Retail Banking supplement: Rotten to the core
Written by Duncan Jefferies
Core banking services lie at the heart of a bank’s operations: the ability to make financial transactions, apply for personal loans, credit cards and mortgages, or simply get a statement – these are the kinds of basic functions people expect from their financial provider. Once upon a time the bank might expect a little loyalty in return, but in today’s challenging market this can no longer be guaranteed.
According to a recent survey of banking executives by Accenture, 59 per cent reported decreased customer loyalty since the financial crisis, while 63 per cent claim their customers are more price sensitive and are “shopping around” more frequently. These figures seem to suggest there has been a power shift between banks and their customers in the past few years. Andrew Grigg, senior executive and core banking expert at Accenture, believes it is primarily due to an erosion of trust between the banks and their customers. “They are no longer quite so wedded to their existing relationships,” he says. “They are effectively seeing banks somewhat afresh.”
Online comparison sites have made it easier than ever to see what is on offer at rival institutions – a few clicks and a list of interest rates, balance transfer offers and more is available.
But Grigg feels the situation has been exacerbated by the shift away from customer credit post-crash. “There has been a material reduction in the amount of credit, either precipitated by the banks putting the prices of credit too high, or because customers have become more risk averse. As the relationship is changing, so customers are no longer quite so credit dependant on banks. Therefore it is more easy to transfer
However, as Barry Dark, managing director for EMEA, Fidelity Information Services, says, customer loyalty is not always about the numbers. “To me it has always been a question of inertia: are people actually willing to go the next step, to actually walk to another place or go through the process online to open a new account?”
Not always perhaps, but it seems clear that many customers are increasingly likely to at least flirt with other banks. Grigg believes the relationships that last will be those that feature lots of interaction – but on the customer’s terms. “Typically the relationships with the banks have been: you have to go into a branch, you have to use their internet site, you have to use their call centre – all very different experiences, and more setup for what the bank wants to do rather than what the customer necessarily wants.”
A strong multi-channel approach to core banking services is the key to providing the kind of customer-centric interaction that sustains loyalty. Peter Scott, head of retail banking at Misys, says it is now “critical” for banks to have a unified view of their customers and thereby offer a consistent experience across all channels.
“Any core banking system that you've got in place has to provide a single customer view,” he continues. “If you’re working in a branch, you want to know whether the customer made an online application for a loan half an hour ago. If you’re operating in a call centre, you want to know whether or not the customer has got insurance in place for their car, based on a car loan that you did for them two months ago.”
It’s not just the bank’s staff who need access to this data – customers want all their information shown in one place as well. But as Scott explains, “A lot of the more traditional legacy applications in the core banking space simple don't have the SOA pedigree that allows them to do that. There isn't the necessary sharing of common master data records that facilitates the removal of the silos and the presentation of that data.”
Mark Gunning, strategy and marketing director, Temenos, admits that a lot of banks move off their legacy systems “in order to simplify their environment so that their customers have a simpler and more joined up experience”.
To deliver this they also need to indentify the points during their most well used processes where customers often jump from one channel to another. “Let’s say a customer is going through a mortgage application online and they get stuck, can they just walk into a branch and the staff will know what they’ve already submitted on the application? That’s one example,” says Chris Gibson, director, financial services, Navigant Consulting.
Lloyds operate an Enhanced Security Authentication system that works cross-channel: when a customer sets up a new recipient, credit card payment or standing order, they receive an automated call to ensure the instruction is genuinely coming from them, a process which takes less than a minute to complete. “That to me is smart,” Gibson adds.
Despite the increased focus on online banking, the branch is still a very important part of the multi-channel equation. “People open current accounts for two reasons: trust and accessibility,” Gibson continues. “And no matter what way you cut it, customers still want branches: they see that as accessibility. But there’s definitely a new generation coming through who will be happier using different methods.”
For many people of this generation the smartphone has replaced the desktop as the primary tool for accessing the internet. Thus in future it will become increasingly important for banking services to be easily accessible through smartphone apps. “It’s going to be a base requirement for some banks,” says Dark.
Understanding the customer better, and thereby improving your core banking processes, requires good customer data. “It’s not just for cross-selling,” Temenos’ Gunning continues, “but also retaining opportunities – looking for reduction in business and trying to find out why before you lose the customer completely.”
Cross-selling opportunities are still a primary reason for collecting data, however – the classic example of using customer data for cross-selling is the supermarket clubcard schemes, which Grigg describes as “miles away from what most banks are doing”.
New entrants to the banking space, not least the supermarkets themselves, will have the advantage over traditional banks in many other respects, as they are not hamstrung by legacy systems developed on an ad-hoc basis. “They have the opportunity to select a completely modern technology platform, not just to process the back office data, but also to really underpin whatever their approach is to their unique customer service offering.”
As Gibson says, “You get some game-changing things coming out of that situation, like Metro Bank with their current account application process – a customer can leave the branch in 15 minutes with a debit card and a cheque book.”
A traditional bank may have one core system for lending, another core system for current accounts, and another for mortgages. “This means you have not only the deficiencies of the core system, but then you also have to try to knit them all together to deliver a consistent customer proposition,” says Grigg.
Replacing these legacy systems is not an easy thing to do. “It’s been likened to changing the wheels of your car as you’re heading down the motorway,” adds Misys’ Scott.
Misys created the BankFusion platform to get around this problem. Scott describes it as a renovation technology. “We open up the interfaces of the existing applications and then we put a coating of BankFusion on top. That means you can start building new processes, using a graphic design capability, and extend the life of the products that you've already got. All of your legacy investments remain protected, but it gives you additional business agility.”
High Street banks still have a trump card to play, however, when battling for customer loyalty with online banks: their branches. “Even if people bank online quite a bit, they
may take some comfort in having a broad branch network that they can fall back on,” says Dark. “We’ll have to wait a while to see the success of the new institutions and see whether consumers are really going to abandon some of the traditional banks en-masse.”
Metro Bank ready for business with Temenos T24
The first full service bank to enter the UK banking market in over a century launched in July, with help from Temenos T24. The bank aims to provide customers with extended opening hours at its branches, a 24/7 London based call centre, online banking facilities and rapid account opening services – debit and credit cards can be issued in 15 minutes.
The bank chose the Temenos T24 Model Bank platform based on its operational speed and cost to market. The Model Bank platform embodies pre-configured, best practice products and processes, and provided Metro Bank with a single, out-of-the-box solution. System deployment was completed in just nine months.
“T24 gives us a competitive advantage by delivering the functionality we need to support our UK business model on a single software platform, which keeps costs low and delivers a single customer view that allows us to deliver superior service to our clients. We want to build fans, not customers; with Temenos we have a world class software provider which will help us achieve this and will significantly contribute to our success in this market,” said Vernon Hill, co-founder and vice chairman, Metro Bank.