Product Innovation – Hygiene, differentiator or both?

By: Anil Sreedhar
October 2015

ANIL SREEDHAR

HEAD OF PRODUCT MANAGEMENT –
FINANCIAL SERVICES SUNTEC BUSINESS
SOLUTIONS

 Anil as Head of Product management is responsible for the product vision and strategy, product management and innovation, product planning and execution throughout the life cycle for all SunTec’s Financial Services products. Anil has over 19 years of experience in the areas of Strategic Planning Operational Improvement & Business Technology Management. His financial services domain expertise includes Consumer Wealth Management, Asset Management, Private and Retail Banking and Operations. Prior to joining SunTec, Anil held senior leadership roles in various banks across Middle East.

There was a time when product bundling was considered to be the latest evolution of product innovation because it gave customers some flexibility in choosing what services they would like to use. Modern telecommunications and television bundles, known as “quad-play”, are tailored to the preferences of the clientele. If broadband is a requirement, they’ll offer it to consumers with heavy consideration placed on its usage. Along with the broadband service customers are able to get a television bundle, one based on what their viewing preferences are.

Product bundling is also popular with banks, offering its consumers several products and services. Banks can provide current accounts, insurance and loan services which hopefully will improve the customers’ financial circumstances. The old argument is, if a business can bundle several products and services together, it increases the perception of value. Unfortunately for banks, product bundling is becoming less of a competitive differentiator because FinTech challengers are commoditizing banking services such as international payments.

In light of losing some control over the market, banks need to reconsider the future of banking through the consumer’s perspective. Self-service banking, for instance, has been copied from the success of Amazon’s online retail successes and this approach offers the customer with a frictionless experience that they are more comfortable with. Mobile banking and the increased proliferation of wearables are helping banks connect with their consumers in new ways to offer them better service value and increase the perception of overall value of their products.

The perception of value is relative with the proposed existence of a subtraction effect, in which combining items in different price tiers not only decrease customers’ willingness to pay for the bundle but also diminishes how much they value more expensive items when considered by it. For banks, this effect might have an impact on how customers view their bundling of various accounts and services, as the difference between costs and value of banking services are not always clear to the consumer.

With this argument, it is safe to assume that bundling is becoming a less popular tactic to ensure long term customer loyalty. Technology, and its evolution, has played an important role in increasing customer expectations. With the growing use of self-service banking, which has replaced the immediate, personal relationship between the bank branch manager and the consumer, banks need to think of other ways to deliver and communicate value to customers.

Innovations which could help banks deliver effective, profitable products are improving the retail bank branch experience for customers and their staff productivity. Self-service and DIY banking products are what consumers are looking for at the moment. Barclays have led the way with this transformation, suggesting the new terminals free up staff time to have more in-depth discussions. In recent times, other banks who have followed suit with banks in India have also adopted the technology to provide their patrons with innovative, “do it yourself” services.

For banks, using technology to fulfill customer expectations is integral to growth, but how do banks deliver effective and profitable products at the same time? The question which banks are trying to answer now is whether product innovation is a hygiene issue or a competitive differentiator.

Product innovation in the Financial Services industry, at its core, is the creation of an improved version of previous

goods and services. Not a Lot has changed in the industry for the past 400 years. For banks, bundling is part of their current product innovation to increase the ratio of product ownership through cross-selling different features and services. Through the creation of new services and products they are differentiating themselves from competitors, but are the differences big enough to make customers change banks?

Where banks need to get to is to go beyond the product and alter the customer experience. Real-time speed and accuracy are what customers crave for and a great differentiator for banks would be to deliver the self-service kiosk technology like a restaurant would for a buffet menu. By analyzing customers’ habits and preferences as well as the costs of the products in real-time, they are able to calculate bespoke offers for the customer, which includes the profit margin for the bank without any hassle. This way the banks are guaranteed a profit on all services they offer and the customer receives exactly what they need when they need it.

Over regulation and the dominance of the large banks have distorted the financial services Landscape. The future is certainly uncertain. If a bank decides to get into a battle based on price with its competition, it will only end in defeat. Competing on price lowers earning power, drops revenues, and brings the business closer to its break-even point. Similarly if a bank competes on price, it is sending an unconscious message to customers that its products are discounted or, even worse, has no other value apart from being cheap.

It is important, instead, to focus on the customer value offering. An article in Harvard Business Review, on customer value propositions in Business Markets, states that there are different kinds of value propositions and it should be tied with each individual customer segments. Banks need to clearly identify in each of their customer value propositions, as to which elements are points of parity and which are points of difference. Following this, Largest price concession should, and would be considered.

The next value proposition is to emphasize the favourable points of difference. Digitally empowered consumers know they can find alternative service providers online. Banks being able to display their favourable points of difference such as relationships with other industries like retail or energy, will be more successful in the tendering of a prospective client.

Customer value offerings should also include new technologies, especially in payments. The Guardian published an article on how banking will be transformed – by technology, not politics. The article suggests that technologies such as Bitcoin and banking apps like zapp a mobile payment app, and zopa a peer-to-

Technology delivers customer insight

Intellectual property, based on having decades’ worth of customer data Locked in core systems, is the key competitive differentiator.

By creating a middle layer which can collect data from all siloed customer databases, businesses will know more about their customers and can develop new products and pricing based on historic customer relationships, something the younger challengers do not have.

To deliver what customers want within budget and timeline, the best approach is to have a technology that works with various vendor business systems and can pull, transfer, and analyse historic customer data from them. Peripheral applications such as mobile payments are Less of a concern as they are becoming commoditized due to the decrease of hardware and software costs.

peer lender, will disrupt retail banking. These technologies will speed up the way consumers do transactions and how they lend money, thus providing an improved experience.

What banks have is a wealth of knowledge on their customers, with data on their transactional habits, their earnings, and other details related to their work and personal lives. This is a rich source of information to create a strong competitive differentiator. Research commissioned by Informatica found a large proportion of the UK consumers trust businesses with their information as 35 percent of 18 to 34 year olds revealed that they are comfortable providing personal information to organizations for the purpose of receiving tailored future offers and communications.

The problem is, banks don’t have the means to pool all data together to build a targeted offering. Data is scattered across the different departments, services and legacy systems typically deployed, and they don’t have the means to consolidate all that information in one place. Technology can help banks cross this hurdle by connecting all the different legacy systems and pulling out all the data for each customer.

Using this knowledge, banks can provide their

customers with innovative and targeted offers. Data, created by the Giga-Load on a daily basis by customers, is extremely valuable in today’s market and this is a reason why the majority of bank customers have not moved to new service providers. Consumer data really is worth its weight in gold; with the right safeguards and robust analytics software in place, this data can become a business’ biggest asset in enhancing the customer experience.

It is true that banks can learn a lot from technology companies in terms of delivering bespoke services to customers. Self-service banking terminals have the ability to use customer data to offer advice based on their banking habits. Advice is a value-add today for consumers because products can be created and rapidly replicated throughout the banking industry. The advice should be used as a guide for customers to make informed decisions. Product bundling, although still a large part of the profitability for banks, is becoming less prevalent because customers will have the ability to bundle their product themselves.

There is a lot of value that can be found within the vaults of banking IT systems today but it is overshadowed by faulty IT glitches and inhibitive regulatory demands. The future can be a profitable one if banks forget about the race to zero and focus on making better use of their data. The next wave of innovation will arrive when all banks can offer predictive product offerings based on customer usage patterns and spending habits. There are also avenues for banks to explore in partnering with other industries like retail or telecom which can make the customer stickier to the brand and make the bottom line sweeter too.