How retail banks can stay relevant in the future?
In an American survey about digital disruption in banks from 2014, 72% of respondents in the age-group 18-34 say that they will use financial services from companies that are not banks (like Apple, Square, Facebook, Google, Amazon etc). In the 2015 version of the same study 79% of the respondents also say that the relationship they have with their bank is purely transactional (not relational).
Are retail banks starting to lag behind?
Retail banks, especially here in the Nordics has been in the forefront of digitalizing both services and processes over many years. Tieto proudly was a part of building the world’s first internet bank with Nordea. There has been great innovation in process automation, self-service and business processes, but there is still a lot left to do.
However, the Nordic retail banks are starting to lag behind on user experience and new innovative services, and the race is on to see who will win the battle in the future with the rise of mobile payments, P2P lending, blockchain, crowdfunding and other value adding services that the customer might be looking for.
In my experience, the established financial corporations are like large, heavy ships that do not turn easily. Weighed down by extremely heavy regulations, risk aversion, siloes in the organization, vintage legacy systems it is difficult to shift focus from compliance to innovation. These are also important functions that protects the consumer’s money, and prevent bankruptcy. Who wants their money in a bank that loves to take risk?
I have noticed a strong dominant logic that has existed for a long time cannot just vanish. The basic business model of retail banks has been mostly unchanged for the last couple of hundred years. Well, media has just gone through a big change, and the question is not about going out of business over night, but what is going to be your role in the future?
What can we do about it?
So what can you do to stay relevant in the future? I would advise you to look at three vital areas:
- Fintech - mobile payments, P2P, mobile wallets, crowdfunding, whatever you think is going to provide best value to your target customer – buy, partner or develop, but you must be in the loop or you will be disrupted and loose interactions with your customer.
- Customer-centricity – get out of internal mode and focus the customer. Go all in on customer service; gather in-depth customer insight continuously to improve customer experience on a day-to-day basis.
- Innovation – create small autonomous teams that can move just on the edge of where you operate today, converging slowly to the next adjacent possibility. This allows you to test out innovations with your existing delivery organization with low cost and low risk. Test with customers, fail, learn and keep trying until you get it right – always with the customer in center. Try to test out unregulated areas with existing delivery capacity to learn about consumer behavior and create new value without heavy compliance.
Innovate by meeting customer’s daily needs
Look for other innovating types of services that can help your consumers manage their daily finances in a smarter way. What can you do to make my life as consumer easier? Try to answer questions like:
- How can you help me understand better how to grow my money in a simple comprehendible way?
- How can I pay bills without having to register the invoice myself (ever)? How can I send money to grandma wihtout having her account number?
- How can I get notifications if I have spent more than my weekly budget?
- How can I see my whole family’s spending in a simple way?
Most importantly – get out of the building! Follow market trends, changing consumer behavior, what is happening in other industries, what is your customer talking about. The speed of change is accelerating, and you will not know in which direction by sitting at your desk. Then finally, get help and fresh perspectives from someone that does not work there!