Rising digital customer expectations advances in technology, and continued digital disruption threats from outside the industry will change the game for banks and credit unions. 2013 will be a pivotal year for eBusiness and channel strategy executives to start planning for the next generation of digital banking to both stay relevant to digital customers and thwart disruptors determined to take over those customer relationships.
Customers' digital financial expectations are high. With the proliferation of digital devices, consumers are highly connected to their financial providers. And with adoption of each new device comes higher expectations of those providers, especially among the younger generations. Get it wrong and you risk losing their loyalty.
Our app-driven world will require flexible and extensible digital platforms. Creating a durable competitive advantage, one that can't easily be copied, includes a move to open platforms. An open platform strategy will allow financial firms to use third-party providers to create app solutions that will create differentiation through a personalized user experience and segment-specific capabilities.
I’ve spent the past two days at Finovate Europe in London, which has rapidly established itself as the leading European retail financial technology event of the year. This year’s event was bigger than last year’s, with 64 exhibitors spread over the two days.
Here are my impressions from the two days:
Innovation is hard and usually incremental. Our expectations are so high. It’s easy to sit in the audience and think ‘I’ve seen something like that before’. It’s a lot harder to develop truly new ideas, let alone build them and market them. Innovation is necessarily incremental, moving into the adjacent possible opportunity as my colleague James McQuivey puts it (see him explain it on video here). True invention is extremely rare. As James puts it in his new book, “The most powerful ideas consciously draw from and incorporate elements that were being developed by others along the way, ultimately generating the best outcome in the shortest time at the most efficient cost.” That’s what makes events like Finovate so useful.
Over the past decade, BBVA has worked hard to become more customer centric and match its offerings to its customers’ needs. Given the pace of technology change, customers’ rising expectations and the digital disruption those forces cause, innovation is a critical part of the role of eBusiness and channel strategy executives. I thought I would share a few of Gustavo’s insights here for those of you who couldn’t attend. BBVA has become systematically innovative, launching a continuous succession of innovations many of which were a first in Spain, in Europe or in the world, such as:
Recently, Forrester released a report entitled “What Drives Retention and Sales In US Banking?” that tackles this question from the consumer point of view. Using regression analysis, we uncover how these drivers vary for acquisition, retention, and cross-selling in US retail banking.
What did we find? For one thing, consumers value trustworthiness from a bank above all else for both sales and retention. This comes as no surprise to us; with so many financial institutions to choose from, consumers want to do business with a bank that they trust. This finding also supports the key theme that Harley Manning and Kerry Bodine focus on in their recent book, Outside In: Treating your customers well and providing them with a positive customer experience pays off.
The graphic below shows the drivers of retention for the US retail banking customers: The perception of trustworthiness is off the charts as a driver of retention, and offering good customer service is the second-most influential driver. What our analysis shows to not impact retention — and even shows a negative relationship with retention — is having low APR and many locations.
The other day, Smile*, one of the banks I have an account with, sent me a new contactless card.
The striking thing about this otherwise ordinary event was that the bank didn’t mention that it was a contactless card. I know it’s a contactless card because it has the contactless symbol on it. But nothing in the letter the bank sent with the card so much as mentioned the new contactless functionality. Logically, one of the following must be true:
Uncharitably, it could just be that the left hand doesn’t know what the right hand is doing, and the product team forgot to tell the marketing team it was doing anything new.**
Possibly, some slip meant that my envelope didn’t contain any marketing. But there’s no mention of contactless cards on the bank’s website either.
Alternatively, the bank simply reckons that the benefits of promoting the contactless functionality are so marginal that it’s not even worth the effort of changing its standard letter (which promotes card protection insurance in extensive detail).
In our research on eBusiness and channel strategy, we often come across clusters of innovation where innovation by one company in a sector causes its competitors not only to match it, but to try to leapfrog it -- resulting in a rapid cycles of innovation. Among the examples of these clusters are insurance companies in the US (Progressive, Geico and a growing number of others) and banks in Spain (Bankinter, La Caixa, BBVA and Banco Sabadell).
Another of those clusters is the retail banking market in Turkey. Last week I was in Istanbul and was able to see some of the innovations in person and meet a number of heads of eBusiness at Turkey's big banks. Turkey's banks have been quick to adopt digital technologies and achieved some world firsts for the banking industry. Here are a few examples you might like:
Ziraat Bank has deployed a network of unstaffed video kiosks (see picture, right), which it calls video teller machines, that use video-conferencing to connect customers with agents in the bank’s contact centre. Customers can use the kiosks to deposit and withdraw money, buy and sell foreign exchange, pay bills, transfer money and buy bonds. The kiosks let the bank expand its network much more quickly than building conventional branches would do.
Royal Bank of Canada (RBC) leads all of North America.RBC again took the top spot in the 2012 Canadian Bank Digital Sales Rankings, scoring 77 out of a possible 100. It continues to tweak and improve an already good design; the bank started a major redesign in 2009. RBC continues to excel in areas big and small: For example, the firm presents fulfillment options in an easy-to-read format (see screenshot below). In 2012, Royal Bank of Canada improved its navigation, content, and online application functionality, and its score for 2012 reflects that improvement.
Citi and Wells Fargo top the US banks.Citi and Wells Fargo topped Forrester’s 2012 US Bank Digital Sales Rankings by delivering on multiple levels. Both banks combine good usability with exceptional account-opening processes. For example, Wells Fargo uses presentation best practices to make its checking account fees clear to customers and prospects (see screenshot below).
Some leading banks have already seen the number of mobile interactions overtake the number of online interactions. The evolution of mobile devices coupled with rising smartphone and mobile banking adoption is evolving banking customers’ needs and will fundamentally change the way eBusiness professionals need to view technology and customer support. We expect mobile banking to grow rapidly over the next few years, but digital banking teams will have to overcome many challenges to stay on par with Forrester’s projected growth, or risk being left behind. In our recent report The State Of Mobile Banking 2012, we help eBusiness and channel strategy professionals understand the most important trends in mobile banking, including:
Mobile banking will soon be mainstream. Fueled by the adoption of smartphones and the growing supply of mobile banking, the use of mobile banking has grown steadily over the past few years. We expect the number of US mobile banking users to double in the next five years and reach 108 million by 2017 -- 46% of US bank account holders.
Everyday banking relationships are moving to mobile. Consumers are progressing from simply checking their account balances or locating an ATM to making bill payments or transferring money to other accounts on their mobile phones. As that happens, mobile banking is displacing use of other channels like branches and online banking.
The longer we spend researching mobile banking, the more convinced I become that mobile banking is the most important innovation, or cluster of innovations, in retail banking in years, arguably in a century. Here’s why I think mobile banking is a much bigger deal than cash machines (ATMs), credit cards or home-based online banking:
In developing economies that lack a dense infrastructure of branches, ATMs and fixed-line telecoms, mobile banking and payments are bringing millions of people into the formal banking system for the first time.
In developed economies mobile banking will become the primary way many, perhaps most, customers interact with their banks. Banks need mobile banking to provide a platform for mobile payments and to protect their retail payments businesses from digital disruption as mobile payments start to replace card payments in shops.
These are worrying times for people across Europe as the euro lurches towards another crisis, with leaders talking openly about the possibility of Greece leaving the euro and reports of customers starting to withdraw deposits from banks in Greece and Bankia in Spain.
It's easy to feel powerless in the face of such powerful forces, but fundamentally the repeated euro crises are about two things: debt and confidence. Lots of individuals, small companies, banks and governments across Europe have a large amount of debt, and lenders -- depositors, investors and other banks -- aren't completely confident that all of them will be able to pay it back. It's critical to avoid a vicious spiral of declining confidence that will harm Europe's economic prospects and the livelihoods of its peoples.
What can bank eBusiness executives do about it? Remember that you control two of your bank's critical communication channels: the website and email. Use them to reassure customers. How?
Help customers understand what the crisis is about. Banks aren't just about products. Your purpose is to help customers manage their money. Help your customers understand the causes of the crisis and the reality of the hard choices facing Europe. Nobody likes realizing that they are poorer than they thought they were. Without getting political, help customers understand the situation and what it means to them.
Spell out why your firm is safe. My bank emailed me on Thursday to remind me that it's covered by the British government's Financial Services Compenstation Scheme, covering up to £85,000. Put a similar message on your home page and onto the secure site, where online banking customers are most likely to see it.