Think customer first – and last

The world has changed considerably from the days when customers put their best suit on to visit the bank manager. Today’s consumers are showing they are open to ideas, are flexible and are looking for innovation. Figures from technology research company Forrester indicate that 8% of a typical European bank’s interactions with customers occur through the bank’s call centre, 20% via the internet, 30% at the branch and 42% at the automatic teller machine (ATM).

Meanwhile, plastic cards – including bank cards – are widely used for non-cash payments in most developed countries. According to the UK payment association APACS, debit card purchases reached £3.4bn in 2003 and credit and charge card purchases reached £1.8bn. This compares with plastic card withdrawals at ATMs and branch counters of £2.5bn.

While consumers may be happy to make payments and interact with their bank through convenient – and cheaper – banking channels, they still expect high standards of service. In fact, although it has been joked that the average UK consumer is more likely to get divorced than change bank, consumers are becoming more savvy. Not only are they willing to shop around for different banking products, they are also increasingly willing to change bank if the quality of service is not up to scratch.

Multiple channels

Multi-channel banking has significant advantages for consumers and banks alike, providing a 24/7 banking experience for the consumer and a cost-effective method of dealing with customers for the bank. However, although the cost-saving advantages can be considerable, the success of multi-channel banking lies in providing a consistent service that reflects the bank’s brand and image across all channels.

Cost cutting

Taking the cost-cutting approach of multi-channel banking a step further, outsourcing parts of the banking business (such as call centres and back-office functions) may also be appealing. However, because outsourcing can be such a political hot potato in terms of potential (or perceived) job losses, standards and security, experts warn that it should be considered only as part of a long-term business strategy. As Mike Harvard, managing director of CM Insight, explains: “Start with a blank sheet of paper and map out how outsourcing could enhance your business. Don’t focus on the cost issue – think of this as an opportunity to enhance your customer experience delivery and do things you might not otherwise be able to afford, as well as strip out cost.”

There are many outsourcing business models, including onshore, nearshore and offshore (see below). Each has their own particular attractions, but cost is only one factor that should be taken into account. Other considerations may include differences in time zone between your location and the outsource location, cultural alignment, understanding of complex financial products, availability and stability of labour resources, as well as the level and the type of assistance provided by government and other organisations during the outsource process.

Banks looking to outsource overseas will encounter different value propositions from a host of countries. For example, top outsourcing areas for the US include India, Canada, China, Ireland, Eastern Europe, the Philippines, Africa, Brazil and Mexico. Of these, Canada has the major advantage of being English speaking and closely aligned to US culture, values and business. In addition, it has a compatible legal system to the US and operates in the same time zone. However, wages are higher than in Asia and the workforce is largely concentrated in the larger metropolitan – and more expensive – areas.

Countries such as South Africa and India, meanwhile, boast a highly skilled work force where call-centre jobs are sought after but costs are low (see table download). However, their time zones and the time it takes for senior executives to visit operations in these countries can be a disadvantage for some banking organisations.

Despite this, both India and South Africa have become attractive propositions for UK-based businesses. South Africa is only two hours ahead of UK, while India is five and a half hours ahead. Furthermore, English is widely spoken, and – in South Africa in particular – the average British consumer is familiar with the accents and cultural reference points.

“If you recognise from the outset that your move offshore is a long-term strategic decision, not a short-term, cost-focused fix, your chances of success will be greatly enhanced,” says CM Insight’s Mr Harvard. “And that’s certainly the message that’s emerged from the experience of the last five years.”

Keeping customers onside

While outsourcing certain banking functions may provide an opportunity to cut the costs associated with some banking channels, the point of sale (POS) also provides opportunities to cut costs and enhance customer service. The Cards Working Group of the European Payments Council (EPC) estimates that the cost of cash to the European economy is €50bn. A disproportionate amount of that cost – €32bn – falls to the retail banking industry.

Meanwhile, research from independent consultancy Economy.com on behalf of APACS and its members (in a report entitled The credit card industry’s contribution to the UK economy) reveals credit cards deliver a cost saving of approximately £5.5bn per year through substitution of more expensive paper-based payment methods.

Because card payments are cheaper to process, banks are encouraging consumers to make card-based payments.

“As banks upgrade their payment infrastructure for new technologies, especially EMV (Europay, Mastercard, Visa), they will be able to enhance the payment experience at the POS, in the same way that they have enhanced the customer experience across other points of contact,” says Aneace Haddad, chairman of Welcome Real Time.

Because it is difficult for banks to differentiate themselves at the POS in terms of speed, security and convenience, many are now looking for new opportunities to add value for customers, as it is a widely held view that the retail store and POS will increasingly be where banks win or lose the consumer payments war.

Turkey’s Akbank has seen successful with its Axess Card, which lets customers pay with the card’s standard credit function, or, alternatively, choose an instalment plan to pay off high-ticket items faster, at a discount.

The choice is made at the POS. The customer’s receipt now includes additional information such as their cash-back balance and reminders of upcoming promotions. The receipt will sometimes indicate that the customer has just won a surprise gift, which the merchant promptly delivers on the spot.

“Since upgrading its POS infrastructure, Akbank has experienced substantial growth in cardholders and merchants,” says Aneace Haddad. “From 2002 to 2004, Akbank’s Axess card base grew 2.5 times to three million cardholders, and the Axess merchant network grew to more than 80,000 participating merchants.”

There are many ways in which banks can reduce costs in their retail banking portfolios. However, as the experts warn, if those savings are to have a positive long-term impact on the bottom line, the needs of all stakeholders have to be taken into account. OUTSOURCING BUSINESS MODELS Why onshore? Onshore models of outsourcing involve partnering with providers that have a base in your domestic market. This tends to be the most costly method, but has advantages in terms of geography, culture and language. Why nearshore? Nearshore models involve the use of facilities in a foreign country within the same continent. They often give organisations a higher degree of cost savings than onshore models, while providing a greater means of communicating with the partner than an offshore model. Why offshore? Offshore models involve the use of facilities in a foreign country, normally in a different continent. They often give organisations optimum cost savings, but consideration has to be given to perceptions of cultural fit as well as loss of control.