Uneven levels of innovation across channels are putting banks out of touch with their customers, warns Dan Barnes.

Advances in branch technology are not being matched across other retail banking channels, increasing the risk of disintermediation as customers become increasingly well serviced by non-banks in the areas of money transfer and purchase.

As routes are developed that offer alternatives to traditional banking products – for example, MasterCard’s recently announced prepaid card that could be used in lieu of a current account – it is crucial that established players take a leadership role in exploiting the potential that IT offers. This means not only ensuring that the plumbing behind channels is operational and connected but that the points of interface for the customer are accessible and attractive.

Experts agree that a central challenge has stemmed from banks’ failure to reinvent themselves through new channels. For the most part they have instead applied their existing product set and systems to the new channel. “Most people within a bank see their core banking proposition and established channels, and then see the process as just adding new channels to this,” says Tim Jones, programme director at think-tank CSFI. “I have been addressing the problem of why this has been so unsuccessful – particularly with mobile phones, which have played a very small part in financial services – and I believe that this proposition is fundamentally the wrong way for banks to address channels.”

Jason Deering, senior manager at consultancy Deloitte, has worked on several projects across channels and believes that if one looks at other industries advances in this area, banks have reason to worry. “There are several areas of concern for banks to address at the moment; cards, web, call centres and mobile telephony, of which I believe cards is the most exciting,” says Mr Deering.

“As microchip design has progressed, cards have become a platform for technology. This increases their potential. We’ve done a lot of work on exploiting this potential, particularly in the stored value area but a lot of this has been outside of the financial services community.”

The take-up of stored value cards globally, often designed to allow micropayments for specific purposes, is increasing customer comfort with the concept. With many stored value cards issued by non-financial service providers it may be that existing schemes extend beyond their current specific remits and begin to allow micropayments for other purposes, stealing a march on banks.

Card of choice

The UK’s Transport for London has successfully implemented the stored value, contactless Oyster card journey payment. “That London Transport is ahead of the banks in terms of payment technology is quite amazing,” says Mr Deering. “Banks are almost universally laggards in launching new technology to market.”

Another example is the Moscow Social card, a multi-function card branded by Visa Electron that holds identification data and functions as a payment device. “The card allows both contactless and contact-based interactions, can hold a range of information including stored value, and supports the ability to extend its functions. The question is whether retailers or banks will be the first to try to exploit that,” Mr Deering notes.

He also says the potential exists for payment devices to hold value, rather than accessing it from a system, and they may become disassociated from established payment mechanisms. Beyond that, with the rise of contactless payment mechanisms, there is also less need for a card to be used. Customers’ chips could be implanted in other devices – even themselves, he says. “There is already a nightclub in Barcelona that injects a capsule under the skin of high-value customers, which functions as both a debit payment device and access device to particular areas.”

Online, few banks are demonstrating serious levels of innovation. “When banks develop an internet offering they take several processes that exist within the bank, and then invent additional processes to connect these processes – it’s no wonder that service is so often abysmal,” says Simone Martin, strategy manager at Deloitte’s consulting practice. “British Airways allows you to book travel anywhere in the world, reserve your hotel and hire a car from the front page of its website and you don’t need to have had any prior relationship with it. Comparatively, a bank you’ve been with for 30 years takes between five and seven days to send you a credit card.”

The failure to innovate online is materially hitting business, Ms Martin believes. Recent research from YouGov indicates that online, customers are far less likely to purchase financial products or interact with their providers than for other products. “54% of respondents used online banking to check their balance, 22% used it for transferring funds, 17% did not bank online, 1.2% would use the internet to compare products, 2% to set up direct debits and only 0.2% would buy financial services products online. You are far more likely to buy food or jeans online than a banking product.”

Mr Deering says that few banks have made the leap to the retail mindset in order to compete, pointing to HSBC as one of the few that are pushing this concept (see below).

Consumer pressure

Roberta Arena, group general manager, e-business solutions at HSBC, acknowledges that consumers are forcing businesses to improve. “There was a great quote from one gentleman that came from a focus group we ran. We were discussing email response times and it had been suggested that 48 hours would be reasonable. He said ‘48 hours? I could fly to India and back and get the answer myself!’”

Ms Arena believes that banks should not necessarily try to pre-empt the public, but rather respond to customer demand in a timely and useful fashion. “It is really revitalising the whole payments area at the moment. That area hasn’t had a real revolution since credit cards arrived 30 years ago. I think we’re due for one with the current convergence between point of sale [PoS], debit cards and mobile phones – PayPal mobile is a good example – there’s a cauldron of activity there and enough momentum for people to start changing their payments habits, thanks to things like Oyster and Octopus [Hong Kong’s micropayments card] schemes.”

Many channels are not fully mature with new functionality being added constantly. Ms Arena gives the example of push-to-talk functionality on websites that allows customers access to online and voice simultaneously. “Where customers are looking at a considered purchase we are really pulling phone and online together, the notion of multi-channel selling, and we’re receiving some very positive results testing this globally.”

The younger generation will help to drive convergence, as certain technologies become accepted as standard, says Mr Jones. “Younger generations have mobile phones, and wouldn’t be without them. They have access to broadband, and when banks begin to address channels in combination then we will see a change in quality of service. The trick will be to present instantaneous banking through this combination of mobile and broadband – at that point, money management has moved on.”

HI-TECH GIZMOS AT HSBC

At HSBC’s technology showcase on display at its London headquarters, the bank gives its executives from around the globe the chance to investigate technologies that they could employ:

  • The interactive window from Perception, which can also be used to display a mirror image of the wireless tablet, can target tailored advertising through an interactive “poster” that customers can touch-activate.

 

  • As the customer approaches the self-service area (Totem by John Ryan) of the branch, their attention is drawn to the electronic advertising campaign being displayed via Digital Signage technology on LCD or plasma screens. Advertising content can be controlled centrally and changed as required. This dynamic digital messaging system allows potential targeting of messages by site, by zone, by screen and by time of day.

 

  • The knowledge of how to improve the customer’s experience while waiting in the bank defines what the Queue Management System Matchmaker machine does. It helps improve the waiting experience and manages customer flow. It has been installed and piloted in more than 20 branches.
  • A wireless tablet computer, held by a bank relationship manager covering the floor to aid mobility and a faster, more advanced personalised service. Using the customer relationship management system, relevant data and marketing potential that the bank holds on the customer is shown on the wireless tablet. For example, details of which adverts they have been shown on internet banking recently, their preferred language or whether they have a mortgage with HSBC.

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