David Bannister is the editor of Banking Technology, one of the leading fintech publications in the industry. He has been covering technology issues for 35 years and specializing in financial technology for the past 24 years, contributing to a range of titles including Dealing with Technology, Waters magazine, Financial Markets IT, Financial News, the Financial Times, and The Times.
He is a well-known panellist and speaker on the conference circuit and has taken part in many international conferences, including Swift’s Sibos, the International Payments Summit, EBAday and the ISITC Vendor Forum.
At conference after conference you will hear that one of banks’ main weapons in their fight for growth -or even survival – is their relationship with their customers and the data they have about them.
If only they can harness that data in useful way, which is why many banks are spending large parts of their discretionary budgets on projects that are intended to give a ‘360 degree view’ of the customer. Though hundreds of millions of dollars have been spent on such projects, very few banks have been successful in getting a good view of their customers.
It is, of course a complex problem, made even more complex by the way that personal technologies such as smartphones and tablets are being manufactured increasingly to provide the interface with customers across all banking sectors, and by the increasing desire to learn from the apparent ease with which the app and fintech worlds engage with customers.
While data analytics has hitherto largely been deployed to identify trends in large cohorts of users, such generalizations are becoming increasingly less useful as the relationship becomes more personal – in the retail world, the bank is now in the consumer’s pocket, and the relationship is 24/7.
A close look at the app and fintech world, and at the systems that power loyalty card schemes, shows that the success of these often comes down to the fact that they treat customers as individuals, not as sets.
The fact that it is software that is driving this, and not a human relationship, doesn’t matter a jot -and for every bizarre Amazon recommendation, there are enough relevant ones to keep people happy that the system and the organization behind it is acting in their interests.
Arguably this is even more the case of corporate customers whose complexity and sophistication of operations increases the challenge for banks to truly get a complete view.
Since the 2007/8 financial crisis, it has been increasingly apparent that the needs of multinational corporates, the poorly-defined small and medium enterprise category and small businesses – let alone sole traders and the self-employed. In part this is because they have considered them, and their needs, as a spectrum, with multinational giants like Nestle or Coca Cola at one end, and Acme Plumbing Supplies at the other. All companies have the same fundamental needs, right?
The result is that very few banks are ready to take on today’s challenges -and companies are increasingly turning away from banks for such things as trade finance and funding, which wilL likely be the first step in the dissolution of that valuable client relationship. In 2014 a report by Grant Thornton found that 60% of businesses in the mid-market were already using non-bank lending as a source of finance, showing that it is no longer a fringe activity, but one that is widely considered normal by corporates.
With the increasing pace of change, it is inevitable that the banking environment will look completely different by the next decade. What will remain important, though, is the need for banks to understand their customers — irrespective of the change in environment Banks need to move from thinking of a static picture of their customers to a more holistic view of their customers — essentially move towards ‘customer insight’.
In practice, for customer insight to be useful the data must be real-time and holistic, and it must be operationally actionable and predictable.
Real-time, immediate, instant or faster payments – call them what you will – have been much in the news this year, as many domestic retail payment schemes around the world announced plans to move to such a service. The UK, Singapore, India, Denmark and others who have already made this step will now be joined by Australia, Canada, several Eurozone countries and – further in the future, but very importantly-the United States.
While this will initially be a retail payments change, the effects will be felt throughout the industry. It is still in the early days, so it’s difficult to forecast displacement trends other than a definite continuation of erosion of cheque and cash transactions.
In the UK, where the Faster Payments service has been in place for eight years, it is becoming clear that there will also be implications for other payment types, including the BACS automated clearing, and CHAPS Real Time Gross Settlement System. Once the real-time rails are in place, the ability to push more traffic down those rails – and reduce the number of distinct payment types they need to support – presents huge cost-saving opportunities for the banks.
And already there are international efforts to ensure that global systems initiatives in this area are harmonized to ensure future interoperability using the ISO 20022 messaging standard, which although likely to be of interest only to corporates in the near-term will eventually drive changes in the debit/credit card and remittances businesses.
At a high level, from the perspective of customer insight is how this highlights the move to real-time banking across the spectrum, which means the data for the analytics that drive customer insight is there, at least.
In practice, there are subtleties that mean some banks, particularly the smaller and newer ones will be at a disadvantage. For instance, in the UK access to the Faster Payments systems at the moment (a new access structure in the pipeline) is controlled by the member banks, which provide indirect services to non-members, some of which don’t have access to the systems at certain times – one challenger bank can’t process Faster Payments on Saturday under the Service Agreement they have with their sponsoring banks.
A key thing, then, will be 24/7, which is what the customers already think they are getting: “In today’s world if it is not a Faster Payment settled in real time, the customer wants to know why not – that is the reality,” said the head of payments at that particular bank.
The second criteria is the need for insights to be operationally actionable, and there is a subtlety here that many seem to miss when
the look at the seamless way social media apps and FinTech offerings achieve the illusion of a personal service – they get the users to do it themselves (they’d probably say they are empowering the consumer to determine their own services, or some such). People are carrying around so much compute power that it is possible push work down to their devices.
This has interesting implications for corporate and private banking in particular. Traditionally these are areas where human relationship managers have been deployed at considerable expense, and it would clearly be prohibitively expensive to try to scale that approach to the mass market.
Automation of much of this would overcome this at a stroke, and has already started to appear in corporate treasury systems and services, where a very popular innovation has been pushing payment requests to a smartphone
or tablet used by the corporate treasurer, who can authorize or reject them at a stroke – quite literally in some cases, as biometric fingerprint recognition is often employed.
To reach this future, what banks need is a business architecture layer that allows the delineation of the customer-facing layer-which is increasingly becoming likely to reside on the customer’s own device – from the underlying operational systems, orchestrates the transactions and services but most importantly provides real-time, high volume data analytics that enables decision making, which is of mutual benefit to both customers and the bank.
The benefits of customer insight would deliver a fundamental edge to banks in surviving and competing in the current environment like improving customer retention and profitability, mitigating risk of legacy architecture, transforming regulatory needs and risk management.