Digital first?

In a rapidly changing environment, UK retail banks know that omnichannel success is linked to innovation and significant investment in systems, architecture and new technologies. So, asks Scott Thompson, why are they lagging behind other sectors?

The retail banking sector is facing an unprecedented array of opportunities and challenges. Mobile banking and various other omnichannel innovations are giving banks the opportunity to transform how they serve their customers, reboot themselves for the 21st century and in doing so escape the shackles that came with the financial crisis. At the same time, however, existing players face competition from new entrants, as the FinTech boom continues apace and initiatives like the current account switching service and the introduction of the Payment Systems Regulator (PSR) aim to open up access to challenger banks, startups and tech giants like Apple and Google. (Hannah Nixon, managing director at the PSR, has said that she wants “to break open the control of payment systems, so it’s not just the big banks that control who can use them.”)

So, how are the incumbents faring? Not great, it has to be said. Recent research by Transform UK looked at the omnichannel performance of 11 High Street and challenger banks, focusing on two bricks and clicks journeys – from digital to branch and in-branch to digital – as well as benchmarking digital transaction, service and decision support functionality in branch. Barclays and NatWest led the way, the former with its coding playgrounds, digital eagles and beacon technology and the latter with its seamless digital to branch transition.

“Barclays and NatWest do a great job of sharing their digital developments with the public, and while it doesn’t always pay to go first, it does strengthen their reputations. Both have also been in the media recently for their adoption of biometrics technologies,” says Sean Lynskey, a senior consultant at Capco. “Barclays in particular has been demonstrating innovation, rather than omnichannel, with siloed mobile payment solutions such as Pingit, ahead of the Paym initiative. Barclays has also experimented with PayTag (NFC stickers for phones) and bPay bands (wearable payment wristband). NatWest has recently focused on enhancing the in-branch experience with digital signage, iPads, WiFi and trialling digital apps in branches, representing a more omnichannel approach.”

And Barclays and NatWest are not alone. Lloyds Banking Group is investing £1 billion in digital to expand its offering across investments, mortgages and commercial. “It has not only significantly improved its mobile banking app, but also launched a cashback proposition that is fully integrated into a customer’s regular spending – with no additional log-on required. first direct is also worthy of credit for a simplified channel experience, in part due to reduced legacy technology but also as a direct result of their customer centric approach with initiatives such as first direct Lab.”

Banks are generally immature, however, lagging behind the retail sector and typically offering a fragmented and channel-siloed experience with only three of those in the Transform UK study having any kind of click for appointment capability and three failing to integrate digital in-branch. James Goldhill, head of financial services at Transform UK, comments: “The truth is that even the leaders in this field like Barclays and NatWest are at the early stages of their omnichannel journey. There is still significant room for improvement for all the banks and the winners are likely to look beyond the banking sector for inspiration. Instead we expect to see them following the lead of retailers like Apple, Burberry, Argos and Tui, each excelling in different aspects of omnichannel.”

And if they fail to do so, a new generation of challengers are waiting in the wings, keen to whisk away their customers. Digital-only banks like Starling and Atom are certainly talking a good fight, as are the niche players offering single products/solutions, and it would seem that they’re catching the attention of the increasingly digitally savvy man and woman in the High Street. “Today’s consumers are always on and hyper-connected. They want to know what a bank can offer them at any time, in any place, on their own device and they want targeted and relevant offers to suit their lifestyle. These demands are only rising with the advent of low-cost seven-day account switching and comparison sites. Finding new ways to drive efficiencies and become more cost-effective in services and infrastructure will be critical to delivering an improved customer experience and helping banks to increase wallet share,” observes Joshua Lee, director at Informatica.

Merinda Peppard, EMEA marketing director at Hootsuite, flags up recent Intelligent Environments research showing that one in eight UK consumers intend to switch their bank account to a digital-only provider and argues that it shouldn’t come as a shock to the financial industry. Digital tech isn’t new anymore – people have been communicating through social media platforms for a decade and with the adoption of e-commerce and mobile payments, it’s no surprise that they find cheque books and paper statements archaic. “If traditional UK banks want to exist in the future, they must start putting digital first and offer the services that their customers both expect and require,” she says.

Thanks to tech companies like Google, Apple, Amazon and PayPal, who are inherently digital, and the highly anticipated adoption of wearables, traditional banks are at risk of being displaced, Peppard believes. Fear of breaching stifling regulation has been a factor in why traditional financial organisations have been cautious of adopting digital and social services, but with the right guidance, banks can use social and digital platforms to offer the value added services their tech-savvy customer’s desire. “Simple techniques like using social to offer customer service, or providing banking top tips through YouTube, like Virgin Money’s successful “Banking 101” series, are just two examples of how digital services can go a long way in enhancing the customer experience. Social also provides the opportunity for financial brands to better serve their customers on a local scale. Using social listening tools and defining a clear strategy means new services can be tailored to help everyone manage their money. Traditional banks in the UK have a great advantage of long-standing expertise in the financial industry that sets them apart from new competitors. But unless they are able to engage on their customers’ terms they will simply fail in the digital economy,” Peppard states.

Goldhill says that customers’ experience of engaging with retail, travel and leisure companies mean they’re more enlightened about the possibilities of omnichannel journeys. And with the retail banking sector lagging behind, there is significant room for disappointing customers. “Traditional banks are facing stiff competition; they need to find new ways to position themselves as the banking brand of choice and this requires more innovation around the branch network, digital technology and the overall proposition. Coupled with strategic decisions about which channels should be adopted, this will establish a new order when it comes to banking experience and banks that don’t invest in this future will most certainly miss out.”

Metro Bank shook the industry in 2010 when it was granted the first banking licence in over 150 years, and that was on the back of a branch (or store as they like to call it), not an online/mobile-heavy proposition. The pace has picked up considerably since then with a number of firms (many of them digital-only ventures) applying for authorisation to become banks, following the FCA and its sister organisation the Prudential Regulation Authority relaxing rules for new entrants to make the process easier. The size and scale of new entrants varies, observes Lynskey. At one end of the spectrum, divestments and challenger banks such as TSB and Williams & Glyn create similar institutions and competition. At the other, niche players offer single solutions/products that lead to the threat of disintermediation, challenging the status quo of banking services. “The question is, are customers willing to give up the convenience of the hypermarket like High Street bank? In addition, digital-only offerings from the likes of Atom and Moven offer an alternative and are able to move at pace with lighter infrastructure and governance structures. Large banks crave simplicity whereas the new entrants desire the security and trust that comes with the existing retail banks.”

The art of reinvention
Another question, does the retail banking establishment have the stomach for a fight? Or, more importantly, can it achieve omnichannel excellence while at the same time grappling with legacy and regulatory issues? It’s easy to take potshots at ageing FIs and their slow progress in this area, but the size of the task is immense. Lee believes, however, that banks have the necessary expertise and appetite for innovation. “To deliver better and more personalised banking experiences, there will be a greater reliance on the trusted, timely and accurate data that enables financial institutions to improve processes, products and services.”

For Lynskey, the greatest challenge is the tremendous amount of internal complexity which needs to be overcome in order to deliver a truly seamless journey, especially for more complex product needs such as mortgages or investments. “The banks’ crowded and often outdated technology portfolios limit their ability to move at pace. At the same time, they need to shift the mindsets of their teams to operate as more customer-centric, and to innovate, regardless of the product and channel silos they work within. As retail banking evolves, omnichannel will become a hygiene factor. Banks will need to innovate and differentiate over and above seamless customer journeys, adapting to new expectations and demands. The real challenge is whether they are able to respond quickly enough to stay ahead of the growing number of new entrants, particularly from new offerings from existing service providers such as Apple and Google. Many retail banks might do better to join forces rather than compete, as non-organic disruption through partnership ecosystems creates an opportunity to react to changing customer needs at pace, accelerating their ability to reinvent.”

Goldhill argues that legacy is something of a smokescreen. He agrees that a change in mindsets is key. “Although legacy systems and technology platforms are often cited as the primary constraining factors to developing seamless omnichannel experiences, in our opinion the real key to addressing this is to change the way an organisation thinks and operates. Products or technology alone shouldn’t drive the decisions. Customers and the experience they require need to be the primary consideration when redesigning the future of the bank. This requires teams to break out of their organisational silos, drive towards common ‘customer’ goals and consider how they can meet the needs of today’s customers, and prepare for the demands of the future. Fix the organisation and its culture and the door to seamless omnichannel is unlocked.”

All of which sounds straightforward enough, but a long road lies ahead before all the pieces of the omnichannel puzzle fall into place. As Lynskey puts it: “There is still plenty to do. Many core product journeys remain fragmented with banks struggling not only with channel and product silos in their head office teams, but also with legacy architecture, making it both expensive and slow to deliver change.”

In the meantime, the physical and digital worlds are converging rapidly and UK retail banks are increasingly behind the curve in terms of their cross channel offerings. Against this backdrop, we’ll see more and more innovative new business models looking to disrupt the status quo. New technology, increasingly digitally savvy customers and a changing regulatory landscape are shaking things up in a market that has seen little or no innovation for a number of years. Digital first, the old ways last.

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