In the fourth and final article of our future of retail banking series, we look at how collaboration across the sector can help all market participants. Paul Willis considers what this collaboration means in practice, and how banks can lay the foundations for future success.
In the future, retail banking services will be commoditised and customers will generally view them as interchangeable. With rate differentiation reduced, the deciding factors will most likely be authentic and demonstrable corporate values and brand experience, including convenience and ease of access.
To keep up with this shift in consumer demand, retail banks should reassess their business architecture to identify the elements that support the commoditised areas of business and those that support the key differentiators. Processes that are performed by all retail banks, to achieve the same goals, can be moved outside the organisation to a third party or a collaborative, mutual-services model. This leaves firms with the processes and activities that support differentiation, helping them to focus on value-adding propositions.
Reaching this target-end state relies on collaboration. We’ve discussed mutual services models in our previous post, but cross-market collaboration can also build the customer experience and aid convenience.
Currently, a consumer will approach a bank and select the product they need. But in the future, customers will apply for specific banking services as they discover the need for them. For example, if a customer is on a lifestyle website and they decide they want to prepare for the future, they can create a savings pot without ever leaving that site.
Similarly, someone on a travel website may book their flights and arrange currency exchange at the same time. Essentially, these are self-contained services delivered by third-party organisations as a fully integrated part of their service-delivery models.
Choosing the right collaboration approach
The retail banking sector may have a long way to go before mutual services can be performed collaboratively by all banks. But there is an ever-increasing range of platforms available to support collaboration and lay the foundations for long-term success. Where these are available as pay-per-use or subscription-based services, that should be the preference, rather than building similar capabilities in-house.
Key approaches include:
Processing services with intelligent automation
Operations such as know-your-customer, ID and verification, and anti-money laundering (AML) processes can all leverage process automation and artificial intelligence. Services such as conveyancing can use shared ledgers, making current transferal of title processes obsolete.
Banks can gain real-time customer and operational insights through a data-centric approach. This involves checking data lineage, and applying machine learning and artificial intelligence technologies. This is also an opportunity to extend proprietary modelling approaches from pricing and risk, and applying them to gain client insights, adding value to customer targeting and service delivery.
DevSecOps (development, security and operations) will become central to secure technology delivery, and all new deployments must enable it. Continuous integration and deployment create agility, but these are as much a cultural change in the organisation around the build, test and release process, as the technology itself changes.
Collecting market data
Ideally, market and reference data can be shared across all vendors in the future, but there is a liability challenge around data ownership. We are already seeing large marketplaces emerge in retail industries with the potential for adoption in the banking sector.
Choosing when to collaborate
Collaborative tools enable and support mutual services, which can be moved outside the business. But some business activities and data should remain within the firm, as a core element of the firm’s architecture, for example, processes for risk management, sensitive data, brand experience, connectivity or security. These remaining services can be based on a micro-service architecture to improve agility, making it easier to scale services and connect to outsourced services.
Some types of data should also remain within the businesses. How data is stored, processed and handled will depend on whether it is owned by the client or the bank, if it is publicly available or if it is personal data. This must be in line with data laws, including the General Data Protection Regulation (GDPR), which applies to personal data of EU citizens. All data should also be clearly marked in terms of type and intended usage, for example for market insight.
Delivering face-to-face customer service through branch networks is also a key area that cannot be outsourced or moved to a mutual model. Firms have accepted the shift to digital but managing the brand and customer experience will still rely on the personal touch for advice, empathy, reassurance or resolution. Understanding behaviour and supporting in the right way, with next steps in place, will just be one element of the expected customer experience.
Meeting future challenges through collaboration
As the technological and regulatory landscape continues to evolve, retail banks will need to work together to find industry-wide solutions. Climate change is one such area, and meeting environmental targets will be a collective effort, across every sector and every household. Firms will need to work together to find global and national solutions, with aligned activities to reduce risk and create a sustainable future.
Working with cryptocurrencies is another area where market collaboration will benefit all organisations. Cryptocurrencies are becoming increasingly popular: there are 2,957 cryptocurrencies with a total market capitalisation of $221 billion as of 8 October 2019. Many countries, including the UK, are exploring options for Central Bank Digital Currencies, and retail banks will have to collectively decide how to engage with new currencies and digital forms of fiat currency.
Rising to the challenge
Across this series of articles we’ve looked at the future of retail banking and how to prepare for the challenges over the next decade. Financial institutions face low interest rates, continued regulatory burdens and growing customer expectations. Post-lockdown recovery and the likely recession will also take its toll, and bring unforeseen challenges.
Digital transformation will help businesses meet those challenges, but it can create additional complexity if layered onto legacy infrastructure. The goal is to see digital transformation as the means to reduce that complexity, and lay the groundwork to support market collaboration and integration.
Creating a sustainable business and remaining technologically current will rely on capabilities from multiple sources with the right skills and vision to create solutions. The scale of the challenge should not be underestimated.
We envisage a future state for retail banking where the dynamics between market specialisms and operational services have shifted. Ultimately, organisational architecture should focus on elements that genuinely differentiate a firm within the wider market. This should include tools for market collaboration, including access points for mutual services and integration with cross-sector websites and apps.
Understanding the barriers presented by legacy infrastructure, and the challenges faced when driving true innovation, allows firms to identify recurring themes for collaboration. Bold steps now, and from the market as a whole, can embed greater agility, release stranded IT costs and improve profit margins.
To further discuss collaboration and the future of retail banking, get in touch with Paul Willis.
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