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  • 20 September 2018 17:48

Banks must respond to soaring customer expectations as non-traditional competition looms

World Retail Banking Report 2018

In addition to traditional challenges, retail banks globally are now facing high-impact new forms of competition: the open banking ecosystem, emerging technologies, and soaring customer expectations. This is according to the World Retail Banking Report 2018 (WRBR 2018) launched today from Capgemini and Efma.

The report finds that: • Satisfaction is low: Barely half of customers say their experience across different bank channels was positive (51.1 percent in branch, 46.9 percent on mobile and 51.7 percent on internet banking), despite continued bank investment. • Consumers are open to BigTech: Nearly a third of customers (32.3 percent) might consider BigTechs for financial products and services (that includes 43.0 percent of Gen Y respondents, 53.0 percent of tech-savvy consumers and 70.2 percent of those already likely to switch their primary provider). • Personalization is key: Satisfaction was notably higher among those customers who had been offered personalized digital experiences proactively (49.1 percent) than those who had not (39.5 percent).

“Interestingly this year, one area of focus was around Australian customers' likelihood of purchasing non-banking services from their bank. These once far-fetched ideas are now in experimentation. For example, the bank is one of the first places you let know you are travelling, we increasingly rely on our cards working overseas. So once consent is provided, why can’t they broker additional products and services based on your data? We acknowledge this is early days, but we might not be that far off from this,” says Philip Gomm, Head of Financial Services at Capgemini ANZ.

The report also surveyed banking executives about the main causes of industry disruption. The most-cited factor was rising customer expectations, with nearly three out of four executives (70.8 percent) stating that positive experiences in other sectors mean customers now expect more from their banking provider. A majority of executives (58.3 percent) also said that regulatory pressure was a cause of disruption, while 54.2 percent identified the increasing demand for digital channels as a factor. As lines between traditionally different industries now start to blur, banks now face increasing competition from non-traditional firms who are targeting niche areas of the banking value chain. Also, increasing digitisation and explosion of new technologies are rapidly changing the banks’ ways of working.

“Australian banks are interested in collaborating with Fintechs and Bigtechs to make this happen, with 58% of banks beginning to think of their business as a platform. The bank of the future will look nothing like the bank of the past,” says Gomm.

A significant majority of banking executives (70.8 percent) think they can ‘generate non-traditional revenue’ via collaboration with FinTech and BigTech providers, whether to develop a new service or distribute third-party products via a marketplace platform. Most banks believe there are untapped opportunities to make more strategic use of data to improve the customer experience: executives said they plan to use customer data to create smoother customer journeys (87.5 percent), develop relationship-based pricing (75.0 percent), build personalised loyalty rewards (58.3 percent) and create lifecycle-stage products and services (54.2 percent).

Gomm adds, “Banks are interested in new revenue streams beyond traditional avenues and made increasingly possible by building an open banking ecosystem. To stay one step ahead of their competitors and identify new forms of revenue, many are looking into collaboration with third parties to delight customers with new experiences. For example c-suite bank executives need to be prepared to position their organisation as an owner of the future customer relationship, not a participant. They need to be able to talk to the bank's strengths and identify new revenue streams and identify who they are best positioned and willing to partner with.

“NAB working together with Xero as an SME/ERP financial manager is a great indication of a major being on the front foot in terms of embracing the emerging model. A couple of recent acquisitions and strategic partnerships, including ANZ/RealAs and NAB/REA are also indications that both are thinking creatively around how they can position an ecosystem of service partners in support of the critical mortgage marketplace.”

Meanwhile, Philip notes Westpac is still dealing with the complexity of managing multi brands and needs to accelerate simplification of its architecture, while CBA has scope and scale to remain immune to these challenges for now.

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