How to prepare for the future of digital banking

Customer expectations are rapidly evolving in the financial sector, and to meet them, banks will need to develop highly personalised products and services

Although digital banking was accelerating before the COVID-19 pandemic, the events of the past two years have pushed the pedal firmly to the floor. Contactless payments are now the default option for millions of people. Chatbots and app-based banking have been embraced by more age groups, and new payment providers have caught the eye of consumers looking for financial flexibility and convenience.

Central bank digital currencies are also looming on the horizon. Meanwhile, so-called ‘super apps’, which bundle together financial services with numerous others, are beginning to make the jump from China and Southeast Asia to western nations. And let’s not forget big tech’s big push into the financial sector.

So how do banks fit into this rapidly developing digital landscape? Are they equipped to deliver the products, services and experiences that consumers want? And what are the key operational and technology challenges that will define their future?

KPMG is helping banks to answer these questions and develop the right technology strategies for success, alongside regulatory and risk strategies, in a highly digital world. One key finding is that banks will need to tap into the wealth of data that’s available today to anticipate customer needs and provide highly personalised offerings.

“It will feel to the individual as if they are now being treated as one,” says Paul Greenan customer and digital director for banking at KPMG. “And so it should, because their bank has so much data about them.”

Unlocking this data could provide customers with the kind of insights and analysis that will help them make better financial decisions. “You move away from ‘here’s something you might want’ to ‘actually, you should take this course of action.’” Greenan explains.

Granted, this is already happening to a degree. But the recommendations many customers receive from their bank today are mostly broad brush rather than truly focused on their individual circumstances. So what’s stopping banks from providing a more personalised service?

“There’s certainly a greater degree of awareness around the criticality of customer experience and also the criticality of data to allow you to improve that experience,” says Isabel Zisselsberger, head of strategy and operations for financial services at KPMG China. “[But] it’s like moving an oil tanker: it’s just hard work to unbundle architecture and years of product-centric thinking to become more client-centric. And even if you’ve got it nailed for your front office, you have to do it consistently throughout your organisation.”

Personalised support

One financial services firm that has made serious headway on this issue is USAA, which took the top spot in the 2021 KPMG Customer Experience Excellence (CEE) report.

“Customers say the experience they deliver is the best they get anywhere – not just in banking but in every aspect of their lives,” says David Conway, who co-manages KPMG Nunwood’s customer experience management practice. “…They [USAA] are able to predict with something like an 80% level of certainty when a customer is about to go into a life event. And that means they can be present at the point in time when the customer needs help or support or signposting to things that might be useful to them.”

This isn’t altruism. Life events are triggers for buying financial products, so the bank is able to sell its offerings at the same time as providing help. But from the customer’s perspective, the service they receive – and the relevance of the products they’re offered – is second to none.

If the banks allow themselves to get into the position of just being an intermediary in a bigger ecosystem, they will lose valuable data points

Such advanced approaches to customer segmentation, which focus primarily on uncovering unmet needs and intervening at opportune moments, are far from the norm today. For many banks, that’s partly down to the limitations of their core platforms and technology stacks, which can be a major roadblock to meeting evolving customer needs.

“There are still a lot of silos within banks at a functional level, and data is trapped within those functions and then lines of business,” says Celeste Diana, a principal in KPMG’s financial services strategy practice in the US. “Banks need to have the right technologies in the right tech stack to unlock that data and make it commonly accessible.”

As well as breaking down data silos within their own organisation, banks will need to ensure they have the right talent to deliver data-enhanced products and services. Data scientists, cybersecurity specialists and digital transformation experts will all have a crucial role to play in enabling data flows, implementing cloud-based solutions, and ultimately delivering the kind of digital banking services that customers want.

True personalisation of products and services will also require more data from partners and other sources. “If you’re a small business owner, then it could be buying and selling activities that aren’t necessarily transparent from your bank transactions but are from your Shopify or Amazon trading account,” says Greenan. “That kind of data would allow the bank to really understand your business – perhaps that there’s an element of seasonability, which creates a bit of risk that they can help you with.”

Finding the right partner

Many partnerships in the digital economy will, of course, go beyond data sharing. To meet customer expectations in a rapid, agile way, banks may seek closer relationships with a variety of fintech or e-commerce firms, as well as innovating more with cloud providers. For example, if a fintech can help to streamline a certain process safely, at scale, there may be little point in the bank building that capability itself.

The rise of Banking-as-a-Service could also enable more mutually beneficial partnerships with non-banking firms that wish to offer their customers financial services and products. But to remain visible and relevant to customers, banks will need to strike the right balance between building things themselves and building an ecosystem of partnerships.

“Partnerships and alliances for me are absolutely critical, but it is about finding the right partner at the right point of the value chain,” says Joe Cassidy, a partner and head of FS strategy for KPMG UK.

Get this wrong, and disintermediation becomes a real risk. “If the banks allow themselves to get into the position of just being an intermediary in a bigger ecosystem, they will lose valuable data points,” says Zisselsberger. “They lose the ability to understand what…clients are looking for [next].”

One thing they do want is a bank that has clear values and purpose, and acts in an ethical, meaningful way. “Customers now are looking in a much more judgemental way at the organisations that they deal with,” says Conway. “This started with millennials, but it has now moved up the demographics.”

For example, people are more likely to discontinue their relationship with a bank because it’s not meeting their sustainability values. “Increasingly, customer expectations of banks will be about more than just their carbon footprint. It’ll be about the ecosystem of things that the bank interacts with and whether, societally and environmentally, it is using its power to drive good.”

Data security is another issue that customers expect their bank to take a lead on. Firms are, of course, well aware of the importance of robust cybersecurity measures. But in an increasingly digital landscape, the stakes will be higher than ever before.

If they can’t demonstrate that customer data is truly safe in their hands and used primarily for the customer’s benefit, they may find customers are unwilling to share more of it with them – and that could be hugely detrimental to the bank’s ability to provide truly personalised products and services.

Cassidy believes that banks must therefore strive to become true data custodians. “Without [customer] confidence in data – how it’s being used and where it’s being used – you can’t actually build those distinctive propositions,” he says. And ultimately, it’s these distinctive, personalised propositions that will determine who thrives and who gets left behind when it comes to digital banking.

Q&A: The future of customer experience

Paula Smith, partner and head of banking and capital markets at KPMG UK

How are customer expectations evolving in the financial sector?

The challengers that have come in have raised the bar of customer experience, and they’ve now raised it for everybody. So whether you are a mainstream bank or a building society, you have to provide that great customer experience because that expectation is out there. But you have not got a greenfield site to work with. You’ve got the legacy of years of core banking platforms, and yet you’ve now got some – but not necessarily all – of your customer base wanting to interact with you in a hyper-digital way.

How might the financial landscape change over the next 5-10 years? Will the shift to cashless accelerate, for instance?

Cash will still exist…and that’s partly generational, and it’s partly to do with the black economy (the unrecorded and untaxed portion of the economy). The other big thing that’s going to happen in the next few years is that we’re going to move into a completely different interest rate environment. We’ve been in a low interest rate environment since 2008, so there are individuals who have never known their mortgage to go up. It’s just been on a downward trajectory.

The advent of digital and the ability to provide insight and information also creates an expectation on the customer side that there will be some sort of proactive engagement. They want early warnings. They want alerts. They want insight into the direction of travel and how it will impact their disposable income. Whereas before, it was a letter through the door that came too late [to be of use].

What tends to frustrate customers when they’re interacting digitally? And will the option to speak to a human being remain important?

Digital interaction is brilliant as long as it’s brilliant. But any time you get below that level, you run into problems. If you have a fabulous website that’s totally intuitive, you don’t get customer frustration. But, if it’s not highly intuitive, then you do get customer frustration, and people want to speak to a human being.

There is also a generational play here. Someone who is twenty may feel that speaking to a human being isn’t necessarily that helpful. Whereas my default feeling is that if I can speak to someone, I can sort things out a lot quicker than I can through digital interaction.

How can partnerships with fintechs help to improve the customer experience?

There are some clear use cases for fintechs that will really help banks – one being the movement of data. So any fintech that can help move data from one source to another – whether that’s through open banking or whether that’s from accountancy software – for the benefit of the customer, and which allows them to then manage that data and interact with it in a better way, could be really helpful.

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