Over the next 10 years, most retail banking services will become commodities, with all firms meeting the same basic needs. In the second article of our future of retail banking series, David Royle looks at the role of brand experience and the importance of corporate values.
Financial services are intangible by nature, so an individual brand must embody why their organisation exists. As the retail banking sector becomes increasingly commoditised, brand experience and corporate values will be the key differentiator for customers. Under intense scrutiny from social media and transparency processes, these values must be deeply rooted, and visibly driving activity. Any disconnect between an organisation’s stated values and their actions can appear disingenuous, which can alienate customers and reduce brand loyalty.
Our recent research on customer loyalty1 found that consumers expect firms to have a clear purpose and they can relate to that purpose when it is consistently evidenced. In the long term, this has significant implications and means purpose becomes a way to assess business sustainability:
This transparency is not purely altruistic. A bank needs a clear understanding of large-scale environmental concerns to fully understand its risk exposure, and therefore its capital and liquidity position. Retail banking firms need to absorb and assess data in relation to multiple and complex risks.
Firms need a clear vision for how their values convert to actions and a plan for how to get there. Navigating the upcoming economic downturn will be challenging, combined with pressures from Brexit, climate change and greater global competition. Meeting these challenges requires a value-driven, strategic approach, making clear business decisions on where to allocate resources to maximise the return. The response will affect global strategies and play out on a public stage. Customers expect retail banking firms to uphold their core values under pressure, demonstrating integrity and authenticity.
Where strategy is not rooted in corporate values, it can be seen as an unavoidable overhead. This is exacerbated by complex IT architecture that makes it difficult to action change quickly – meaning the strategy is often out of date by the time it is fully implemented. Gradually, immutable IT architecture begins to limit how retail banking firms can respond to a given event, and in what time frame. This may undermine broader organisational goals and affect the firm’s response to change, including its alignment to corporate values.
Over the next 10 years, new tech will emerge, regulations will evolve, and customers will want new services, available on new platforms. Strategy needs to be flexible enough to adapt to these sorts of changes and IT architecture needs to be flexible enough to implement them. The cumulative effect of these changes over the last decade has left many retail banking IT architectures unfit for purpose, preventing innovation and essential, prescribed changes.
In the future, the retail banking sector will be based around cross-sector collaboration, with many shared services outside the organisation. Achieving this will rely on a strategic, co-ordinated approach for both the sector as a whole and the individual firm. The target operating model will allow banks to strip back their IT architecture, giving firms greater agility than ever before and the strategy needs to support this, rather than hinder it.
Streamlined architecture, combined with mutualised services, will also help retail banking manage recurring themes including:
A streamlined architecture will reduce ongoing costs, support automation and improve the risk and control environment.
Modern IT architecture mitigates some risks around cyber security and offers greater control to restore critical services in the event of an outage.
The ability to integrate cloud services and fintech and regtech solutions will put traditional banks on equal footing with challenger banks, which do not suffer from legacy infrastructure, making them inherently more agile.
Agile infrastructure allows firms to assess and respond to regulatory trends, as well as evidence their activities without significant additional one-off reporting needs.
Responsible financial services
Improved architecture can improve controls, which in turn affects the measures and feedback on organisational initiatives and improves decision-making quality and agility.
Delivering your purpose
The future of retail banking is as much about optimising the speed of service delivery as it is about deciding where to allocate resources. Making the right changes too late can be detrimental to your brand and fail to meet customer expectations. As new technologies emerge, the pace of change increases. For example, Amazon, which is known for embracing new tech, famously deployed a code change every 11 seconds as far back as 2011.2 It goes without saying that banks are not in the same league in terms of speed, then or now, but this may change in the future.
Responsiveness on this scale relies on effective use of data to identify retail banking customer needs and develop an integrated solution. Modern development techniques, such as DevOps, Agile at scale and building automation into processing can support a faster pace of change. But these methods depend on embracing new technology and require a cultural shift, with new governance processes, to embed them across the organisation.
As shared services move to a mutualised model outside the organisation, IT architecture will simply consist of elements that reflect intellectual property or other sensitive data. This gives retail banking firms the freedom to focus on their differentiating services and develop new products in line with their corporate values and client expectations.
Meaningful change in a meaningful timeframe
Looking ahead, retail banking should consider how its values and actions align to key environmental and social concerns. Achieving this relies on being responsive and implementing change within a meaningful time frame. Greater agility will also support key regulatory themes and reduce the cost of change, giving firms more freedom to focus on customer expectations and differentiating new services. Embracing new technology now can help firms stay ahead and lay the foundation for success over the next decade.