Bank revenues for the future

As banks emerge from COVID-19, sooner than later, they will have to think of revenue and profitability. The traditional business avenues of lending and fees, will be in short supply, given the economic uncertainty all over. Banks will have to move away from just being the seller of financial products and services and start behaving like a trusted financial advisor (or may be a financial planner to start with). And what better time than today, when the unsurety is palpable.

Being a trusted advisor would start from being a trusted brand across all the touch points. This is the consistent delivery of brand promise across the customer interactions and behaviour. This is where banks would reach out to their customers with a focussed and personalised or contextualised service delivery.

Today is the time when customer needs support and guidance on how to wade through these times. This can be a starting point to gradually move the customer towards day to day financial planning to life cycle based financial planning. This can be done through simple goals based banking products and services, where banks can allow simple day-to-day spend based goals, like for daily expenses, to move future based goals like “travel to Hawaii”, in 6 months, to “down payment” for that dream house. Many banks already have such products and services, like we see in Australia. However, what we see in Australia is just a starting point, this needs to be taken further towards an end-to-end financial advisory to the customer. From goals for the individual, this needs to be taken up as the goals for the family, especially, when goals are pivoted around the family, like “purchase of the house” or “child’s education”. For such big investments/expenses, funds across the family are anyway pooled in. So, why not the goals? This can be a good source of funds and cross-sell/up-sell avenues for the banks and drive usage across products and services.

One thing that everyone is observing right now and are certain to hasten even further going forward, is the customer move to everything digital. With the demand for digital services going up significantly and customer experiences from other industries, in particular the digital native tech leaders like Google, Amazon, Nexflix, Facebook, Apple, etc, of the world, customers will expect similar experiences from their banks. This is where banks will have to think like these tech giants and adopt and adapt business models that support delivery of such curated experiences.

These business models will revolve around owning the end-to-end customer experience by orchestrating ecosystems. These ecosystems will be built by the banks where non-financial product and service manufacturers will co-exist and be part of the holistic customer experience distribution framework. The Open Banking paradigms that have been regulatory driven in most countries, and are being considered or evaluated at many others, are being purely looked at from the regulatory compliance lens. This is where banks will have to challenge the status quo and think beyond banking.

The regulatory regimes for open banking, where banks have opened the bank through APIs for the use by the 3^rd parties, can be used to build and orchestrate such ecosystems. Through these ecosystems, banks will earn revenue through non-financial products and services and increased customer contact and customer journeys. Customer contacts will increase by creating new customer propositions across customer journeys, more curated experiences. Such ecosystems can also help banks increase the conversion rates, by hyper-personalisation, to the extent of segment of one.

Imagine, if banks can build ecosystem for travel journey of the customer. Right from advising travel locations (based on customer preferences), to booking air tickets, hotels, local transportation, local eateries, to travel insurance, to travel card or forex, is all taken care of, and delivered by the bank, through the ecosystem that they have built. Each of these services in the travel journey of the customer, is provided to, by the bank’s partner, which becomes part of the bank’s ecosystem. To further personalise such experience (and increase the conversion rate), bank allows the choice of multiple partners in the ecosystem, which can render the required service in the journey. Customer can make the relevant choices based on her preference. This is where, banks become relevant to the customer and deliver the right experience, at the right time, and at the right channel.

Similarly, banks can look to build specialised ecosystems for specific needs. For e.g. an ecosystem for start-ups, or for specific industries like agriculture. Much would depend on where does one’s strengths lie and how much leverage one has in the marketplace. Bank’s can look to build ecosystem for SMEs, encompassing – taxation, accounting, payrolling, etc. services built in along with say transaction account from the bank.

Another way to “cast a wide net”, is to become part of the ecosystem of the large fintech players. These large fintech companies have a huge captive customer base, which would need financial products and services to meet their needs, or even to procure necessary service from the fintech. Bank can sell their products and services on these fintech platforms and enjoy the benefits of the expansive reach of these fintech. This increases the customer contact and increases the chances of a purchase tremendously. Banks can also become part of the purchase cycle at these fintech. For e.g., for a purchase of goods at Amazon, bank partners with Amazon, to offer a credit card, or even a loan to finish the purchase.

Banks can also leverage the digital services that they have built, for e.g.: digital identification, digital KYC, etc, which can be monetized when being used by the 3rd party partners or even these fintech. This is the model that banks must leverage in this open banking and open economy world, where banks would be seen as true enablers of the digital experience of the customers.

Design Thinking to shore up banking

Design thinking involves understanding your customer much deeply...understanding their needs and how and what would interest them with the bank when the product or offer is given to them...this is the true outside-in approach, diagrammatically opposite to what the banks have traditionally been doing. It is much about empathising with the customer and giving it back to them. It is the building block of improving the customer experience that banks are trying hard (or may be hardly trying!)

It is required to do appropriate research to understand what the customer wants...what his needs are...where his needs are. The years of data and analytics investments should come in handy for some initial understanding of the customer. One can even do primary research and focus groups with customers to understand them better. Imagine your goal is to acquire deposits. Directly observe, what do customers do...where are they keeping their money...what motivates them...what leads to their frustration?

In your goal to acquire deposits as a bank, important is to think of where the problem in entire lifecycle of deposit acquisition, and deposit accumulation lies? Essentially what is the problem statement to achieve your goal? It will be worthwhile to stack up the current customer experiences and see what doesn’t and does makes sense?

Product managers need to ideate all the possible thoughts and solutions and see what resonates. There should be a capability to test these out with a limited set of resources. Initially, it could just be simple simulation of various scenarios and checking them out for different situations. And then test launch with either a select group of customers, or even the bank staff, for a limited period of time. It would be interesting to keep a feedback loop, to gather the feedback and improve the offering, before its launched for good to the wider customer base.

The most encompassing theme of design thinking is empathy, and hence, the customer, as the fulcrum of all decision making. Thus, customer needs are paramount. With this belief, product managers will have a customer centred offering, which not only serves the customer’s larger purpose and drives up the customer experience, but also meets bank’s demands of revenue and profitability.

Personalisation of the product or service to the customer needs is one such simple way of applying design thinking in day-to-day banking. To facilitate this seamlessly, banks needs a process and a capability which can enable it across the products and services and customer segments within the bank. Imagine, if the bank is able to personalise the deposit accumulation offer to the customer, who does a lot of month-on-month credit card transactions, or a personalise the deposit rates because the customer utilises the overdraft facility. Important to note, it is for “a” customer.

In the open banking and open economy world, when it can be much simpler and easier for the bank to design offerings for the actual need of the customer, and thereby, own the end-to-end customer experience. Imagine, the bank being able to fulfill the entire home buying journey of the customer, where the actual need is the house, while the mortgage provided by the bank is just incidental. Other services in this journey – brokers, legal services, utilities, white goods, logistics, etc, can become part of the bank’s ecosystem and larger catalogue of products and services that the bank can offer. The customer comes to one stop shop and gets all the services in a package that fulfills his actual need.

Another way to imagine use of design thinking to banking is the movement away from fee-fleecing account based model to customer-centric value based model. Of course, the widespread digitalisation, driving personalisation and value based experiences from other industries, leading banking customers to expect the same. Such value based models are necessitated by such customer desires. At the heart of it is customer empathy and design thinking. Instead of paying high transaction fees on accounts, customers are willing to pay for personalised experience, including relationship based pricing.

Digital companies in other industries have taken such value based models to drive supreme customer experience and brand value for themselves. One such company has recently decided to discontinue the subscription and hence, the subscription fee, for the inactive customers. Their belief to charge only if the value if being created for the customer, is the defining moment not only for their industry, but for the other industries as well.

Similarly, design thinking can be used in multiple other ways to offer curated customer experiences. It is an important management principle that banks are starting to leverage and gain wholesome benefits across the board.

Gamification and banking

Are customers rational? Think about it for a moment… And you will find that like you and me, any customer is emotional at times. At times, he is logical too, but at certain instances, intuitive and inconsistent. Guess what, he gets emotional at winning a “candy crush” level on his mobile, or even at not winning one, and wants to try again, and again, until he wins. Such behavioural aspects and learnings thereof can be leveraged in the world of finance via use of gamification strategies.

Banks can leverage simple gamification ideas like “framing” – where one presents the options carefully in front of the customer and with consistent reinforcements. It could simply be offering a positive bias for a particular financial behaviour, or, a negative bias for a different behaviour. Bank can also use “herd instinct” – where banks can drive customers like a herd towards an objective. For e.g., steering customers towards a particular goal or a financial behaviour. Goals based ideas are already picking up in many markets to achieve better personal finance objectives. However, underlying principles of gamification are at play.

Banks can use gamification to entice customers to bank with them in groups and apply these behavioural biases to guide customers to an objective that is a win-win for both the sides. For e.g. a simple offer for a family, where, as a family if they spend, say, $2,000 on their credit card each month, they get bonus cash back, and if they do more, they get more. And all along the month, one keeps track of these spends at the customer or the family level and communicates regularly to shore up the required behaviour from the customer. Such simple yet powerful strategies have given banks tremendous success in the mid to long term.

Gamification is about designing the curated customer experience that matches the needs of the customer and takes them on a journey. There has to be a sense of self expression of the customer, hence, this has to be personalised, has to be competing in nature, for e.g., competing for a campaign benefit against fellow customers, and has to be transparent to the customer, especially in the progress made at any point in time.

Simple ideas like providing comparison savings rates for similar customer population, or progress gaps shown in temperature gauges, or collection and management of individual or family savings goals, can go a long way in utilising gamification to drive right customer behaviour and achieve business benefits. Imagine, the goals based constructs discussed above, can not only help customer build their emergency funds (and improve personal finance), but allow banks to get low cost funds with them.

Gamification is not just about points and badges (ofcourse, getting name on the leader board does give one a lot of satisfaction!). More and more are engaging in these games. In such times of work-from-home, even more. According to research, 53% of the regular gamers are young, between the age of 18-49, which is a sweet spot for the bank. Engage them early for a long term relationship. Bulk of them (more than 65%) play games on their mobile devices, which would have surely gone up even more in today’s world. This opens up tremendous opportunity for banks to use gamification to direct customer behaviour.

Banking in these unusual times…

World around us it totally different than what was 8 weeks back. On one hand, all countries are working tirelessly to control the spread of Covid-19 and thus limit its ever-increasing and far-reaching impact on their respective economies, and on the other, the very countries have returned to the low interest environment, to fuel in the economy, already reeling under.

All the lockdown, work from home, is already putting pressure on banks to driver better self-service digital experience for their customers. Thereby, hastening the speed of digital transformation at the banks. Banks who are thinking to drive digital experience from front to bank, will continue to survive and come out with flying colours. This would mean, banks need to be nimbler in their systems and operations, agile in their ability to respond to the customer’s requests, and in many cases anticipate the requests beforehand, and deliver a curated experience. This could well lead to complete self-service offerings through digital channels, where customers can create their experiences, their pricing plans by themselves – based on what they want and how they want, or better be, how much they are willing to pay or commit to.

Such times will surely bring in more regulation and compliance towards customer transparency and customer experience delivery. This would lead banks to be more open with their customers in terms of what is communicated, when is it communicated, and how is it communicated. Banks will have to have automated processes of experience orchestration, which is not just jazzy front-end channels, but more around product/service, pricing, offer delivery. They should be able to deliver these on-demand and still maintain the required levels of transparency and controls. The capacity to orchestrate such experiences with compliance would segregate the best from the better.

For long, we have heard that data is the key in today’s digital world. And guess what – banks have possibly the best data on their customers – be it their demographic information or their transaction data or their balance data. To top it, Open Banking adds to such already existing data, as now you can even get information on your customer’s balances, transactions with the competition next door. Leveraging this huge amount of data to your advantage is the key. Using such data to create targeted campaigns, offers, pricing, potentially using the data to change or drive the customer behaviour, is going to deepen customer relationships, drive loyalty and delivery sustainable value for both the sides.

Such data can be used to create personalised curated offers for the customer. If we can link up the household or any such network/group, we may hit a gold rush. Imagine, a bank being able to draw in funds from the entire household, by giving a personalised pricing across the household. Banks also have one of the biggest intangible assets with them – their customer’s trust! Envision the power of data leading to targeted offerings, enhancing the customer’s experience and thereby their trust in the bank!

A micro-segment (to the segment of one) targeted approach where the special pricing and offer is linked to the profitability and propensity to accept the offer, could be a game changer in these tough times. Customers get what they prefer or want, and banks get a more sustainable business for the longer term. And this potentially creates a virtuous circle of deep relationships and better revenues and profitability.

A bank in Asia, has been able to drive family-based offers to link the funds and spending across the family. This has successfully drove up the balances and card spend multi-x and has made the bank believe in the delivery of curated experiences for their customers as the way forward for their business.

Already the world over, the banks were being forced to work on better customer outcomes, and that could mean foregoing fees and delivery of better customer experiences. Such approach to banking would orchestrate the paradigm shift from the high fee model to value-based model – wherein, you charge the customer for the value you deliver. Value through what is being delivered is what the customer wants, how he wants and when he wants, and thus the customer is okay to pay for such value being delivered. This hyper-personalised, per-customer approach, coupled with the data that banks already have, can deliver the true customer experience the customers of today desire from their banks.