This article is part of The Banker’s Special Report, A new era in retail digital sales for CEE banks, in association with Backbase.
Q: What are the biggest challenges to improving the onboarding process in retail banking?
A: Customer onboarding is the e-commerce of banking. It is a good analogy because e-commerce is all about removing any friction in the process to increase the conversion rate. For more than a decade, e-commerce companies have been deploying digital capabilities, from dynamic pricing and a one-click buying experience to 24-hour and overnight delivery, to remove friction from the customer journey. That now needs to happen in banking.
Customers want instant results; they don’t want to come to the branch or fill in multiple, complex forms. The challenger banks have proven that it is possible to onboard customers in minutes with a smart, lightweight process, without compromising on security and compliance. The aim is simplicity and removing as much friction as possible to optimise conversion.
Another major challenge is that most incumbent banks have fragmented, siloed systems. An existing customer may be interested in buying another product, but behind the scenes it resides in a different system. The customer is forced to answer the same questions again for each new product, causing friction and drop-offs. The systems are not designed holistically, which is expensive to maintain. Banks need to rationalise their systems to be real-time, paperless, branchless and enable a 360-degree view of the customer.
The existing IT landscape and channel architecture is a hodgepodge of many generations of different systems, and that architecture will not survive. Without facing material competition, historically, banks could do a suboptimal job and still make profits. But now with ‘big tech’ and fintech entering the fray, these old friction-filled experiences are unacceptable.
This is the decisive moment — a bank can’t duct tape its systems again. It is time to fix the root cause and do it properly, or the bank will lose competitive strength.
Q: What are the challenges banks face today in up- and cross-selling to existing customers?
A: Up- and cross-selling is strategic because these activities grow a bank’s share of wallet. A customer with a single product, such as a current account, is usually not very profitable and could even be loss-making. Therefore, share of wallet is directly linked to the future strength of the bank. As such, being more efficient in up- and cross-selling directly correlates to the bottom line.
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One challenge to improving efficiency is system fragmentation, as mentioned before. Another challenge is delivering the required data about the customer to staff, so they can put the right offer in the natural path of a customer journey at the right moment, without being intrusive.
That is the name of the game. This is already happening on digital platforms such as Netflix, Facebook and online in-game purchases. A Netflix customer, for example, can go from one to two users in a household so they can watch different programmes at the same time – effectively the up-sell in just one click.
It is subtle and seamlessly embedded in the normal journey of the customer. In banking, however, I don’t see many of these frictionless journeys of seamlessly activating additional capabilities that will significantly uplift the share of wallet. But it can be done by designing the customer journey properly, thinking customer-first and removing obstructions in their path.
Q: How can banks empower employees to drive digital sales?
A: The main problem is that customers and employees work in different systems in most banks. There are customer-facing systems, such as online or mobile banking channels, and then there are employee-facing systems, such as branch environment or call centre environment. These operate in a fragmented way.
Backbase has a simple, but powerful, solution: one engagement platform to both delight the customer and empower the employee. The customer journey is seamless and the employee can assist the customer within the same system, data set and rules engine. Both sides experience the same reality because they’re working in the same system.
I believe that is the future of the engagement layer in banking. It is similar to a food delivery service: restaurants, customers and delivery people all work on a single integrated platform that delivers high performance and high conversion. Fundamentally, the banks that opt for this type of architecture have a much better chance of survival in the face of competition from fintechs and the Googles or Amazons of this world.
Q: How important is the adoption of cloud technology to a bank’s digital strategy?
A: From a strategic perspective, cloud technology enables banks to outsource a lot of complexity. Previously, they would have to own their own data centre and hire at least 30–50 people to run the data centre and all its operations. Although the larger banks have enough assets and people to pull that off, the economics don’t add up.
We are clearly in a world where it doesn’t make sense to have your own data centres and acquire all the talent to run them. Instead, a bank can outsource to cloud vendors and specialist players, such Backbase, who can do this at scale and share the cost across multiple banks.
Q: Where do you think the greatest competition is coming from — fintechs, big techs or historical competitors?
A: Competition is coming from all angles. There will always be a place for banks, but they need to fight back and have a smart digital operating model to be competitive.
Digital wallets will have a big impact on retail banking because big tech, marketplace and e-commerce providers can own the payment interface through them. The wallets by the Googles and the Apples of this world stand a good chance of becoming the primary financial application in a customer’s life, which is a powerful position. Same with fintechs: Square’s Cash App, for example, has more than 30 million monthly active users.
In future, both big tech and fintech will take a significant market share because they are digital first, they own the customer experience and they’re embedding financial services directly in their ecosystem and in the customer’s day-to-day behaviour.
Q: Should banks aim to be a platform or an ecosystem?
A: Both, but it all starts with the bank deciding whether it wants to own the customer experience. That is important for many banks, if they don’t want to become an invisible financial factory. In the past, branches were a vehicle to grow market share, to have proximity and to be top of mind for customers. Neobanks, such as Revolut, are building apps aimed at driving the highest frequency of customer use. They want customers interacting with these apps four or five times per day versus once per week.
Being the preferred app, or platform, means the bank can own the customer experience layer. If they do not own that layer, then over time another competitor that provides a slicker experience than the bank will have a better chance at making the conversion.
With an established back office to do risk assessments and quick loan processing, a bank can provide banking services and capabilities directly in its own experience platform and capitalise on the traffic. The bank can also repurpose those capabilities in third-party platforms or ecosystems. For example, a bank can team up with an e-commerce provider and provide buy-now-pay-later or spot lending in the shopping basket experience. In future, there will be more partnerships where banks provide their ‘headless’ financial product engines and drive more traffic via marketplaces or e-commerce players.
But these models — platforms and ecosystems — don’t necessarily exclude each other. As illustrated, banks can be the platform, providing a great customer experience, where they can up- and cross-sell directly. A bank can also turbocharge its business by repurposing those same core banking capabilities in the context of a third party that owns the experience.
Q: How can banks enable a differentiated customer experience?
A: It starts with the bank’s leadership. If the leadership is content with doing digital a little bit on the side, then there is a high probability of them having a BlackBerry or Kodak moment. They remain in the existing model, which still generates enough margin and profit for survival today, but is also preventing the bank from biting the bullet and making the digital shift. Many of these digital transformation programmes are stuck in the old mindset.
Many leading banks, such as BBVA, ING and many of our customers, have made that shift to embrace digital in the core of their business. The difference is attitude, determination and decisiveness to move beyond a digital veneer to a complete reset of how they work.
