Transformation in retail banking
Interview with Vincent Piron, KPMG Advisory
Statements reported by Marion Dupire, Vlerick Centre for Financial Services
Vincent Piron shares his view on the ‘Enjoy Change’ campaign with a focus on retail banking. Vincent Piron is a Partner at KPMG Advisory, he is specialised in large transformation programs within the industry of financial services.
- Technology and regulation are for sure major game changers, but demographics is also a big issue which banks have not yet been addressing a lot.
- Banks should use big data as a “Big Mother” rather than as a “Big Brother”, helping customers rather than just watching them.
- With digitalisation, customer experience has become a key differentiator.
- Digitalisation also comes with new risks, including the issue of data security and the threat of high-tech firms entering the market.
- In this changing environment, corporate culture, IT platforms, product simplicity, digital competences and superior customer experience are the keys to success.
3 game changers, all deserving as much attention
Banks should address more the issue of demographics
Obviously regulation and technology are bringing a lot of change and attention into the industry. But demographics is also another big game changer and banks do not seem to be really addressing it yet, unfortunately. We are moving to a silver economy. Individuals over 50 years old constitute a segment with a lot a purchasing power and will also be connected through digital channels. This is a real shift into the market of retail banking. So far, banks do not seem to really address this shift. Banks should put themselves in the shoes of these customers, understand what they need and how they will get engaged. Private banking or wealth management is also an area where banks need to evolve because their clients will also be more and more connected in the future. Theyalready have access to much more information and are expecting more online tools and services..
Technology: moving from a Big Brother to a Big Mother attitude
Technology has dramatically changed over the last years, and at a very fast pace. The customers have adopted very quickly the new technologies. They now have new needs, new ways to be connected and are expecting the banks to follow. Technology has also brought an enormous focus on data. The quality of the data is often an issue, but to the way banks leverage these data to ease the customer experience is also very important. Banks should not give the impression that they are pushing a product to the client. It’s moving from a Big Brother attitude, to a Big Mother attitude. Big Brother is watching you, while Big Mother is helping you. This change means that banks have to move from an existing perception to a new perception and at the same time from an existing process to a new one. Obviously this is quite complicated.
Regulation driving banks’ agenda: good or bad news?
Banks have been hurt in their profitability because they need much more capital than in the past. Furthermore they will now be required to work on how they conduct risk, both in terms of relations with their clients and in assessing client risks profiles. Regulation is therefore putting some pressure on both profitability and risk management at banks. On the other hand, regulation is also helping banks to build on a reputation and to reconnect to its customers. Customers are now empowered by technology and loyalty to their bank is going to be an issue. Through regulation they now are rebuilding step-by-step the necessary trust with their customers.
With digitalisation, banks enter “the age of the customer”
As argued by Forrester, we have now come into “the age of the customer”. With the adoption of digital, social, cloud,.., the power has shifted. In one click you can make a comment that will be shared to millions of people, you can damage a reputation, and you can also make your money shift from one bank to another.
The age of the customer will shift the commercial approach of banks from pushing products to improve customer experience. In fact, customer experience is the way for banks to differentiate themselves. The various apps and digital devices have created many touch points, allowing the bank to know much more about its clients and to personalize the offered services. This personalization is also the expectation of the customer: he doesn’t want any more to be Mister X in a large number of segments, but instead wants to have offerings that are much more personalised and relevant for his everyday life. Focusing on the customer experience is the best way for banks to move to a customer-centric approach, and digitalisation is a way to get the customer connected-engaged 7 days a week.
Another trend related to digitalisation is that people are now willing to compare themselves to their peers. For example in Australia, you can compare in 5 clicks your financing and insurance needs - namely your spending behaviours - based on information like age, revenue, gender , zip code. Customers want to know whether they have the right level of mortgage and if their savings are in line with their peers. In Europe this is not possible due to regulation and data protection but the “Millenium”-generation has tendency to remove these barriers..
Digitalisation comes with new risks
Digitalisation is also bringing new risks which should not be underestimated. If you are connected with your bank, you want to make sure your connection is safe and secure, especially given the fact that hacking attacks are increasing. Customers need to be cautious and educated, but security is a major concern for banks. The need for security will keep increasing given the fact that much more information will be exchanged and more transactions will be processed via digital channels. Cybercrime is a real area of concerns for banks and they are therefore spending a significant amount to mitigate the risk.
High-tech firms coming into banking?
It is very complicated for banks to keep up with all the changes. In the past they were in a stable situation where they were kind of dominating the transactions of their clients. They now live difficult times because while regulation is putting a lot of pressure and technological developments require a lot of investments. It is a difficult equation for the banks but on top of that, they feel pressure from technology firms like Apple or Google who are able to change very quickly and can “invade” other sectors. We do not know whether they want or can to enter the banking sector, the profitability of the banks today being really unsure and regulation protecting the banks from it. But high-tech firms are potentially interested in every relation that a bank has with its customers. They have interest for these data because they are very good at monetising it. So if they can push back the banks to become a commodity or back-office while being themselves more present in the customer relationship, they will do so.
Embracing change, 5 keys to differentiate
A corporate culture of change should come from the top. Engaging a new way of thinking that focusses on customer experience into the banking organizations is crucial to enable change. Secondly, the IT platform is playing a key role: banks need to rationalize their historical complex landscape of applications and embrace new technology platforms front to back . Thirdly, product simplification is needed with a focus on having more relevant products to the customer. One can have for example products with 80% of the same roots and 20% of customisation done by the client. A fourth differentiator aspect is the competences related to digitalisation such as the design of the customer interface for instance. These competences are key to this new digital world. Finally, the trust of customers is key. Customers want a cybersafe relationship with their bank, they want to make sure that their money is protected at any time. The regulator will help regain financial stability, but there a lot has to be done about restoring communication, transparency and re-connecting banks to their customers. Banks can also play an educating role because the knowledge of financial products is strongly decreasing, especially amongst the millennium generation.