How KBC enjoys and embraces change
Interview with Bart Delmartino and Steven Van Droogenbroeck - Group Risk, KBC
Statements reported by Marion Dupire, Vlerick Centre for Financial Services
As a major player in the European financial landscape, how does KBC enjoy and embrace change? Bart Delmartino and Steven Van Droogenbroeck of KBC Group Risk share their view on the issues raised in the ‘Enjoy Change’ campaign. Bart Delmartino is a risk adviser with a specialisation in the field of EU regulation of the financial services sector. Steven Van Droogenbroeck is team head of risk measurement with more than 10 years expertise in risk management.
While agreeing with most of the statements advanced in the white paper, both experts elaborate on the focus on digitalisation, and raise interesting insights on the extent to which corporate culture is determinant in coping efficiently with industry changes.
Regulation and technology: the biggest game changers of the financial services industry
Regulation is indeed a very important game changer. In the wake of the financial crisis, financial institutions have been confronted with a wave of new regulations aimed at stabilizing and de-risking the financial industry. Even now, new regulations are being introduced almost on a daily basis.
Although regulatory reform was needed to restore financial stability and market confidence, a number of concerns should be raised, as generally accepted throughout the industry and increasingly acknowledged by regulators. First and foremost, regulation should not unduly hamper banks in their core activity of supplying the economy with sufficient credit. Second, new regulation has a significant cost component, which limits profitability and thus internal capital generation. Third, the predominant focus on the regulated financial sector creates opportunities for less regulated players in the so-called shadow banking sector to step in, which essentially shifts risks, but does not take them away. Finally, regulation itself can be a source of risk, as common ‘herd behaviour’ is encouraged, meaning that the same risks threaten the whole system.
In addition, the pace at which technology is changing is creating both big challenges, but also big opportunities for the financial industry. As such it is definitely a game changer. Customers are expecting that banks closely follow the trend and it is these high customer expectations (fuelled by, for instance, how companies like Apple and Samsung approach this), together with the speed at which technology changes, that is really testing bank’s ability to adapt. In the campaign’s white paper, demographics are also mentioned as a major game changer. We indeed see it as an important factor of societal change, but contrary to technology and regulation it is something that banks cannot ‘shape’ themselves. Of course we will need to adapt, as will all other companies.
Moving to a customer-centric approach: embracing digitalisation
It is true that many banks see moving to a more customer-centric than product-centric approach as crucial for being successful. KBC definitely also adheres to the motto ‘put the client first’. Rather than designing products and then pushing them to the customers, we want to understand customer needs very well. We have to look at how we can support them in the various stages and important events in their life and as such answer to their needs as much as possible. This definitely requires a different mind-set, also with regard to how and where we interact with customers.
This of course brings us to digitalisation, which KBC believes is a key factor in its strive for customer-centricity, exactly why KBC is investing heavily in this area. But we believe also that it is KBC’s strength that it is also looking at this topic from a holistic point of view, striving for seamless integration of multiple (new and traditional) distribution channels and as such creating innovative ways for interaction between the client and KBC (for instance, using your smartphone to withdraw money from the ATM).
As such this is not just one course of action we are talking about, which would be counter-intuitive when discussing customer centricity. After all, being customer centric is all about find the right mix (channels, services, product) to best serve your clients, and also adapt this mix rapidly to their evolving needs. As such the sector needs to be mindful that not all customers are always best served via digital channels. Banks with a heterogeneous client base that focus on digitalisation only might alienate their more traditional customers and disregard those who are not reachable through digital channels. And if we refer to the evolution of demographics, this should not be neglected.
So yes, KBC embraces digitalisation and we are excited about how it will change our interaction with a large part of our clients. We will use seamless integration of different channels to adopt an approach that is more focused on customers, and more specifically on customers who are eager to use easy access digital channels, while continue to serve our clients that prefer more traditional channels or like to interact with us through various channels, in a great way.
A corporate culture that embraces change
Customer needs are changing very quickly, together with regulatory and technology changes also moving very fast. At KBC we believe that strong adaptability is essential in such a context.
Being open to change, even embracing change has become part of our core corporate culture in recent years. The introduction of PEARL has made this very explicit. Two years ago, KBC launched a very important internal transformation process towards a culture of ‘PEARL’, standing for Performance, Empowerment, Accountability, Responsiveness and Local embeddedness1. Today we can tell that these values are becoming truly embedded within our organisation’s culture, yes even becoming part of KBC’s DNA. This is shown in various ways, but for instance also by the fact that KBC now really gives people the opportunity and the incentives to be creative. Thousands of people work for KBC, that creates a lot of potential for fresh ideas. Our company has adopted a corporate culture where people have a real platform to voice these ideas. A concrete example, we have the “Pitch” initiative where anyone in the group can pitch their ideas to others (including senior management) through a platform. Next to that, we can also refer to our ‘Start it’ programme, coaching start-ups. All of this really has generated a lot of enthusiasm in KBC. Embracing change is about giving incentives to raise new ideas.
We believe that this corporate culture is a real competitive advantage in that it allows to efficiently react to the major changes that our industry is facing. It’s also truly a ‘new KBC’ that has emerged in recent years and you can feel this on a daily basis.
KBC’s ’hidden gem’: be PEARL, stay focused, decisive and eager to move forward
With respect to reacting to this changing environment, next to PEARL, one of the strengths of KBC is that we keep a clear focus on what we want to do: we want to be a bank-insurer, focused on Belgium and selected central European markets, targeting private clients and SMEs. When you know clearly where your focus is, it allows you to better cope with changes. You know the changes that are most likely to affect your target and on which you need to focus more. In an environment in constant evolution, this is a real asset.
Another strength is that we are able to show that we are decisive and proactive. KBC has definitely shown this after the crisis, rigorously implementing our plan to recovery. Like many of our peers, we suffered from the crisis. But we have de-risked our balance sheet and we are well advanced in repaying government support. As a result we have a good financial position. Our financial ratios (solvency, liquidity) are strong. This good performance allowed us to gain the trust of our customers and investors.
Moreover we are taking action on opportunities such as digitalisation – see for instance our EUR 500 million investment between 2014 and 2020 in the seamless integration of multiple (new and traditional) distribution channels. Another example of our regained confidence is the new Bolero crowdfunding platform that was launched recently.
Other opportunities going forward in the industry?
By way of conclusion, let us briefly highlight some opportunities for the future. First, the integrated bank-insurance model, in which KBC now has an almost unique position, allows us to offer a full range of products and services to our customers. This opportunity is further strengthened, secondly, through the intelligent use of already existing and available data, which increases the possibilities of pro-actively offering tailor-made solutions to our clients. Thirdly, we aim to reduce complexity, which is the core theme of this year’s Pitch initiative, mentioned above. Making our procedures more efficient and effective will free up time and resources for creativity and entrepreneurship, to the benefit of the group.
1 Further details on how KBC anabled changes with the ‘PEARL’ culture can be found on the Vlerick website in the Enjoy Change Stories.