How do banks compete in today’s disruptive environment? (Part 2)

As banks continue to jostle around for growth and some even for their existence, you may ask, if things are so bad, is there really a way out? Yes, there is definitely a good way to work these out. Well, there are so many banks from around the globe, which have successfully been able to figure out this Holy Grail. But these banks need to start thinking and get going right now.

We spoke about Product Bundling being one of the ways to remain customer centric and generate more revenue per customer and increase customer stickiness.  But will the traditional product bundling (only banking products & services) serve the purpose? Will they not become commoditized over a period of time? Yes, they will. However, a point to note is that this concept is still picking up with the banks and financial institutions. They are slowly gravitating towards this. So there is a long way to go. However, what happens next, how do you still innovate and remain customer centric? To find an answer to this, it might be useful to think like a retail super mart – bundle banking products & services with luxury items or services or lifestyle services, like a lounge access or a spa voucher. This aloud, what your target customer would like / prefer / need. Like, for an expat student, it might be beneficial to bundle a checking account with foreign inward remittances and top it up with a mobile sim card. Again, we have to think what our customers want. With changing lifestyles, customers are looking for these lifestyle defining services. It might be a good idea to bundle a credit card with a Formula 1 lounge party access coupons and behave like the Godfather – make him an offer, he can’t refuse. Well, make it enticing enough, for sure.

Today’s customer wants to be recognized for the overall value he brings to the bank – not only in his own capacity to use bank’s products & services, but, also through referrals. He wants to be given due credit (either monetarily or otherwise) for additional customers he brings. Not only this, today banks want to have a system which integrates with the facebook data feed and customer enjoy benefits for any recommendations they give to their friends to use the bank. This is another innovation around customer centricity that banks are planning to target across the globe. And why not, with more than a billion users, facebook is a ready pool of potential customers.

This eventually becomes the story of value chain banking (a step up of supply chain financing, which is a subset of value chain banking). You want to target the complete value chain – whether it is a household or a traditional corporate supply chain or a corporate and its employees. You want to give benefits to the employees of the corporate which has a good relationship with you. You want to allow loyalty points transfer across the household or you want to give some benefits on the mortgage, based on the overall credit card spend the household has. In the SME side of the things, the Director of the SME is a SME customer as well as a High Net Worth customer in his personal capacity. You want to target both of them together and give him some benefits to garner both sides of the business.

These kinds of pricing or loyalty benefits can be used to drive customer behaviour. You want to incentivise the use of a particular channel in which you have invested a lot; you may want to give pricing benefits to the customers who use that channel. Similarly, you want to force your customers not to do transactions during a certain time of the day, say, for fund transfers at branch, you want to desist your customers from performing these transactions during lunch hours, as the load increases considerably during this period. Or you want to charge cheque pickup for interior locations at different rates when compared to near locations. These kinds of pricing innovations to drive customer behaviour become essential to be competitive and remain relevant and creative.

With the widespread advanced mobile technologies, customers have access to everything on their palms 24 X 7, hence, they expect actions in real-time as well. The moment they act, a reaction should happen from the bank. However, traditionally, all bank systems are designed to work in batch mode – end-of-the-day batches typically, and in certain cases, even end-of-the-month ones. Then how as a bank you meet this expectation, becomes another question which needs answer and quickly. This can be addressed with a system which is capable of handling transactions in real-time and dynamically. This can be moving the customer dynamically from one offer or pricing to the other, as his business parameters or expectations or experience changes. All this will be equally complemented by getting all insights on the customer behaviour and transactions in real-time.

There is another way to look at complexity in product offerings at a bank. A savings account is a traditional deposit account and you top it with certain services, you call it Silver Savings Account; you give certain additional services to Silver, you call it a Gold Savings Account and similarly, a Platinum Savings Accounts comes with certain additional benefits and services. And as a bank, you market them as 3 different products. Well, for marketing, this is fine and works well. However, when it comes to systems, where these products lie, it becomes very tough to manage and control. Imagine, what happens when you have 5-7 different variations to each basic product and the total goes beyond 1,000 in a small bank. For the base product processors and core banking systems, it is an operational nightmare to maintain these products. And with the needs of the market, this number is ever increasing by the day. You need an efficient product management system – a system which will house all the variations to all the base products. A system where all the benefits, all service variations and definitions will be stored. This will encapsulate everything from the core systems and make them light and allow them to do what is required of them, to process the transactions. You need product management, which is quick and responsive - speed to delivery / execution becomes critical.

Essentially, in today’s ever changing market dynamics, to compete and grow at the same time, the need of the hour is an “Agile3” Strategy – Agile Systems, Agile Product Management and Agile Processes. All these in tandem will manage the customer experience and help orchestrating it across all delivery channels seamlessly. And this will drive customer centricity, as we say.

This the second and the final part in this series.

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