Practice Lead: Financial ServicesI’ve worked in the Financial Services Industry for over 20 years with broad experience in Retail and Investment Banking and Insurance consulting typically in Business Integration and Process Management. I’ve helped to deliver Digital projects in the Insurance industry, sales and service effectiveness for multi-channel Banking and Middle and Back office IT improvement in Investment Banking and Asset Management (focusing on processes, culture and systems) and Regulatory Reporting.
However, there’s one significant thing that you don’t hear the banks talking about publicly: the threat from new entrants to the banking marketplace, particularly in the loans, deposits and payment areas. Given that these products are at the heart of most consumer banking relationships, you would think that alarm bells would be sounding across boardrooms. Taking mobile payments as an example, the statistics confirm the changing behavior of consumers:
Unfortunately for the banks, many of these payments are being made using Apps provided by niche mobile payment players as well as digital vendors. Unfortunate too (unless you are a customer) that these new entrants are often better at delivering customer service and building brand advocacy. The banks know that treating customers well is good for business. Traditional measurements of a bank’s success (return on equity, profit, cost/income ratio and so forth) have been supplemented with more customer centric indices, such as net promoter score (NPS) and other customer satisfaction measurements. For the unfamiliar, NPS is a widely used measurement of customer loyalty, developed by Bain & Co. It asks a simple question: “How likely is it that you would recommend our company/product/service to a friend or colleague?” Those who respond with a score of 0 to 6 are considered to be unhappy customers or detractors. According to the Direct Marketing Association, all participating banks in the UK, with the exception of Virgin Money had a Net Promoter Score (NPS) of less than 60%. Compare that to Apple’s score of ~76%. The banks should worry. The technology companies are starting to own the media content, product merchandising and now the payments platform. In a recent survey by banking technology vendor Temenos, 23% of respondents felt that competitive pressures from outside the industry are at least as great as from within. They also see technology vendors such as Apple and Google as their biggest threat. And it’s not just payments where the banks are facing increasing competition. Peer to peer lenders offer attractive rates for both investor and consumer, keeping their overheads low through the use of highly integrated technology. Like a web-based dating agency, these capital-cupids match borrowers with savers who are looking for a good return. Other web-based lenders are targeting groups of customers that do not have good credit ratings. Loans are originated through a simple online application process that provides an instant lending decision. Applicants are often required to have a mobile phone and an email account – again helping to keep customer servicing costs down. It’s clear that technology is a major catalyst for growth in the banking market. It’s both a prerequisite for the things banks care about (productivity, growth, cost control, risk management etc.) and what customers care about (price, convenience, ease of use, speed and so forth). More than ever, banking and technology are two sides of the same coin and therein lies the challenge for the traditional banks.