It used to be that banking involved going to a bank and talking to someone. Now you can send cash with a mobile phone number, be greeted by a robot in Brazil’s Bradesco Bank, or track changes in the stock market by listening to a sound that rises or falls with market performance.
The sound of stocks is an app from the Spanish bank, Caixa, and the robots are fringe developments, but banks have changed a lot in 20 years. And another thing is different: customers want more choice.
“Twenty years ago the bank would just ask customers ‘what kind of loan do you want?’” says Alistair Newton, research vice president on the banking sector at Gartner. “It was black and white. Now you’ve got a customer used to a multiplicity of choice in the non-financial sector.”
The result? People are used to on-demand services that respond instantly and give them a choice.
“The trouble for banks is that it is no longer a case of putting a single product out there that satisfies all your customers. What happens is that, even though banks put in significant investment, a new product may only cater to 5 per cent of their customers,” says Mr Newton.
That’s why the key banking trend in his eyes is fragmentation and the big challenge how to use technology to satisfy that fragmented customer base.
It’s not just a new loan offer every six months. Personalisation means more goods, more services, more control and more transparency for customers.
Personalisation means more goods, more services, more control and more transparency for customers
Some people have bet their business that this is indeed what customers want.
“Generally, the big players are not interested in making as personalised a product because they are trying to appeal to everyone. Their product just has to fulfil basic banking needs,” says Jon Belford, marketing associate at Kiboo, a New York start-up offering a dashboard aimed at helping young people control their finances with graphs and reminders.
The company is just one among many targeting this soft spot in the current financial sector and internet generation.
But can the banks be more customer-centric? They want to be. A 2013 report from Infosys, Innovation in Retail Banking, showed that after speeding up bureaucracy, increasing customer centricity was the second biggest motive pushing banks to change.
However, as the report also showed, they usually don’t manage it as only 21 per cent of banks have some form of product personalisation.
The sector has seen a few high-profile innovations that offer more choice, including video links to experts in branches and contactless credit cards, for example. But, bells and whistles aside, a lot of the innovation should be simpler: secure and useful online banking, mobile apps that work, relevant communication.
Online banking is now ubiquitous and mobile banking is also expected. But improving these services is not just another item on the to-do list, it’s a way that banks can really reconnect with their customers, says Mr Newton.
“Trust levels in banks have been damaged over the past five years,” he says. “This offers them the opportunity to start rebuilding trust with their customers. That can be something as simple as having a very intuitive tablet app to help map out pension options.”
Beyond simply making the customer happy, there are interesting pay-offs for banks in personalisation, especially if they are able to use data effectively.
“Banks have not dealt well with their historical data held on customers,” says Mr Newton. “They store reams and reams, but it is only used for small-scale solutions; and not very well.”
If this data could be used for analytics, banks could discover a lot more about the context of the customer and really personalise services to their time, location and habits.
That’s not an easy ask, but it could bring big gains.
“If banks can get their contextual computing right, then I think they could start to really rebuild this trust relationship. But there’s a world of difference between offering me a discounted loan and knowing I’m outside a Boots store so you can send me a mobile voucher,” Mr Newton adds.
Technology is an opportunity for banks, yet it’s also a problem. According to the Infosys report, the biggest barrier to innovation is outdated IT.
There’s also a yawning danger; witness the recent string of failures across the retail banking sector. The guts of banks’ technology still rely on mainframe computers – technology from the 1970s. They work, but the quantity and particularly timing of transactions puts them under pressure.
And though you can add new tech on top, the core remains the same.
“Every time we do a contactless payment there is a transaction that goes across a mainframe somewhere,” says Frances Coppola, an independent banking technology expert and former IT worker at RBS.
But banks don’t have time to fix up the mainframe, then deal with new consumer needs. They have to be doing both from the get-go or risk falling behind.
“It doesn’t matter how many glossy adverts you have if the basics aren’t working,” Mr Newton concludes.