Mark Evans (ME) Publishing Director, FST Magazine (Chairperson)
Simon Barrows (SB) Business Unit Architect – UK Retail Banking, Lloyds Banking Group
Kerry Chapman (KC) Senior Marketing Manager, BFSI – Tata Consultancy Services
Katey Craig (KCr) Logistics Lead for HBOS LIVE Integration, Lloyds Banking Group
Wil Cunningham (WC) Group IT Lead Command & Control and Execution (Transition to HBOS LIVE), Lloyds Banking Group
Richard Fraser (RF) FIS Global
R Krishnan (RK) Vice President – Banking Industry Practice, Tata Consultancy Service
Anand Kumar (AK) Advisor – Strategic Initiatives, Bank of Baroda
Fraser Kyne (FK) Business Development Manager, Citrix
Ramzi Mussallam (RM) Consultant, Greatpark Consulting
Jonathan Vaux (JV) SVP, Market Strategy, Visa UK
ME How has retail banking changed?
FK I would actually tackle that from a personal perspective first of all, and I don’t know if I’m unusual in this, but the real change for me is that I don’t have to have anything to do with it anymore. My preference now is that I get my services online – I consume them in that way. I use them when I want to, where I want to, and how I want to, and I usually avoid having to go in to the bank and frankly it’s a pain when I get a cheque.
ME So you are quite happy for there to be no branches?
FK Well, no. This is the other thing and the counterpoint to that is: I want all that I want until I want it in a different way, and then I want to talk to someone about it. As soon as I have a problem, then immediately I want to see a person and the analogy I will use is that it is a bit like Ryanair – everything is perfect when it works and no-one has any complaints, but as soon as things are delayed I would like to sit in the lounge, I would like to know what seat I’m going to get and I'd like to have a decent meal. So I think it’s probably like most people: I want to have my cake and eat it, but what I do want to do is go into a bank when I need to go in there and not have people blame IT systems for the poor service that I get.
RM The problem is now, when you are trying to do things remotely, as a customer, you get carted from person to person; you have to identify yourself every time, and go through the security routine each time. What you want from a bank is to be able to go in, to be recognised, to talk to somebody who owns the issue and deals with it to your satisfaction.
SB Well I think the point is managing customer preferences – you have preferences of how you want to interact with a bank which, as you say, is for more run of the mill stuff, checking your balance, making payments, doing whatever – it’s routine. You don’t need to talk to anybody, you don't need to walk in to a branch and talk to Phylis and discuss whether she had a great weekend or not, you just want to get your stuff done at your convenience and I think most people are like that. I’m personally like that, but it is horses for courses and also being consistent – if you deal with the bank online you will see the same information as if you go into a branch. From a technology perspective it’s about providing the technology enablement to have, I guess, this millennium’s version of old-fashioned personal banking: whether you do it on your mobile phone, you phone up, you do it online from your PC or walk into a branch.
WC It’s the memory of the customer experience because every time you go into a bank you are a stranger – they don't know who you are. I'm a new business this year and it’s just me, so my experience of banking is being
told all the things that I cannot have as opposed to the things I want, and it's been consistent from day one, and I don't bank with Lloyds – I bank with my previous employers – a large Scottish bank. So my experience has been pretty horrendous because I thought as a previous employee to have a business account with a bank that I worked for after many years would be a wonderful experience,
and it has not actually turned out to
be that. It's been a real consistent pain to the degree that I think because
they are not flexible or helpful enough for new businesses, I'm probably
going to move and take my account elsewhere, and I think a lot of people will do that.
KC Just who is my bank? I’ve got an account with one bank sitting there and it’s got £1 in it because they upset me once, and it's always going to have £1 in it, however they still keep offering me overdrafts! I've got an ISA with another bank with loads of money in it, but do they ever talk to me? Do they ever try and sell me anything more? No! They send me a statement once a year. Until banks demonstrate that they understand and care about their customers, why should their customers see them as anything more than a commodity service?
ME To some extent you seem to be saying that you want the concept of the old fashioned service which may or may not ever have existed, but we need the high technology to provide that because we can’t afford to do that the other way.
KCr Well it’s just like retail segmentation, so when we walk up and down the high street, we choose which brands we associate ourselves with from a quality, product and price perspective and there’s no reason why we can’t get banking to actually go down that route.
ME Has the downturn created an opportunity to reappraise, because one gets the impression that banks ought to readily take on a retail message for that market share, but that’s not how they are associated; is the downturn an opportunity to reassess that?
JV Absolutely. There is much more of a focus on building a relationship, so you are seeing much more segmentation of products, but I think to your point a lot of the products will be vanilla. But it’s clear with people looking for the premium segment and what they are trying to sell to them or the relationship they are trying to build, a lot of banks that were previously issuing lots of credit cards will only issue them to people who have retail banking relationships. There’s definitely a fundamental shift in the way that banks are really targeting and saying these are the people to whom we are actually going to say we are really going to focus our attention on, and I think honestly you will see from a relationship standpoint some people will be put to the side. I think you are going to see much more of a sort of mobile telco-type model of working out who your most valuable customers are, who are the people who are transactors, who are the people with whom you could grow a relationship.
ME If the banks are chasing the same market, how do they differentiate? What can they do?
JV I think you will see some that go for the baseline in the same way you are seeing airlines. You will see those who are doing the cheap and cheerful solution and, not trying to speak on the behalf of some of the banks here, but I know that within certain banks they will have different brands that they will associate with the different economic calibre of customer and that’s the sort of way segmentation will go.
AK Retail banking has travelled a long and purposeful journey in order to provide convenience, value of money, independence of time and location to customers who may choose from bouquet of products and services. We have moved away from the rigidities of yester years and given flexibility to customers. As mentioned earlier a bunch of third party products have come along not only from the financial sector but also from health, travel etc. It is not only one sided sale but also the risk associated with this is a major concern of the banks.
JV But also there’s been a fundamental power shift and it's interesting, so that sort of Captain Mainwaring-type manager that you were referring to in the past, the bank manager had a role. The fact is when you first asked your question most of the people who spoke just gave a list of their complaints about the banks and it is very difficult for the banks to get back on their feet. I work with the Irish banks as well and the kicking that the banks are taking at the moment – they have been sort of hung out as scapegoats for so much that has gone on. The fundamental power shift and the respect with which bankers were held previously has changed. If you said that you worked for a bank four years ago, that was quite impressive. Now there’s likely to be some smart comment.
RF But if you lend money to people who can't repay and the security that you assigned was inadequate to cover it, that’s not being a very good banker.
JV Most of the problems didn't arise out of retail banking. The retail bankers are carrying the can for problems in a lot of different areas of the bank; it generally wasn’t the retail banks who were responsible for the problems we have today.
ME Not only because of that, but also because of data protection which is on the agenda. There have been so many leaks and so many problems about this. If I’m a customer, do I trust the banks to keep my money because they have clearly been squandering it on securitised mortgages, and also to keep my data?
RK If you look at it from the perspective of the banks, I think all banks have gone on a route in which they have made some mistakes. Historically banks did two basic things: one was managing relationships and the other managing risks and that was simply the role of the bank. Somewhere down the line the priorities have moved to the extent that banks are now reduced to being just a custodian of transactions and as a destination of funds. While banks need to capitalise on its existing strength of being seen as epitome of trust, it also needs to protect its turf in customer advisory role. We see others coming into this space and thereby resulting in banks losing its direct touch with the customers.
Sharing the cost?
ME Does the panel think that IT services and costs could be shared? This is obviously a big issue.
JV Well for Visa they are. We do by far the largest majority of debit transactions in the UK and that's paid for by member banks, so I think a lot of the infrastructure – VocaLink also – is paid for. I think you will see that happening more and more. Just about every IT person I speak to within a bank is looking for ways where if it’s not adding specific value to the bank and helping differentiate, it's likely to be looking for alternative means of carrying it out. So I think that’s happening more and more today.
WC When you integrate organisations, the target installations you have brought in very quickly realise that they no longer have the amount of money that they used to have to invest in IT and you start getting in to real prioritisation. So the IT budgets are centralised and a natural prioritisation is established against the areas that make most money, and so if you don't make money you are not going to
JV But also more and more of that budget is being sucked into regulatory requirements and compliance requirements, so your discretionary expenditure as far as IT is concerned is being hampered more and more today.
RF And that’s got to be a great opportunity for sharing and I think the Americans do this really well, and they have colossal amounts of regulation to have to cope with and they share the burden. More than 50 per cent of all mortgages in American are run by one organisation as a remote processing service but what’s happened is they’ve integrated their networks; all of the intermediaries for the mortgage transaction are all wired in to one common network.
KC You could actually say it’s already happened through the consolidation of the UK’s financial services sector. In every bank or insurance merger there’s been, one of the key statements from the chairman or chief executive is “... and we will leverage X amount of savings through back office and IT consolidation”. So effectively what they’re saying is that after every merger, the bank looks to identify shared service opportunities.
KC But even now we’re seeing Tesco and new entrants building their own infrastructure. Why? In India, TCS are helping banks grow through providing a “bank-in-a-box” service to allow them to reach the unbanked based on shared processing services and platforms.
AK Santander, for example, has over 1,300 branches in the UK and despite reports that they have got the highest number of complaints, I think they have started very well in terms of the IT. They have invested very well in their service centres and they are doing very well in the market.
KC They have a simple model don’t they, which is basically, they have got a system and they just replicate it and they just drop it in over anything else.
RK The other point you talked about was technology which is that you said the early bird gets the worm; the rest get much bigger ones. So that’s one of the big challenges – the early bird got the worm and in those days you were satisfied with the worm – today you are not satisfied with the worm, you want a bit more. Newer entrants may be stamped as followers of legacy banks only so far as the business of banking is concerned. However, when it comes to contemporary technology used to enrich customer experience and rendering superior products or services, it is these legacy banks who are the actual followers. Hence, resting on past glory by legacy banks can only make them completely unprepared to next-gen banking. The need of the hour for these legacy banks is to “adapt” and re-position fast.
ME Is there the possibility of a new banking model from the next generation of mobile devices?
FK Yes! The interesting thing about mobile devices whether you like it or not they are immediately outside your control, or the networks they are running on are immediately outside your control, so you are talking
about shared services in a slightly different world. The interesting
thing is,when you start getting in to that world of no longer being able to police the device, the location or the user, people do inevitably start to ring-fence things differently. For example, they may say, well, the control will come inwards, we’ll protect the hub of the data and then we'll mitigate the risk when people connect. At Citrix, we see consumerisation as a big trend and over time, as more people use their own devices and their own networks, there will have to be a recognition from a technical perspective.
AK Security is a very concerning issue – it’s a huge issue in the US, in Europe and Asia. I am apprehensive that the way banking revolves around net with the increasing incidence of hacking and phishing. Despite this we may not go to fully branch model though branches are not only going to stay but would also grow. In numbers and business.
RK Honestly, I think we are at a point of no return – let’s face the reality. Banks have increasingly focused on cost management through centralised customer service delivery points with consistent customer experience tools. However, if all the customers start thinking like you tomorrow and demand personalised banking through branches, then can banks cope? Security is the individual’s concern and if they do not protect themselves, then it is the same as leaving your house unlocked and expecting things to be there when you get back home. Banks provide the locks, but if customers don't use them properly then problems occur.
SB It is interesting you say you are apprehensive around doing internet banking. Is underpinning that a fear that if there’s an issue your bank won't sort it out for you; you won’t be recompensed, that will be a hassle and you'll be out of pocket or out of time? There is obviously the prevention of these things happening through the likes of two-factor authentication. But there’s also the trust in your bank that if someone does manage to get into your account and cipher money elsewhere that you trust
your bank to deal with that, and deal with that in a way that's fair and empathetic.
FK There is a knowledge issue around the way in which people consume services from the Web and it's very common to meet someone on there who says something like “Don’t worry: you’re protected when you’re online”. There is a culture that people think that they don't have quite the same protection and they are worried about that. Then hand in hand with that you've got the very fact that phishing exists on the Web and the fact that you get an email that says “Congratulations” and the reason those emails exist and are successful is because people are uneducated. So it is a really difficult balance to make things simple for people to consume, but secure.
AK I agree with you. So it’s an admission that we don’t take an extra effort to educate the customer the way we should have done it. I’m talking about the bankers, insurance companies and the IT companies together.
JV The customer is looking for increasing convenience and ease and it’s a constant balance because there's one easy way to prevent fraud and
that is that you don’t permit any transactions. So what you’re seeing now, certainly overseas, is trying to use a card can at times be harder because people are really tightening up and I think what you have is a constant balancing act and sometimes you’re playing catch-up after the event, but it is really difficult in that you have greater demand for customers to be able to use their payment methods in a variety of different new applications. They want immediacy, so they want settlement to take place so that they've got certainty – all these sort of things that all the stakeholders are asking for, and there are times when the technology is just struggling to catch up and trying to find out the answer. Yes, the technology does exist to really stamp down on it, but what would the knock on impact be on transaction times and customer experience and so on and so forth? I think that you can't really look at fraud in isolation. You have to look at it in terms of the customer experience.
RM The other thing that is worth bearing in mind is that customers don’t just have to weigh up, in terms of flexibility and functionality, the benefits of a financial service and
what is good for them. Security is just another important consideration and the other issue you touched upon was securitisation and the branding and what it does because increasingly, it’s analogous to the business model for mobile communications, whether you subscribe to a monthly all inclusive package or use a pay-as-you-go service. Things are changing from the old model where you had a one local branch with a Captain Mainwaring-type branch manager. Now people have numerous relationships with different financial services companies and, for example, people are now very price conscious; they are trying to get a good deal on financial services, so you get people like Martin Lewis providing a ‘money saving expert’ website to make consumers more savvy.
KCr But then you’ve got managers and your bank’s core staff are being de-skilled whilst the consumer’s skill set and information is actually increasing, so actually you end up with the power of balance of perhaps 30 or 40 years ago when you were going to your bank manager and really hoping that he was really going to give you that mortgage because really he was the only one that you could go to. That just doesn't exist.
ME Is green computing a genuine priority? What about the next generation of desktop models and how can that improve things and if we can improve things what will it actually mean for the banks?
WC They are going to have to go green because it’s going to cost them if they don't and that is kind of the thing there. At RBS we didn't become efficient because we wanted to become green. We had a problem and by fixing that problem we became green by default. So by reducing our space and costs, we didn’t have to buy another datacentre. We reduced our power consumption and we became green.
AK It’s more about money than being green because it will cost more may be with some exceptions. However going forward there is no escape.
WC But it’s a great green story and you save money, so it’s the right thing to do.
ME But what’s driving it? Is it money saving; is it rollout? Is the rollout of Windows 7 making it really fresh?
RM I think the problem is that the organisations themselves are trying to become lean and more efficient and part of that challenge is the need to retain quality staff because you want to have a good service culture. Increasingly staff are demanding flexible working so, you know, being able to work from home or being able to work remotely. Customers now access the banks remotely and we've got more and more demand on banks to have their staff being able to work from home potentially, so that creates additional infrastructure and security challenges.
FK That’s music to my ears! It just seems to resonate, particularly right now, but we definitely hear a mix of why people will do it and one of the things that was mentioned when you said about locations. Another tangible example around the spacing in a lot of financial institutions, particularly investment banking, is simply that the heat dissipation that they have to have for the trader’s desktop means that they have double height buildings. There are a lot of organisations who have scaled down and who have shut buildings to save money and now are scaling back up.
ME Is there not a threat to this though? It’s very easy to set up a bank effectively. You simply apply for your banking licence – and you could be a supermarket or you could be a phone operator and gain the licence.
JV To be a member of Visa you have to put up collateral. If you started up having people playing in the system that haven’t got the depth of resources to really play properly, you’re introducing huge financial risk into the system, and I think there is a problem. I push back on the green technology a little to say it’s great if the infrastructure is flexible, but as someone who has tried to work remotely fairly frequently, I have to say it’s a pretty rubbish experience, compared to sitting in the main office. You get crashed out of the system. That might be because the infrastructure is not in place.
RF I think there’s a parallel, going back to the branding point: there’s a point where we may still be at it where perhaps the most trusted global financial brand is probably Visa. I think if you had launched Visa Bank, for a lot of people that will resonate with them. They’d say, “yes, I trust that brand”.
JV We are paid for by the banks.
RF Of course, and that’s why you wouldn’t do it.
JV But interestingly you say that, but because of our position in the UK a
lot of the stuff we are now talking about is on a collaborative basis. As
an example, how do we introduce an authentication service to try and help facilitate progress? How do we introduce e-commerce? So how do you kind of facilitate a ubiquitous system to do that sort of thing, and there’s lots of questions around. You're absolutely right, but I think part of the reason we have stayed untainted is because we have stuck to our knitting and what we do well.
RF People have memories of situations with particular brands or whatever, but in the end I’m absolutely convinced that in the next 12 months we will see a brand that we all love and that we all respect do something really, really significant, and I think when that happens it could be a real game changer, and I think the essence of it is training, qualification, expertise – people you can trust; feeling that there is someone you can go and talk to who really knows what they are talking about; have the appropriate empowerment, that are used to giving you quality advice. It’s not so much about money; it's more about it's the first place I go when I need to understand something.
ME So what are the takeaway points from this evening?
JV It’s clear that we are in a rapidly changing environment and I think that the problem is to look at one problem in isolation and just try and fix that and what you'll find is actually it’s just like sticking your finger in a balloon; it’s just going to have a knock on impact somewhere else and we need to try and step back and make sure we have a proper look at the whole environment before we move forward on some of those.
FK As with most trends, it will be driven by the consumer. Right now,
it’s a case of there being a lot of wounded feelings around but the growth in this kind of internet, flexible use and consumerisation will enable people to pretty quickly start forgetting about stuff and start consuming again, but it will be under their terms. I am interested in the mix of how that's going to work between when you are online and when you are not.
WC I think this is evolution. The dinosaurs, the big players that in many instances are crippled by what’s happened. They are shackled by the governance. They are trying to stabilise as opposed to innovate and in the evolution the small players are going to come along and they will take the market because by the time the big players realise what’s happening – it’s game over!
SB I think it’s going to be on the point that there are conflicting customer demands: between convenience and security, between personal relationships and transactional behaviour. I think technology can help to support all of those things and I think the technology already exists to do so. The challenge for Lloyds and everyone else is to leverage that technology in the right way and to counter the obstacles to doing so such as regulation and acquisitions pulling in different directions.
RM Customers are, in some cases, more intelligent than the banks, but I think banks are quite often ahead of the regulators, and it's about how the regulatory environment is going to catch up because we’ve had a change of government this year. I still anticipate there being an increased regulatory influence on the banking sector, but we don't know which way it's going and what format it will take, but it will be interesting and the challenge will be for the banks to remain flexible and deliver customer requirements, at the same time having to do the best thing for the shareholders and meet the requirements of the regulators.
FST Roundtable: Retail Banking