Written by Scott Thompson
So, how was it for you? Scott Thompson looks back at 2011 and asks those in the know: how did the financial services sector fare and what were the key technology developments?
For the financial services sector, it’s been a year of technology innovation mixed with a crisis of confidence and uncertainty about the future. The industry remains in the grip of regulations, there are concerns over risks in the system and challenges in incorporating change. On the innovation side, there were genuine stirrings of a revolution in the way consumers interact with companies and how they pay, with significant developments in such areas as mobile banking, NFC/m-payments and social media.
For Wil Cunningham, disaster recovery consultant, Lloyds Banking Group, it was all about the money - what could companies/installations afford as they faced up to a potential slide into recession and/or the government mandate banking reform or the CFC penalties on datacentres? “Many of the UK’s large financial installations are either emerging from integration, in the midst of divestment or going through severe cost challenges - forcing them to outsource etc. I think the amount of new product spend will be greatly reduced until these big mandatories are dealt with,” he says.
For Martin Newman, a multi-channel consultant and CEO at Practicology, who has been working with financial services institutions in 2011 on their online offerings, the key words were ‘trust’ and ‘confidence’ or rather a lack of it. “These are the key things in consumers’ minds right now. The brands that are addressing this include first direct in the UK and Westpac in Oz. They leverage their ‘soapbox’ and ‘truthpod’ to give consumers a voice and to highlight both good and bad experiences. This makes them appear transparent and honest,” he says.
first direct indeed scored big in this area, powering ahead with its crowdsourcing initiative. first direct Lab will be updated every month with product designs, service innovations and website concepts. Users will have the chance to critique the content with feedback going to the product or service teams before release. At launch, the content included concepts for a website re-design, a consultation on the use of QR codes and an early version of a mortgage comparison smartphone app.
“I’ve seen a big move over the past year or two through marketing communications and digital to sell and educate in an entertaining way. You might call it edutainment. Take the meerkats! Not only have they driven sales and huge brand awareness compare the market, but they’ve also now driven additional sales through the merchandising of these pesky little critters! So anything that can turn what was a very un-engaging and quite cold financial product and build a personality around it will drive engagement and sales,” Newman adds.
As social media finally showed signs of justifying the hype, so too did mobile payments. Citibank, Visa, and Google’s Google Wallet introduced the world to wave-and-pay systems using NFC. Widespread adoption of NFC has been hampered by a lack of co-ordination between the mobile networks, banks and retailers. Nevertheless, with financial institutions, phone manufacturers and payment providers starting to come together, its promise is soon set to become a reality, according to Alan Moss of VeriFone. “Thanks to NFC phones, the mobile wallet is no longer a question of ‘if’ but ‘when’,” he says.
One in five smartphones are expected to be NFC-enabled by 2014 (Juniper Research) and research shows that 25 per cent of people are already willing to pay by phone. Recent figures also indicate that mobile payments will reach almost $630 billion by 2014, so the race is on for operators, financial institutions and phone manufacturers to be the “NFC King”. However, Moss stresses that putting devices in the hands of consumers is just one of three key challenges driving adoption. These are the availability of applications and services for consumers and NFC-enabled PoS payment devices. “All three are significant challenges for the industry; however, making NFC PoS payment devices available is the biggest challenge according to VeriFone. Banks need retailers to get behind this, but that doesn’t mean they should wait. NFC is inevitable and banks need to be prepared to invest in or develop a strategy for NFC acceptance devices and roll-out. The alternative is losing customers when this goes mainstream.”
Moss concludes: “Without the collective force of the retail industry providing the infrastructure necessary to make and take m-payments, the number of NFC-enabled mobiles will be irrelevant and m-commerce forecasts worthless. It’s time for mobile companies, financial institutions and major retailers to start aligning NFC strategy now, in order to exploit the full potential of m-commerce; to make the mobile wallet a reality for customers.”
Many had predicted that Apple would fire the bandwagon into life by including NFC in its next iPhone. This would make the technology instantly accessible to tens of millions of consumers around the world and turn the m-payments market on its head. Alas, it was not to be, the NFC-free iPhone 4S arriving with a whimper in October. “It looks like the calm before the storm - will the take up of these technologies be an explosion or a trickle? McDonald’s switching to contactless should be a trigger for the many but is the ceiling too low to make it worthwhile for other companies - and given the current crisis in confidence - who will invest whilst the world is in turmoil? That said, when Ikea decide not to make bookshelves anymore - it shows a significant switch in how people are buying their books,” observes Lloyds Banking Group’s Cunningham.
“Undoubtedly, NFC and tap-to-pay are hugely significant as they change consumer behaviour. Not only is mobile the game changer but touchless payment is too,” adds Practicology’s Newman. He also believes that self-service is gaining traction and improvements to the user experience will further increase adoption over time. “Like retail, a number of financial services players have chased social and made the mistake of believing it to be an acquisition driver and monetisation opportunity. It can be the latter but only when it’s pursued as a service and engagement driver with the focus on customer retention. I think that the area they should really focus on is Twitter for customer service as customer expect instantantaneous responses and on the channel they’re engaging in, but also forums and blogs. Banks and other financial services players need to pay very close attention to what consumers are saying about them online, so they need to ‘monitor the buzz or the noise.’ Adoption of live chat continues to increase and drives much better service and therefore drives sales and service.”
That’s a view backed up by Merlin Stone, head of research at The Customer Framework and a leading expert in customer management. He says that the drive for productivity throughout the sector will see big investments designed to allow self-service to be more successful, discerning and engaging, rather than a rather vanilla-like interaction with suppliers. “At the moment technology-led competition between the banks is somewhat muted while they await the recovery of some of the key players from the mess they got into. However, I can’t help feeling that here, as in so many other areas, the interest has moved to the Far East, where customers are in many ways much more innovative, and financial services suppliers with them - though not in all respects. Financial advisors and planners will have to invest in much more automation if they want to stay afloat, or shed large numbers of less well-off customers, due to the impact of the RDR, so we can expect this to drive consolidation and sharing of systems, and perhaps more innovative platform developments.”
What lies ahead?
From a technology point of view, what does 2012 hold for the financial services sector? Practicology’s Newman recommends that we keep an eye on iZettle, the Swedish start up which this year launched a mobile payment app for the iPad, iPhone and iPod touch. The system, which turns mobiles into card payment terminals, is similar to that of the much hyped US venture Square, headed up by Twitter founder Jack Dorsey. “It’s a payment method enabling anyone to take credit card transactions. So it will be a driver for c2c (consumer to consumer commerce). Previously if you were selling a watch, your sunglasses or your car, if you were hoping to do this directly and not through eBay you’d have to rely upon the purchaser’s honesty to some extent, particularly if they were paying by cheque or bankers draft as opposed to by cash. I believe 2012 will see payment by mobile moving from a few early adopters to a larger trench of consumers adopting it due to its convenience factor. Although we’re still a year or two away from seeing mass market adoption. Online personal financial management will be a big driver moving forward with consumers wanting to take direct control over all of their finances.”
Lloyds Banking Group’s Cunningham predicts a growing confidence in the cloud. “But maybe a better definition of the TOM - ie cloud for testing and development as a first , less risky step - especially for major financial institutions. And the mandatory ring-fencing of retail and investment banking - how are we going to achieve that and reverse decades of evolution in financial institutions?”
Nick Ford, global consulting practice head, payments, Logica: “Liquidity management, growing regulation (such as SEPA, the PSD and Basel III) and payments for corporates are all going to continue to play a big part in 2012. These new regulatory requirements demand frequent reporting, real-time data, and quantitative accuracy. Banks will need the right technology and architecture to provide comprehensive reports to the regulators and to give full visibility of their cash flows. Finally, 2012 will be the year when institutions have a re-evaluation of systems they are using. There is opportunity in outsourcing to help clients restructure their cost base from fixed to variable. There is going to be much more consolidation in the industry with many institutions re-examining whether insourcing or outsourcing solutions and consulting can add long term business value.”
It’s been a tough year, with many financial services organisations reining in their technology spend as the sector as a whole waited for the big hitters to wrestle free of the mess they found themselves in a couple of years back. But there have also been a number of positives, particularly in the areas of social media and m-payments. Many will be glad to see the back of 2011, painting it as a brutal and bloody 12 months of regulations and fines and awful headlines. Others will view it as a significant year which laid the foundations for bigger things to come.