and e-wallets. Visa is even collaborating with Samsung to introduce phones with embedded hardware support for Visa mobile payment services. Visa is also working with Roam to introduce point of sales devices with inbuilt support for Visa acceptance solutions.
Payleven, iZettle and SumUp are three of the many companies enabling merchants to accept payments using chip-and-pin and mobile devices in the European market. Between them, they cover at least 15 European markets and fulfil the primary financial services need for merchants – receiving payments. These services have the potential to eat into the banks’ share in other areas by providing new services, locking in merchants and forming closer relationships with them. Recently SumUp launched a quick set-up mobile point of sales solution enabling merchants to receive payments, generate and print receipts. Finland based Holvi offers a retail banking alternative with many innovative features such as ability to share accounts, account feeds, a built-in online store, expensing, invoicing accounts and budgeting with every account.
Telecom operators have also posed a threat to the established players by offering mobile wallets and payment services. Telefonica has recently entered into an agreement with two major Spanish banks to create a variety of digital services including a mobile wallet for online, in-store and peer-to-peer payments. In the UK, Everything Everywhere recently launched a NFC-based mobile payment service, Cash on Tap, to enable customers to pay for services by tapping their mobile phones.
Peer-to-peer (‘P2P’) lending is another area gathering momentum. According to a recent study by EFMA and Fico, customers are more likely to avail alternate sources of credit. Despite the controversy surrounding lending platforms like Wonga, P2P lending in the UK is set to grow five-fold in the next three years according a forecast by the Ernst and Young Item Club. Last year more than £200 million were raised through crowdfunding in the UK. Smaller banks like Germany’s Fidor have realised this potential and have introduced peer-to-peer functionalities.
Towards a new operating model for retail finance
Figure 1 Existing TOMs across Retail Banking Segments
Existing operating models still treat web and mobile as auxiliary channels. Transformation efforts in these models are limited by current technologies, back-end applications and processes. Established players operating in silos are being forced to make adjustments to their business models, re-work their operating models and find it difficult to develop a customer-centric culture to survive the onslaught of disruptive entrants with innovative technologies and processes. The operating models will need to converge in each of the three segments discussed, to support a strategy of increased digitisation and mobilisation of retail finance.
Figure 2 Convergent TOM
A convergent TOM will enable retail banks to capitalize on their huge resources, large customer base and longstanding relationships, and become central to the new age digital banking ecosystem.
Sandesh Sharanappa is a business analyst working for Saggezza in the UK. He is a business and technology consultant in the areas of system integration and outsourcing services in key market sectors that include financial services, telco and retail. He has a keen interest in emerging technologies in ICT4D: Information and Communication Technology for Development.