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.

Enterprise Loyalty for banks and financial services – Part 2

I strongly believe Loyalty should be more than just point calculation and gift redemption. Banks should use Loyalty to give a fair deal to their customers. This in turn can deliver on capturing share of the wallet and increasing stickiness.

A loyalty program should allow banks to establish a 360 degree view of their customers, by looking holistically across multiple dimensions – Customer relationship value, relationship tenure, product ownership and usage, desired channel behaviour. In fact, loyalty programs should allow a blend of customer’s demographics, banking behaviour, needs to deliver on loyalty. This should be a program which uses products, channels, and customer demographics as a mix to achieve holistic rewards program success.

Such a holistic loyalty program will use a harmonious combination of various “customer attributes” like – customer segment, age, lifetime value, credit rating, demographics, etc; and, “account attributes” like – account type, balances, currency, etc; along with “product attributes” like – product type, frequency of product used, no of products taken, etc, and, “transaction attributes” like – transaction channel, location of transaction, time of transaction, etc. This combination will assign rewards for a desirable behaviour and no rewards (or even deduct) for an undesirable behaviour.

These rewards can ideally be accumulated and used against benefits which can be broadly classified as – financial or lifestyle rewards (monetary or non-monetary, as mentioned in my previous post). A lifestyle reward can be anything from – gifts from a catalogue, movie tickets, gift vouchers, lounge access, etc. And a financial reward can be cash back, fee waivers, discounts, special price plans, higher free limits, etc.

Loyalty program would also give flexibility to accumulate rewards on multiple grounds. Banks can reward their customers contextually on events, transactions, even lifecycle. One should expect capability to reward for customer birthdays, anniversaries, new year, festivals, etc. These events can potentially lead to more sales and transactions. Banks may also want to reward their customer for relationship anniversary, or may be a new product subscription. Such a holistic program also drives customer experience.

Given the market around us these days, the banks can go all out and develop relationships across multiple lifestyle franchises to deepen their redemption catalogue. These can be Jewellery, Hotels, coffee shops, Air Miles, restaurants, gym membership, lounges, club membership, etc. All such redemption options not only gives customers options to choose from, it also strengthens the loyalty program and goes a long way in creating a strong brand value.

To add to this, a holistic rewards program should allow for points adjustment, points transfer, points aggregation, points acceleration and even points expiry. This is something that again adds to the depth of the loyalty program and drives customer experience again.

A loyalty program should also give banks flexibility to run partner or merchant loyalty program as well. This should be run as usual customer loyalty scheme for a single partner or merchant. These schemes can be run as multiple tariff schemes for revenue share or commissions. Banks can even reward their merchants to do more transactions with you.

Another use of a holistic rewards program can be using it for Sweepstakes or Raffle draws for customers. This again goes a long way in building the customer relationship and stickiness.

All in all, a holistic rewards program should enable banks to get close to their customers and align the entire organisation around the mission of enhancing overall customer experience. It should bring in competitive advantage, improve operational efficiency, and enhance overall revenues and overall drive up overall customer satisfaction.

Enterprise Loyalty for Banks and Financial Services - Part 1

When we speak of loyalty and loyalty points, most of us today would know what I mean. Not only that, one is quickly reminded of a credit card and a POS machine J Traditionally for banks, loyalty was synonymous with credit cards and vice-versa. As end consumers of credit card facilities, we always associated a credit card with the loyalty points and benefits that it would bring. And we were or even today happy using such loyalty points against some gifts or merchandise or voucher, etc.

Keeping the omnipresence of credit cards and their loyalty points away for moment, let’s understand what loyalty is and why one needs it.

Literally speaking, “Loyalty” would mean, “being loyal to someone” and hence, continuing the relationship. Well, banking relationships are all monetary and not so much by conscience. And with the ever growing competition, how does one make sure, their customers are loyal to them and stick to them and continue to do and bring in business day in and day out for long-long years? Well, that is where you need a holistic rewards solution which can help you meet your objectives. You give a monetary or a non-monetary benefit as a reward for being loyal and drive desirable customer behaviour in tandem.

Not only this, with growing financial literacy among customers and ability of customers to consummate easy and real-time information over social media, they also think holistically across their banking relationships. They also think that they should be rewarded appropriately for the overall relationship and not just credit cards.

All such market and customer driven behaviour dictate a need for a holistic loyalty program for a bank. Such a program should definitely cut across all the banking products and services (including credit cards) and help the bank achieve their key broad objectives from their loyalty program.

Using a loyalty program, typically, one would want to “Reduce churn” by retaining the existing customer base and help wade through the competition. One would also want to “Increase revenue” by increased use of products and services and increase share of wallet and support cross-selling. And overall, one would surely want to “Attract new customers” by an attractive referral program and incentivised marketing program to aid direct walk-ins.

A loyalty program would have 3 basic tenets around which it will revolve – Transact – Transact and capture all the transactions that a customer would do; Earn – Earn loyalty benefits or loyalty points based on the nature of the transaction; and Transaction more & Redeem – Transact more and increase your earnings and then use these earnings or burn these earnings or redeem your earnings against certain set of benefits, both financial and non-financial.

A loyalty program would also give you a chance to drive a desirable customer behaviour and test and create opportunities. Let’s take simple customer behaviour, say, “purchase of a new product”, to understand this. A typical “call to action” could be – “Buy Product X and receive Y points”. By such a call to action, you are driving your customers to buy that product. You are enticing them to gain those loyalty benefits by purchasing the product. This not only gives a chance to generate more revenue by sale of a new product, but, also gives a chance to deepen the relationship and increase share of the wallet. Let’s look at similar such scenarios.

Another key desirable customer behaviour is “increase in spending” and you may ask your customers – “Spend X with us within this week and receive Y rewards”. This is a very common strategy to increase spending. At times, banks use it to increase credit card transaction volumes over a short period of time. This gives an opportunity to increase average spending and have a psychological edge, where the customer feels related to the bank. On the similar lines, if you use such a strategy over a longer period of time, it has a potential to change the customer behaviour and further deepen the relationships. It also helps reward long-term relationships, which in turn creates more brand value.

Such a holistic loyalty program can also help banks drive their customers towards low cost channels like internet or mobile banking or ATMs. All that banks need to do is add channel of transaction as a parameter to drive rewards or even disincentive undesirable behaviour. Banks adopting such a strategy have been fairly successful in achieving their objective to move away customers from costly channels and allow them to self serve.

To increase volumes and create recurring sales, banks usually would entice their customers to transact a specific number of times in a specific time period. They would usually say – “Do A of X in Y time to get Z rewards”.  Such strategies can help drive products like bill payments or fund transfers. There are many such strategies which can be adopted to drive desirable customer behaviour and achieve other objectives from a loyalty program.

Revenue Management & Business Assurance is strategic to success at all times

How often do we hear from the banks that business climate is tough and hence, lack of growth? How often we see the central banks commenting on the liquidity situation locally and globally? You may ask, why globally for a central bank? Well, no economy today is separated from what is happening in the Middle East or how the US or the Euro zone react to the interest rates and affect the financial markets globally. Some Arab Spring in the Middle East may lead to a regional turmoil, which affects the global crude oil output, thus, pushing the crude oil prices to unprecedented levels. Or the US Fed announcing the pruning of the QE program, sending the global financial markets into a tizzy. And locally, of course, there are multiple factors at work, which may put financial markets at risk of losing control and growth.

Top up these challenges with the most critical of them all – customer. The customer expectations of a bank have completely changed and they are increasingly being compared with other organisations they interact with – retail, telecom, for example. The ease with which a customer can change banks has increased tremendously. With just a click of a mouse or a phone call, everything can be done. It has become as simple as that. In such a challenging environment, increasing customer value is not only the key to growth, but for survival too.

Again, keeping the customer at the fulcrum of all decision making is becoming essential. For banks and financial services organisations, increasing customer centricity means creating and offering innovative products and pricing strategies – the ones that suit the customer needs and keep him to bank with you.

Convergence of business domains, business models, brings in another complexity to the banking world. Today, telecom operators are also providing banking services, albeit very basic ones. But, it will be only time that they start behaving and offering what a universal bank will. Consumer retail is another example which is tinkering with offering banking services like payments, etc Then convergence of technology is also happening these days, the technology used for high speed phone networks is being used as a core feature in banking infrastructure. Banks are also increasingly becoming real-time, gradually, reaching a stage where they see other industries being already there.

Consumers whether in banking or otherwise, are increasingly demanding remote channels to transact. This digitisation produces disruptive business models that require swift responses. This also means capturing new revenue streams and optimising these digital channels. And all this is to be done in tandem with proactively managing risk, maximising operational agility and maintaining the margin controls.

All this can be achieved by putting in place a comprehensive Revenue Management & Business Assurance solution. A solution which not allows you to managed and get the best revenues, but also helps you to manage your business risk, maintaining compliance and managing operational risks alike. This solution should be seen as something which will help increase enterprise profitability, promote sustainability and meet the challenges of a demanding business environment.

Revenue Management is a holistic and strategic approach to product management and optimisation of revenue, profit and customer value.  It involves accurate, timely and effective pricing of products and services and Omni-channel delivery of customer experience.

It encompasses a set of core business and system processes, from increasing the wallet share through customer retention and loyalty programmes and product cross-selling and up-selling, to capturing of new revenue streams through quick roll-out of product variations and offers.

It is essentially customer centricity – generating and selling personalised offers. An offer with right product at right price through right channel, at the right time, and all at the optimal / right profit margin, thereby, leading to enhanced customer experience leading to better engagement and loyalty.

It also entails using the entire value chain within the customer ecosystem to capture the full possibilities from it. It could be proving flexible settlement structures to facilitate revenue sharing and transfer pricing, or delivering the capability to determine the exact value contribution of the partners.

It is the way to look at offering a package to the customer at an optimised price to meet all his and your requirements at the same time.  It is a way to incentivise your customer and drive his behaviour accordingly. Discounts can be given on deposit fees during off-peak hours and this helps you to manage risk and load at the same time. Similarly, interest rate discounts on home loans can be offered based on the relationship of the customer, his total product usage, risk profile, etc. All such offerings, go a long way in driving customer delight and helping you maintain your margins at the same time.

Revenue Management is a way to be customer centric and be inside-out, rather than being outside-in. Offer what the customer needs, instead of selling to him something from outside, which he may or may not need. This approach improves the customer experience extensively and leads to customer stickiness and increased wallet share.

On the same lines, Business Assurance becomes another key component for sustainability, growth and performance. A comprehensive business assurance in a nut shell is management of enterprise wide risk by a comprehensive single customer views, product profitability and potential risks.

Business Assurance is a set of systems and processes to ensure structures, processes, systems for revenue management work together to manage risks, eliminate revenue leakage, maximise margins and deliver analytics to meet regulatory and compliance requirements. It allows data collection at individual transactions, helping to manage compliance to regulatory controls such as anti-money laundering.

It offers the capability for smooth integration of internal external systems, driving complete transparency, leading to operational optimisation and agility to drive informed decision making at all organisational levels. It can also allow managing the margins by allowing threshold pricing to achieve the margin targets.

Such a comprehensive Revenue Management & Business Assurance has to be a part of the strategic plans of the banks and financial institutions to maximise returns in such a complex and demanding environment.

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

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.