How to build a future-ready bank amidst a crisis

Consumers are willing to trade their personal info for more tailored service offerings, says Accenture's Paul Ng.

“In a crisis, be aware of the danger—but recognize the opportunity,” late US President John F. Kennedy once said. It’s a quote that banks should take heed—for amidst a time of global recession and contracting businesses, there remains pockets of opportunity to be seized that could kick-start strategies for growth.

Whilst digitisation is the obvious path for banks wishing to remain competitive in the future, a key factor for success lies not just on the cold hardware or system, but more so in the warm experience a service imparts to customers.

“In a climate where customers can easily switch banks with the tap of an alternate application, building a purpose-driven, customer-centric value proposition is critical for success,” says Paul Ng, Managing Director, Financial Services, Accenture.

Accenture’s Global Financial Services Consumer Study found that a majority of consumers were willing to trade their personal information for more tailored service offerings. This means that consumers are willing to share their data—with security safeguards in place— in return to be co-creators of their banking experience, noted Ng.

“We are seeing examples in other industries. For example, Nike has worked with local and professional soccer teams to co-design and customise a new soccer shoe for the brand. This helped Nike connect with their customers by creating value through experiences and giving customers the power to influence the things that are to be used by them,” Ng said.

Asian Banking & Finance spoke with Ng to learn more about strategies on building a future-ready bank, his outlook for virtual banks in Asia, and what the future of financial services will look like.

How can traditional banks reinvent themselves and stand out amongst the sea of new financial service providers and banking peers?
Over the past few years, we have seen new entrants to the banking market create innovative digital propositions to change the tone and nature of their customer interactions. As such, we have seen incumbent banks digitally transform and modernise their businesses. This includes reimagining customer experience to drive adoption of self-service for day-to-day transactional banking, digital payments, and digital lending. 

The COVID-19 pandemic has also accelerated by three to five years the changes in how we live and work. Digital maturity in banks will be key, with our research of the biggest banks in 21 countries showing a clear correlation between banks’ digital maturity and their financial and market performance.

However, the banking sector still faces challenges in gaining customer trust. Only 14% of consumers and 35% of small business owners turned to their banks for advice when faced with a financially impactful event. In fact, an average of five percent of traditional banks’ total retail revenue is at risk because there is a lack of trust among customers that banks will look after their long-term financial well-being. 

As consumers turn to trusted financial services brands at a time of uncertainty, banks can bring a more human and collaborative focus to their digital interactions. COVID-19 has made the need for a trust-based relationship more urgent. There has never been a better time for banks to relook their traditional approaches and embrace empathy, attentiveness, and responsiveness, moving on from obsessing about itself to obsessing about people.

Ultimately, getting there starts with refocusing a bank’s purpose on the people they work with to optimise their distribution channels and regain their advisory trust with customers. Those that achieve this will create fuel for future growth and be recognised as the best institutions to bank with.

How can banks provide customers with an engaging, personalised digital banking experience?
According to Efma, at the start of the new millennium, the majority of people’s financial interactions centred on traditional bank branches. However, in less than 15 years, over 90% of customer interactions have now shifted to digital channels such as online, mobile banking, digital wallets, and call centres.

As digital experiences become the primary method of customer interaction for many brands and services today, the importance of the human touch increases. Banks need to understand the real insights behind the data to fully understand individuals’ emotions and motivations.

The concept of hyper-personalisation to enhance the customer and employee experience is very much a part of many leading banks’ digital experience. Hyper-personalisation takes real-time customer insights from multiple sources, and combines them with technology such as AI, and VR. Investing in hyper-personalization tools is a smart strategy as companies can gain the trust of their customer base, increase the rate of conversion, and see higher rates of repeat customer business.

Digital banks can also look at introducing new innovative ways of looking at and utilising data. The key is in developing or extending partnerships with institutions that have the data and offer analytics or insight expertise. This, in turn, helps address evolving consumer needs through niche solutions and ecosystem plays.

Ultimately, digital banks should focus on creating a “segment of one” where each individual is treated as unique. Personalised services should also demonstrate value-added insight and provide experiences that strengthen banks’ brand values at every customer touchpoint.

On the topic of digital or virtual-only banks: how do you see this sub-sector or group developing in Asia in the next decade?
We will continue to see the rise of digital banking in Asia, as more governments and regulators across the region implement initiatives to encourage the growth of digital banks. It is certainly an exciting space to watch, especially with the recent announcement of Singapore’s digital banking licenses.

Southeast Asia is favourable for virtual banks for three main reasons. One is demographics: Digital only banks have made waves in markets from the EU to Brazil and the wave is now building in Southeast Asia. Virtual appeal strongly to younger Gen Y and Millennial customers, and more than half of the population of Southeast Asia is under 30. In fact, eight of the 10 member countries in Southeast Asia have median ages of 30 or lower, including Indonesia, Philippines, and Vietnam.

The market also presents opportunities for financial inclusion: more than seven in 10 adults in Southeast Asia are either “underbanked”—they have no access to credit cards or have no long-term savings product, for example—or are “unbanked” without access to a basic bank account.

Finally, it is a mobile-first region. Southeast Asia has high smartphone penetration, including a mobile connectivity rate of 133% (which means that some users own more than one SIM card or mobile phone), but only 27% of the population have a bank account. This has resulted in a US$38b opportunity by 2025 in digital financial services in Southeast Asia, including digital payments, digital remittance, lending, investment, and insurance.

Virtual banks have several significant advantages over traditional banks. They are unhindered by legacy, have lower operating costs, and are driven by innovation. As a result, virtual banks are able to provide cheaper, more convenient, and personalised services, just as virtual banks across China and Europe have been doing for the past four years or so.

In addition, virtual banks have a fundamental philosophy of “Putting customer convenience in the centre of banking services”. This is a native approach for virtual banks, but something that is difficult to achieve in traditional banking. A full digital banking experience enables customers to choose the services they like, including up-to-the-minute tracking of transactions, along with handy features to categorize expenses and manage money on the fly. From just a few data points on their customers, virtual banks can judge credit risks and often issue credit that traditional banks would not.

Whilst traditional banks have accelerated their digital capabilities in recent years, virtual banks will be key in serving two key segments—the underbanked, and overbanked. Emerging countries in Asia are home to vast numbers of "underbanked" consumers, customers who have no access to traditional banking products and services. This provides opportunities for virtual banks to gain a foothold and spur financial inclusion. With the availability of customer data, banks are able to better customise their offerings such as microlending and payments to fit the needs of underbanked individuals and businesses.  

However, Asia is a vastly diverse region, and digital banking developments (and successes) will differ based on market maturity. In overbanked markets like Hong Kong, for instance, digital banks have continued to make significant headway amid the challenges of a relatively small, heavily banked market, and slow consumer adoption of mobile payments. Though they may face a year or two of slower customer acquisition, we can expect to see a steep acceleration in growth in the coming years driven by innovation in product offering and customer experience.

The longer-term success of digital banks will depend on their ability to scale and use Asia as a testbed and launch pad for digital-only offerings serving the rest of the region and beyond.

How can digital banks improve customer engagement and stand out amongst the crowd of new and incumbent banks?
Leaders in the industry are pulling ahead by unlocking new value through the use of data, open APIs and ecosystems to create new business models and deliver what we call “invisible banking”. These banks earn bank and non-bank revenues, and they provide value-added digital services within their own boundaries and in partnership with other fintech firms.

Banks need to deliver integrated propositions, with the purpose of addressing core customer needs at the heart of their innovation. This is perhaps best demonstrated by the rise of "super apps", often involving partnerships between financial and non-financial vendors across ecosystems. Such partnerships aim to deliver value and solve for the core needs of consumers in several different ways.

DBS’s joint venture with sgCarMart and Carro is a great example where the bank has partnered the community of car-sellers to create a one-stop online car marketplace. The platform has allowed customers to buy and sell cars with ease — with an in-built calculator to tabulate the loans and paperwork necessary.

Additionally, banks and fintech startups will have to overcome practical, talent, and mindset-related challenges to seize the opportunities presented by building financial services ecosystems. Overcoming these challenges will require innovative solutions, and digital banks can look to build and bolster partnerships with fintechs and other financial institutions to capitalise on the opportunities.

In fact, Accenture’s research indicates that there will be considerable value (US$100 trillion) generated from ecosystem plays in the coming years, which means it is far from a zero-sum game. The inexorable move away from an “us versus them” mentality to an “us with them” mindset creates opportunities for all players, that will also position digital banks to thrive amid a competitive banking landscape.

What will the next frontier of financial services look like?
The future of financial services will be driven by a confluence of emerging technologies, changing consumer demands, increased competition from non-traditional banking players, and renewed regulation that protects consumers and banks in an ecosystem.

Customers increasingly want to be in control and engage with businesses only when and where they want to. In this new era, banks that have a shared-success mindset, and promote collaboration within their ecosystem will create new opportunities for growth in a way that benefits all. 

What this means is that banks will have to place themselves at the centre of the ecosystem and be relevant at all times, for all financial and non-financial services needs of customers. Accomplishing this will require building partnerships to fulfil the needs of consumers’ everyday lives. A recent example of this would be Citibank’s launch of the Citi Plex Account in partnsership with Google to empower customers with a convenient and personal banking experience.

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