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Customer centricity: A new criterion in the decision making process
As traditional established players, banks have to change their culture and move from products and services centricity to customer centricity. You may feel this is obvious and partly already done, with the introduction of digital channels and mobile banking apps, among other initiatives, but this is only the beginning of a new customer’s behaviour. All businesses will have to adapt to the new generation of customers – Millennials – who are digital natives, and always ‘switched on’. This changes a lot of things as they will have less loyalty to one service provider, and more opportunities to switch to another one, thanks to digital. Increasing expectations and user experience will drive their choices. A service perceived as outdated has no chance of survival. This creates new mandatory criteria in decision making processes: ultimately customers decide whether they use the service or not, based on whether they like it or not. This is a major shift in bank’s culture, historically more used to user than customer relationships.
Become an active player in R&D, innovation and new technologies
Hearing that regulations have opened up the market to innovative entrants, yet banks are reluctant to innovate, is very frustrating since banks are already used to investing a lot to transform many business lines. Perhaps this is not due to a lack of investment, but more because banks may be perceived as not joining the trendy path paved by Fintech start-ups. Certainly banks cannot talk about so called disruptive services as the ultimate solutions as many niche players do, whatever their success is. But at the same time, current drivers of innovation need to be changed. As an example, investing in R&D is not compatible with a request for return on investment (ROI) and a date for breaking even planned from day one.
Leverage own assets
As a matter of fact banks do not have the same skills as Fintechs or pure players, but they have assets others do not. Although the financial crisis has damaged banks’ reputation, current customers still trust their bank when it comes to their own money, payments, and banking services. Mixed with the market share and the scale of access to customers it brings, banks have a unique combination of assets: customer base, trust and reputation, risk mitigation expertise, and customer data. Obviously these assets won’t be enough by themselves to resolve the whole challenge, and they are at risk, but this is an interesting pillar to serve as foundation. Fintechs are certainly much more agile and suffer from fewer constraints, but one of their weaknesses is a lack of access to customers and visibility. And each of them still has to build its own reputation of reliability in this rapidly changing digital world.
Evaluate ‘make or buy’ and consider new partnerships
One of the peculiarities of banks, compared to Fintechs, is that banks have to build and deliver services at scale, for their vast community and diverse range of customers, with the right level of security and compliance with layers of regulation and risk mitigation. It is harder for banks to act as a niche player creating value added services for targeted users. Potential customers are not always numerous and cost structures of banks may harm economic sustainability.
To resolve this equation and find their own place in the new competition, banks may have to switch from services often fully built and processed in-house, to partnering with pure players at least on a certain part of the value chain. This is not easy as banks do not have a tradition of sharing businesses. All kind of partnerships could be contemplated: such as white label, co-branding, commercial agreements, equity stakes, and many more. In a nutshell, consider ‘make or buy’ as a basic rule for any innovative business. Not only is this a matter of regulation, but it is also necessary as confidence is part of the DNA of banks in their customer relationship.
Rejuvenating interbank cooperation
In some countries, banks have a very long tradition of interbank cooperation in the field of payments: cost sharing of domestic interbank processing capabilities, domestic cards schemes, standardisation, and so on. Obviously this has always taken the form of a ‘coopetition’, as competitive matters are never shared nor discussed collectively.
There is no chance that these interbank bodies could escape the impact of the new world, and indeed they have not: their domestic footprint in a European integrated market, their domestic scale in a growing merging world, the decision making bodies at the European level, the big cross-border players in a more than ever competitive landscape, these are all symptoms of the transformation of the sector. Banks should refrain from applying old interbank recipes, and instead create new ones. New forms of cooperation should be invented that are more agile, and more business and customer orientated.