Changing channels

Is the omnichannel revolution all that it’s cracked up to be? Scott Thompson wades through the hype and asks: how are banks faring when it comes to 24/7 access to accounts and services across multiple channels?

There can be few FS sector concepts more divisive than that of omnichannel banking. For some, it’s an all-encompassing mantra to which organisations must adapt or run the risk of becoming obsolete. For others, it’s a meaningless buzzword, dreamt up by consultants and analysts with agendas to push and fuelled by tech vendors with shiny new solutions to sell. It doesn’t help that there’s still some confusion surrounding the definition of omnichannel and how it differs to multi-channel and/or cross channel. For the sake of this feature, let’s say it’s about not operating in silos and instead bringing a joined-up approach to multiple channels; the ability to seamlessly carry out conversations and transactions while all the time maintaining a single view point of the (in an ideal world, joyously happy) customer.

One thing that everyone (well, hopefully everyone) can agree on is that, thanks to the online and mobile revolutions, customers are increasingly demanding 24/7 access to accounts and services. But how are banks faring in the face of the rise and rise of the smartphone-owning, tech savvy omnichannel consumer? Matt Simester, director of cards & payments, Piran Consulting believes that they don’t do the 24/7 approach well as they are driven by technology and cost-cutting considerations. In what is a challenging environment for them, the context is actually one of consumer need and expectation. “Banks are highly safe institutions and are trusted to hold money.

Every decision is made against a safety and security backdrop and a mitigation of risk. That means increased costs and, for new methods and new products, is a barrier to market. There is an inherent sense of conservatism within banking, based on looking after people and retaining trust,” he says.

While many customers are requesting a full 24/7 service, actually the demand is not as much as some might have us believe, he argues. He cites usage patterns showing that in fact people are rarely doing their banking between the more unsociable hours of midnight and 6am, although there remains an expectation that this will be provided. That means a lot of resource is expended on what is actually a small number of customers. The expectation for an omnichannel service is that you will have a comparable experience however you access it: face-to-face, online or picking up a telephone.

But what if, outside of “normal” working hours, a customer cannot get what they want? What if they lock themselves out of their online account; how long before they can get back in? How quickly can things be fixed when things aren’t working and they want to speak to someone? “Omnichannel is important but a fundamental area is the confidence and belief that if something goes wrong or there is an enquiry, can a customer actually contact their bank to have their problem solved? I would argue that a lot of money is being spent on technology investment but there is actually ample opportunity to improve employee experience with old fashioned methods, for example telephone banking.

Remove IVRs – the poorest elements of customer experience – and get the basics right,” says Simester, who adds that first direct and Amex consistently score the best in terms of customer experience and brand reputation, with the former enabling people to switch across channels easily. “I will be fascinated to see the Metro Bank founder launch his virtual bank (Atom); building the proposition around the service and whether or not they will they build market share quickly,” he adds.

For Professor Merlin Stone, head of research at The Customer Framework, the question ‘how are banks faring when it comes to their customers’ requirements across a range of channels?’ splits into two areas: a.) access to accounts, ability to transfer between accounts, set up new accounts, and in general manage accounts; and b.) payment approaches. Where a) is concerned, most banks do pretty well, he believes. “There were a few laggards until recently, but now most have launched secure apps to do it. And in the word ‘app’ is a little secret, which is that the smartphone and tablet have simplified the task for banks. That’s because the smartphone and tablet have between them become the dominant channel for many customers. For these customers contact centre and branch are not the preferred option. Some customers do like the contact centre and branch for most purposes, and other customers like the contact centre or branch only for complex discussions and transactions. Where the split between app and conventional web is concerned, what seems to be happening is that customers have clear views about which they prefer for which task, just as they do for many other tasks e.g. web for complex browsing, investigation of alternatives, benchmarking against other products, app for simpler “within bank” tasks. This depends very much on the customers, and it is worth remembering that many of the new generation of younger customers have full access to apps and limited access to full web pages via laptops.”

As far as b) is concerned, the big area of uncertainty is still mobile payments, where different forms of contactless payment (whether NFC, Bluetooth low energy or the more comprehensive but still early-stage innovative approaches of PayPal, Square and the like) are competing. “However, the question posed refers to customer requirements, and here research shows that to some extent final consumers are not really too demanding of innovations; the issue is more what merchants would like to increase speed and reduce cost. The jury is out.”

New entrants
The emergence of the omnichannel customer is creating various opportunities for new challenger banks and various issues and challenges for the status quo, encumbered as they are by legacy IT systems. Whilst we haven’t seen the retail banking revolution that some predicted a few years back, there is nonetheless some interesting stuff happening in this area. The aforementioned Atom, for instance, is set to be launched in the UK market next year. Pitched as the UK’s first truly digital bank, there will be no branches or telephone services, but personal and business customers will be offered a full range of products through the internet and mobile apps. The venture will be led by Anthony Thomson, founder and former chairman, Metro Bank, and Mark Mullen, who was CEO at first direct. The products on offer will include mortgages, current accounts, savings accounts, loans and credit cards.

The temptation here is to paint a picture of nimble startups vs archaic organisations. Are legacy issues, in fact, holding back the traditional players, creating an advantage for newcomers? David Tryon, director of client management, business process solutions at DST, thinks so: “New challenger banks are being designed with the current technology landscape in mind, which means they can facilitate transactions via any channel, at any time, from any location, in the manner in which the customer wants to do business. This is an important advantage over many of the established High Street banks that are still struggling with the issue of incumbent legacy issues."

Professor Stone, however, believes that legacy issues aren’t a real constraint, though they do confer a slight advantage on challenger banks. “But there are enormous economies of scale in banking, and very high customer inertia. In my view, the big changes will come when big commercial or government organisations decide to put lots of business through these newer banks (like the Santander bill payment service used by HMRC). This is not really a multi-channel issue, though it has some influence. The challenger banks are often targeting segments which are poorly served with credit, but in order to avoid massive exposure to risk caused by this targeting may need to use more conventional channels. Estimating and managing risk remotely is a dangerous game.”

“I suspect legacy issues are holding back the established players,” comments Piran Consulting’s Simester. “Fraud protection, risk management and payments from ‘A to B’ are the basic principles of banking. In terms of front end, the ‘customer experience’ and the ‘value proposition’, banks should continue to partner with someone who does that part of the value chain really well, e.g Marks and Spencer working with HSBC. Legacy issues and mandatory regulation make it hard for banks to be innovative, for example executing new products. Technology provides that increased speed to market. But it’s almost a schizophrenic problem – looking after traditional, legacy, customers makes it difficult to invest. You can either explore leading edge technology and appeal to one to two per cent and try and attract and build customer numbers in a short space of time, or look after the 90-odd-per cent of customers that are happy and require a simple service.”

There are a number of other issues and barriers that are holding things back. Process and regulation delay progress, argues Simester, who cites the fact that “banks are more regulated in the payments space, especially when compared to something such as PayPal. Is that fair and reasonable?”

He adds: “Online authentication leads to a 35 per cent drop out rate at point of transaction. In theory, consumers view this added layer of authentication as a penalty for transacting online. Why should they be treated differently? Similarly, contactless payment. Why can I only make a £20 transaction? Where is the incentive? There is still a balance between risk and the customer value proposition that has not been thought through and there are too many layers of authentication. Paym is a great example of a payment service with a frictionless customer experience with strong but undemanding authentication. These types of interbank mobile payments services have immediate customer benefit and are easy to take to the mass market and Paym is set to change the shape of UK payments with a true value proposition that can be easily understood by the consumer.”

Professor Stone observes that the big question facing all banks is how the behaviour of the new generation of customers may challenge the status quo, specifically the Facebook and Google generation. “So far, the impact has been limited, but this is partly because these big new digital players have shied away from full involvement in financial services.”

Whilst Tryon also flags up security issues. “The most recent scare being the Heartbleed bug. Many consumers are experiencing serious frustrations when accessing multiple online banking accounts with multiple unique passwords. In order to solve this problem, many banks now issue algorithm-based key fobs, but they are often complex and not hugely user-friendly, and also require the consumer to have the key fob on them at all times. Transacting business in a mobile/internet/tablet environment obviously must be secure and confidential for all parties, but the issue has yet to be fully ‘cracked’.”

When all is said and done, omnichannel is more than a buzzword; it can deliver tangible business benefits. There are many issues that need to be addressed and many things that the traditional players in particular should be doing better. This is also an area moving at a rapid pace and one that will be hugely influenced by the aforementioned Facebook and Google generation and their children and who can say which way they will fly in terms of financial services providers? In a world of mobile wallets and digital currencies, will they even want bank accounts? Speaking recently about Metro Bank, Atom founder Thomson noted that the focus when it launched was on service and convenience and the High Street branch was an obvious manifest of that. The world, however, has moved on. The rate of change in mobile in particular has just been so fast that opening a bank with branches would be like BT putting telephone kiosks back on the High Street, he declared.

So, Metro Bank launched in 2010 and its business model already seems quaintly old fashioned. What will the omnichannel banking landscape look like four years from now? Truth be told, no one has all the answers. A successful omnichannel strategy will see banks strengthen their relationships with existing customers, capture new ones and gain better customer intelligence. Easy, eh? The problem, as Simester puts it, is that you can’t re-invent a bank. “The question is, how do you maintain the same level of security but at the same time become stronger across all channels? Now, that could be working with start-ups and addressing how to use some start-up technology more effectively, looking at the people and process.”

Or as Professor Stone puts it: “I think there is a lot to be learnt from Direct Line, first direct and Swiftcover, for example, if you are going to do things a new way, set up a fighting brand with news way of doing things but with the old disciplines. These were not start-ups but new propositions, a very different matter.”

In short, believe the hype but know that the race for omnichannel excellence is far from run.

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