“In the future, the [banking] interface will not be a branch, a computer, or even a phone”
Similar to many financial and non-financial industries, retail banking is directly affected by new innovations and developments such as AI, machine learning, contextual design or the cloud. The way these will impact the current market players and the opportunities they open to newcomers is something still to be seen.
Today I talk about these and other issues with Jim Marous, an internationally recognised industry futurist, co-publisher of The Financial Brand and the owner and publisher of the Digital Banking Report. Named as one of the most influential people in banking and a top 5 financial services influencer to follow, Jim has also advised the White House on banking policy and has more than more than 150,000 people on Twitter and LinkedIn.
The following quote by Alex Rampell has been moving around Twitter and Linkedin in the last weeks.
“The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation.” pic.twitter.com/NIVjd8Qi1Z
— Gary Turner (@garyturner) January 21, 2017
How does it apply to the current environment in which challenger banks are fighting to become a real threat to incumbents? Is it realistic for them to get a significant customer base?
I am not sure if I agree with the quote. In most cases, the startup understands the distribution model they want to support – it is usually a digital (or mobile) distribution model. This form of distribution avoids the challenges of a physical facility while being able to reach an increasingly digital audience. What the startup is really challenged with is scale –or the ability to change enough consumers’ behaviours to gain relevance in an increasingly crowded market.
Alternatively, I am not sure if the legacy organization is more challenged with innovation or the ability to apply advanced analytics to improve the customer experience. The typical consumer has been with their primary financial institution for over 7 years, with the bank, credit union, insurance firm or wealth manager collecting insights during this period.
While financial firms have been great at developing robust internal reports with this data, they have been far less adept at applying the insights for the benefit of the consumer. Our research shows that the consumer wants to share their personal information and the banking industry wants the insight as well. There is a personalization gap, however, where there is little or no value provided by most financial organizations for the insights collected.
To win the hearts and minds of the financial consumer, the financial organization (startup or legacy firm) will need to provide contextual benefits to the consumer in real time. These benefits will extend beyond traditional financial services to include all aspects of a consumer’s daily life, with traditional products being in the background of daily commerce.
Related to this, would you agree with this quote by Kantox’s CEO Philippe Gelis?
👍👍👍 “The ultimate neobank battle will be about mortgages”https://t.co/mkn1preeOl
— Kantox (@kantox) February 14, 2017
The future battles for the consumer will be played out on many fronts, with all solutions being in play. It will not be about mortgages, personal loans, credit cards, time accounts and checking. It will be about providing a platform where all financial (and non-financial) needs can be proactively met without a distinction as to the product or service. The battle will revolve around which organization(s) can be at the center of a consumer’s daily life. Why can’t my bank be my personal concierge for transportation, entertainment and hospitality, retail products, groceries, and insight… being in the background of everything I need and want?
There will definitely be a battle around the simplification of the home buying process but it will extend beyond mortgages to include the research, purchase (realtor), financing, insuring and ongoing upkeep of the home. This will go far beyond traditional financing tools to include IoT devices. The home buying process happens infrequently. The battle will be around the entire home ownership experience.
You recently launched a new Digital Banking Report (“Improving the Customer Experience in Banking”), which explains how customer experience is the new battleground to differentiate and compete. What do you think of this excerpt from our interview last week with Citi’s Tony McLauglin?
It’s true that a good customer interface adds value to the customer experience, but such interfaces may be relatively easy for traditional players to replicate. Better design is welcome in banking, but good design in one domain does not necessarily transfer to another. Consider the number of banks that have set up branches to look like Apple Stores; while Apple Stores are filled with customers, their banking counterparts are often noticeably empty.
The interface is just a small part of the customer experience equation. In the future, the interface will not be a branch, a computer, or even a phone. The interface will be seamlessly integrated into everything I do and will be connected by a wearable or by voice through my Amazon Echo or Google Home device. The winners will not need to wait for a consumer to request a product or do a transaction.
In the future, with the use of AI, machine learning, contextual design and the cloud, financial organizations will be able to anticipate needs and provide advisory services to assist the consumer in making the right decisions. Banks are used to providing their customers a great ‘rearview mirror’ perspective of what has already occurred. In the future, winning financial firms will provide a ‘GPS view’ of future needs and changes in financial position.
As with all the other retail banking trends we identified this year, the effective use of data for the consumer’s benefit will be the foundation for success.
It’s becoming more and more usual to hear this background sound of how Amazons, Googles and Apples are entering the banking game. Is this really happening?
Put another way, in Arthur Conan Doyle lingo, Amazon has the means, motive, and opportunity to do banking:https://t.co/u7aqSPNZko
— Alex Rampell (@arampell) February 15, 2017
While the possibility of one of the tech companies (or telcos) entering the banking industry is possible, the ultimate ‘power play’ is owning the customer experience. Why become a bank when you have the opportunity to provide an amazing experience layer for the consumer, providing a gateway to a multitude of financial services organizations. Much like Amazon provides access to the entire retail industry, why not provide the same access to financial products? We already see Amazon and Chase partnering to provide a very competitive credit card with great rewards for Amazon’s Prime customer. Why not the same type of partnership for other financial services. Beyond just a branded product, Amazon (and other tech firms) are in a position to provide recommendations and non-financial services through their advanced analytics.
Linking the two previous questions, I recently bumped into this tweet…
@JimMarous consumers deal with Banks because they HAVE TO. Consumers deal with Amazon and Uber because they WANT TO
— Tom Noyes (@noyesclt) February 15, 2017
One of my favorite quotes in a long time, especially when you think about the ‘why’ of the quote. The 15 year old who cuts my lawn asked if I would be willing to pay with Square Cash this year instead of cash or check. When I asked him why, he said,”Because I don’t want to go to a bank.” Most people don’t want to go to a bank… or even a retail store. This trips are usually done out of necessity. On the other hand, Amazon and Uber are better experiences than the alternatives. Using data as the foundation, they eliminate steps that are the most painful. This includes the travel time to shop multiple stores, or the inconsistent experience and challenges of paying for a taxi.
Winners in the future will use data to make a consumer’s life easier. Technology already exists to allow me to shop for a preferred financial institution, open an account, get a loan, make payments and transact without ever going into a bank. The problem is that many banks have not committed to providing this capability or have focused on cost savings as opposed to the customer experience.
Do you think automation and AI have the potential to disrupt retail banking (e.g. eliminating the need for human jobs as it’s happening in other parts of finance)?
Automation, robotics, AI, machine learning, etc. will definitely impact the banking industry as it is impacting all other industries. What will be interesting to see is whether the banking industry will view these capabilities from the perspective of a cost savings opportunity or as a way to provide an improved customer experience. Most implementations of these capabilities up to now have been around cost reduction. This is what has plagued early efforts to move from physical to digital distribution. The focus has been on reducing costs. In the future, the consumer will wise up and will make their selection of financial institution based on the experience they receive. As I mentioned with Amazon and Uber, the reason people like these firms is because the focus is on the experience. There is no doubt, however, that many jobs in banking (and elsewhere) will be replaced by smarter digital options.
Last question. Open Banking: Hype or disruption?
— BI Intelligence (@BIIntelligence) February 17, 2017
Open banking is more than hype, but part of an overall evolution of the new definition of financial services. As has been discussed, the ability to partner with outside developers has the potential to 1) Improve the functionality and delivery of financial services and 2) Redefine what banking will be in the future. In conjunction with the updating of core systems, open banking can jump start the entire innovation and product development process within legacy banking organizations. More importantly, open banking can expand the realm of what banking represents.
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