Sunday, August 31, 2014

How do banks compete in today’s disruptive environment? (Part 1)

In this changing environment, changing dynamics of the market, how do banks remain competitive and deliver more to their customers? How do they achieve the double targets of keeping their customers happy and at the same time maintain ever increasing revenue and profitability growth. And above all, how do they remain customer centric? These are some critical questions that demand answer, for the banks to be able to define their strategies for their next phase of growth, both organic and inorganic.

Even though customer centricity is the buzzword in the market and being customer centric is the key challenge faced by the banks. However, how many understand what is customer centric? In simple words being customer centric is to do and sell what customers want. Thinking like one’s own customer is being customer centric. In fact, being customer centric is putting customer at the centre of all processes, all products or offerings and even people. Customers have to be the fulcrum of all decision making. Customer centricity is decision making which is outside-in, rather than being inside-out. Bring in the ideas from outside (customers) and then decide. Decide based on what your customers want.

One would ask, what enables customer centricity? Though, one needs to change their operating models, etc to facilitate customer centricity; a highly flexible system capability sitting as middle layer in a typical IT landscape in a bank can easily deliver this capability from systems perspective. This capability can enable right offerings based on what the customer wants. Imagine a right offer orchestration layer which can deliver right offers to the customers across the channels and manage the customer experience at the same time. This enables increase of the wallet share from the customer, based on relevant parameters (profitability, channel, etc).

Many banks still have their products, channels and business lines in silos, or they are partially integrated. This makes their systems product centric, non-integrated as well. Non-integrated systems prevent these banks to have an enterprise-wide, 360 degree view of the customer, which in turn prevents them to be customer centric. This cripples bank-wide efforts to improve customer experience and doesn’t allow them to adequately monitor operational and transactional level activities. These banks need a capability to introduce this flexibility which allows them to have a complete customer view – whether it is a corporate along with its subsidiaries and their complete product holdings, channel utilisation and other transactional metrics, or a husband, his wife and his children all in a single view, contributing as a household.

Such an enterprise-wide view across the value chain will not only allow for better monitoring capabilities, but will generate improved cross-sell and up-sell opportunities.  This system will allow you to actually execute such strategies by maximising the customer profitability and improving customer experience and satisfaction manifolds.

In an environment where customer behaviour changes frequently, one needs a system which can capture and manage the changes to the offers dynamically. Similarly, the pricing and other ingredients of the offer should be modified dynamically too. You need a system which allows offer personalisation based on individual customer requirements or requirements across a customer segment. It is a capability which allows more choice and less risk in terms of customer offerings.

Need of the hour is a system which runs on business rules and hence, when the customer requirement changes, customer behaviour changes, the system and hence the bank can deliver a changed experience. You also need a system which offers flexibility to manage new changes as and when such developments happen. A highly flexible and configurable system to orchestrate the changed environment becomes essential to succeed.

It’s a logical understanding that as the number of product holdings per customer increases, average revenue per customer increases considerably and the annual churn of customers reduces drastically. In fact, customer stickiness increases exponentially, as the number of product holdings per customer increases from 1 product to 4 to 5 products. This automatically, increases the total revenues for the bank tremendously. Thus, the product bundling capability becomes a key element for success in a bank. A system which can seamlessly drive dynamic product bundling to cater to ever changing customer requirements will prove to be absolutely necessary.

All the existing and old banks of the world (as I mentioned in my previous post) have many legacy systems, which complicate the situation further. They are typically very obdurate in their approach towards the new systems and enjoy the manual activities from their owners a lot. In such situations, you need a proven system which can work alongside these old systems and let them do what they do best – customer data storage, transaction processing, etc. The new system has to have strong integration capabilities, both real-time and batch.

These old systems bring some more challenges – any new change brings customisation efforts typically running into months together. Imagine a new idea that you want to test out in the market and the change is a good few months and few hundred thousand dollars away, thereby completely eroding any competitive advantage that may have accrued otherwise. Research says more than 70% of the banks take more than 3 months to introduce a new change or a new product offering.  In today’s competitive landscape, banks need capability to launch innovative product offerings faster than the competition.  You need a system which is highly flexible and parameterised and comes with a complete workflow to manage the processes and acceptance and rejection of the changes. To considerably reduce this time to market, you need a capability which allows very less IT / technical intervention, rather allows the business to try out new innovations all by themselves. Being an innovation leader not only allows you to be disruptive, but it also develops a strong brand value for you.

This post is the first post of the 2 part series to describe ways to address challenges faced by banks today

Monday, August 25, 2014

As a bank, are you being challenged by today’s paradigm?

The most fundamental challenge for any organisation, as always, is to generate strong revenues and profitability, year on year and strengthen the overall positioning of the organisation. This positioning can be in terms of brand value, brand recall, business league tables, reputation in the market, etc. All this is no mean task in today’s scenario of financial stress, liquidity challenges, increased competition which is both traditional and disruptive and of course the eagle eye of the regulatory authorities. All this becomes even more complicated with the increased data flow across the globe.

Generating good revenues and profits in these turbulent times are one piece of the puzzle. Most of the banks across the globe have ambitious expansion plans, both in their home as well as foreign markets, which they hope to bear fruit sooner than later, especially, once the economic conditions improve. Managing the customer expectations of the merged or acquired entity becomes paramount in such situations. The bank needs to make sure that the customer experience after the merger / acquisition is seamless and the offers are managed in a cohesive fashion. This is the real success of the merger activity, by all means.

Making sure, the operations deliver what is promised to the customers is also becoming more relevant in these times. Supported by better compliance and transparency throughout the customer lifecycle, banks across the world can better manage their operational risk.

Combined with these challenges is the need to remain relevant. And this is the real need to be competitive in this environment and still manage the needs of the customers you are servicing.  As the banking industry becomes saturated with products and services and hence, becomes more commoditized, it becomes increasingly difficult for banks to maintain their respective individuality as a service provider. Financial services has always been a competitive business, but banks today have their task cut out, as they differentiate not only with the existing providers, but with the steady trickle of new entrants, who are nimble not only with their processes, but technology wise too.

Customer centricity has been the buzz word in the industry for many years now. However, as the banks strive “to improve the customer experience” and “put customer at the centre of all decision making”, they still struggle make a meaningful impact in being “customer centric”. In the aftermath of financial crisis, banks are finding it tougher to make positive impression on their customers. Differentiating on price and products is becoming increasing difficult and then they face challenges of ever changing customer preferences (which are becoming quite dynamic, by the way) and increasing stringent regulations. Each customer wants to be treated deferentially and be recognised for not only the business they do with the bank, but, for also the business they bring through referrals or introductions or across the value chain.

Even though customers regard the quality of service delivery as a top aspect of their banking experience, they equally value price competitiveness, product innovation, and effective delivery mechanism. The challenge for the banks is manage customer experience holistically in these areas.

You can’t lower the price beyond a certain point, then, how do you still compete? The answer lies in pricing innovation, giving some benefits for the relationship the customer has with you. Being more dynamic and real-time in today’s world is increasing desired by the customers. If the Relationship Manager targets a customer with the same set of products that he has always been offering and which even the competition next door have, then, what is that one story which will allow the RM to get the business and remain relevant? With the ever increasing customer touch points, the delivery mechanisms are more varied and complex. The need of the hour for the banks is to offer more attentive service, integrate multiple delivery channels and make sure the offers made to the customer are consistent across the channels for superior customer experience.

The situation is exacerbated by the fact that the most existing and old banks of the world have hundreds of legacy systems, which come with their own challenges. Not that, these so called legacy systems can’t be replaced with the new age ones, they can be, however, such a desire to change, brings with itself a slew of challenges, which can be even monstrous both with planning and execution. Most of these banks have struggled to do so. And the financial strain these replacements bring to the banks, they are better left with maintaining the status quo. The business faces its own perils by living with the status quo, as the new players eat their pie and quite fast at that. The real problem is not the legacy systems by themselves, but the way they were designed and hence, the time-to-market with any new change that is desired to meet the market requirements. Typically, it can run into a 12 months cycle and thus eroding any competitive benefits that might have accrued otherwise.

But the question is – can you live with the legacy systems as is, in today’s market? For sure, not! Most of these legacy systems are typically product centric or account centric. Individual accounts grouped by product type, instead of customer-centric, grouped by customer or segment. These account-centric systems give a fragmented view, thereby restricting capability of the bank to have a holistic & single, 360 degree of the customer – which is essential for cross-sell & up-sell. Lack such capability hampers the bank’s real move towards customer centricity. Even new age CRM systems can’t do this effectively in real-time. Then, wherein lays the solution to the challenges raised by such old systems of the yore? Or for that matter, how to think of going Beyond CRM to implement what a CRM system would typically tell you?

Banks should think of how to develop a capability to be more relevant and responsive to customer needs? What would allow them to reduce their time-to-market? How can they react to competitive pressures more innovatively and timely? How can they be pro-active with their customer offerings? What is the capability that will help them meet their strategic objectives for overall revenue management? What will allow them to match their customer requirements transparently and also meeting all compliance and regulatory requirements at the same time? These are the some of the questions that banks need to ask of themselves to assess how to be truly customer centric.