Banking in 2022… TIE it in a bow…
The last ten years and post the financial crisis, banks have for the most part been inward looking- focussed on repairing trust and mending reputations, rebuilding balance sheets and improving regulatory capital, whilst also attempting to cut costs and improve efficiencies. Investment in technology has largely centred on digitising and automating manual processes, with only in the last few years the realisation that shifting product through fixed distribution channels whilst relying on the balance sheet play and net interest income as the levers for growth will no longer cut it in an environment where capital remains expensive, interest rates stubbornly low, competitive pressure has sharpened and consumers behaviour has fundamentally shifted.
The pandemic has undoubtedly accelerated digital adoption with increasingly more and more activity from transacting, communicating to purchasing and consuming being experienced online with behaviours forced to change as a result of lockdowns, shop closures and millions moving to work from home. Whilst the demand for hospitality, leisure and travel experiences will eventually return to their pre-covid levels, less and less people will be likely or willing to want shop in town centres with the knowledge so much of what they want to buy can be done so online- free from friction, seamlessly and delivered to their door at the click of a button.
Financial services will be no different. Even before the pandemic had led to an explosion in banking app and digital wallet downloads, consumers and businesses had been gravitating towards fintech and technology platform players that had made making payments, savings, investing, borrowing and managing money simpler, more transparent, free from friction and integrated into their day to day lives. Simply by improving and removing the pain from the transactional basics of opening an account, making a payment and accessing credit Fintechs have not had to re-invent the industry but just improve upon bank experiences that for so long have been paper based, linear, product focussed and detached from context.
2022 will though see even more innovation as we move beyond just digitising and automating manual processes or app’s with a fancy design UX/UI, to truly invisible, embedded, contextualised and predictive financial services, where increasingly real time richer data will support hyper personalisation of services all interwoven into the fabric of an individuals life. New business models are emerging…
In my humble opinion the true winners will be those that can deliver all the above across a consumers or businesses transactional, informational and emotional needs……Financial services needs to be tied in a bow:
The base of the pyramid, the entry criteria or table stakes- people expect financial services to just work and do so invisibly and instantaneously. They don’t want to have to do anything to ensure a payment goes from A to B, and wont tolerate having to sign any form of paperwork to open up a bank account or digital wallet. The more someone is inserted into a banks process, spends time on hold to a call centre, or has to chase for a status update of an application then the less chance a bank has of winning a customers trust or loyalty, and the more likely the relationship will be entirely transactional and short-lived.
Failure to get the basics right all the time, every time will cut off a bank from being able to deliver in the more value generating areas of the pyramid, and the more transactions they will need to process with margins constantly being eroded to generate survival returns
“We don’t make money when we sell things; we make money when we help customers make purchase decisions” said Jeff Bezos- For banks in 2022 it just wont cut it to be the commodity providers of capital particularly when the unit economics of operating and maintaining millions of current accounts just don’t stack up.
The product (loan, overdraft, credit card etc) itself will be nothing more than the invisible enabler to the purchase decision, life event or goal that a consumer or business has been supported proactively and contextually through intelligent data insights to make. Whether its in helping someone to make better financial decisions, shaping and supporting life and financial goals, providing for greater choice or transparency or understanding the impact of actions- personalised data insights used intelligently will be critical to help banks build stronger longer lasting relationships with their customers.
Platform companies have long worked this out and are increasingly resetting expectations by creating value through engaging customers in their daily lives to support solving specific financial needs at the point of need for the time needed for, and all underpinned by a seamless user experience with the playback of useful insights through the use of analytics and AI.
Focus in 2022 then must be not in selling product but in the words of Mr Bezos helping people make decisions. As AI continues to evolve those that cannot harness the potential and opportunities it presents to create new business models and customer propositions as opposed to just inward looking efficiency and automation gains will not survive long.
I’m loyal to my bank because…….. Bet you’ve struggled to answer? In fairness It’s never been easy to answer that question, and for the most part loyalty (if you can call it that) has been down to inertia, fear and cost.
Banks for the most part have prioritised product over people, defining a relationship by product penetration, judging its success by sales targets being hit and inferred rather than behaviour driven customer satisfaction scores.
How does your bank make you feel?… Warm inside? happy? safe? secure? valued? Does it even make you feel anything at all? Because the focus for so long has been product, with the market characterised by asymmetric information and a lack of transparency the relationship was set up to be transactional rather than emotional. Banks must pivot from a product then people approach to a people first led one, and that means they must first truly know and understand their customers, proactively find ways to help them and make a difference to their lives, and only then can they monetise the relationship.
It still holds true that the strongest and longest lasting of relationships are built human to human and there is no replacement for having people who listen, emphasise, understand and collaborate, but these these relationships must be driven and underpinned by technology. Technology that means transactions are never the event or the conversation point, and that people can be the humanisers of forward looking personalised data insights, rather than as is most often the case now the conduit between the process and the customer.