International Banker

Blog: Innovating in Uncertain Times: What Can Financial Institutions Learn From Other Markets?

September 21, 2020  |  MATTHEW PHILLIPS

The coronavirus has churned the bedrock of “business as usual” for organisations globally. This shift is impacting all areas of modern life, including how individuals interact with money and banking services. Social distancing and safety measures are directly influencing our ability—and inclination—to complete banking processes in person, as institutions work to protect their employees and customers. Users are, therefore, migrating en masse to online and telephone channels to engage with their banks—a shift of such suddenness and severity that it has never been seen before in financial consumer history. These digital functions are now facing user traffic at volumes that no bank or team of developers could have feasibly predicted.

We are witnessing history—and while this shift in how customers engage with banking services is not the only historical shift we are seeing, it is one that will sustain and change the way the global banking industry works forever. Banks must now consider the reality that their customers will need to bank remotely, or at least with minimal human contact, for the foreseeable future. This uptick in remote engagement is likely to sustain beyond that point when lockdown measures are eventually lifted, as consumer habits will no doubt see profound change hereafter.

So what does this mean for banks? It’s a landscape with a lot of moving—and still emerging—parts. But, importantly, it’s an opportunity for banks to flex their capabilities and customer-centricity. As well as working swiftly to accommodate the meteoric spike in digital engagement, banks can now spend time critically assessing how they will evolve their offerings to meet the needs of the (as-yet uncertain) future. And there is plenty of inspiration to be taken from retail-banking landscapes around the globe. 

UK state of play

The United Kingdom has traditionally been a bastion of bricks-and-mortar banking—with physical bank branches a comfortable mainstay of the high street for consumers to access financial services. In recent years, though, we’ve seen the number of branches fall dramatically, as cost pressures and improvements in technology have driven banks towards digital and online strategies. In some cases, community protests and pressures have caused organisations to reevaluate their plans, and some have instead created community hubs, where customers can learn digital skills or even pick up a treat for a pet—as well as fulfil their banking needs.

So, while banks have continued to honour many consumers’ preferences for bricks-and-mortar banking, while lockdown and social-distancing measures continue, many physical branches will remain closed. This means that preserving physical bank branches becomes a longer-term initiative, and the mechanics of how this will work will need to be revisited once lockdown easing begins further down the line. Reopening any branch will need to be carefully considered from a practical perspective and in line with government guidelines to protect customer and branch-colleague safety.
In light of this, the more immediate priorities for banks in the UK are to flex their offerings to meet customers’ current needs, find the fault lines in their current product suites under the new pressures of coronavirus, and address them by focusing on innovating solutions. One such example is that many banking products require in-person customer verification, in accordance with Know-Your-Customer (KYC) regulations. Developing a compliant alternative that enables customers to engage with these products means that automation will become a priority in innovating the customer journey.

Inspiration from the Middle East

One region that is leading the pack in retail-banking innovation—and from where the UK could take some forward-thinking digital learning—is the Middle East. There, banks have been deploying digitally enabled, multi-function kiosk technology for more than a decade—with customers able to open a bank account at one of these kiosks in a few minutes and walk away with an embossed card, chequebook and the necessary online banking login details. In comparison with the UK, where bank-card issuance is done via post and can take up to two weeks, this technology could unlock operational efficiencies and considerable time savings for both banks and their customers.

From a security perspective, in-person banking kiosks are underpinned by thorough and discrete privacy functions. To comply with KYC requirements, a member of the bank’s staff is required to supervise either in person or remotely—but, thanks to the efficiency and effectiveness of the kiosks, the personnel ask is minimal. Bank customers in the region have broadly accepted this technology, and we have not seen any impact on brand loyalty, which could be a potential concern in the UK’s retail-banking landscape.

Since these kiosks are often supervised by—albeit, minimal—branch staff, they could provide an effective middle ground between traditional bricks-and-mortar banking (for which human interaction is favoured) and digitally self-sufficient banking services. In light of the safety guidelines shaping the “new normal” that we will move into later in the year, we could see this technology proliferate in other markets. 

Keeping laser-focus on what customers want

Another avenue of innovation that has captured attention is the use of digital bank tellers via video functionality at self-service stations. Banks in the United States have been much higher adopters of this technology than their European counterparts, despite clear efficiencies and cost benefits. Why? Fundamentally, there is a difference in customer preference. Ultimately, banks’ perception of the functions that self-service technology can perform should be informed by what customers want and will be willing to use. The reality of the UK market is that many customers prefer the “human touch” when dealing with their finances. It’s important to ensure that customers are comfortable with the mode of their banking, and, for many, a video may feel too impersonal for something as personal as their cash.

This is a strong example of why we must balance innovation with customer-centricity—and a reminder that banks cannot and should not innovate for innovation’s sake. There are certainly arguments for integrating video capabilities into self-service machines as part of an informed technology roadmap but always with the customers’ wants and needs in front of mind.

The value of cash recycling 

Cash recycling—whereby a machine accepts deposits of physical cash, storing the tender in a built-in safe and administering these notes for withdrawals or cheque-cashing transactions—has seen great traction across Europe, although not so much in the UK. Arguably, deploying these machines widely in the UK could help to minimise scenarios in which customers need to interact with other people when doing their banking. Plus, since these machines have in-built safes, it could mean that fewer journeys are required to fill up or collect deposits from these cash machines.

With this in mind, we are likely to see more banks in the UK trialing and deploying deposit solutions, with customer feedback from international solutions shown to be positive. This would give access to deposit services 24/7, providing complete flexibility, for example, for key workers that might work cash-in-hand jobs.

Taking stock of innovation strategies

At the heart of all banks’ innovation strategies throughout these uncertain times, alongside customer needs will be a renewed focus on efficiency. For many banks, this period presents a unique opportunity to take stock and assess their innovation plans. In amidst the uncertainty of the times in which we are living, circumstances are creating valuable space for banks to envision what their services of the future could look like—and to tie their sustainability agendas to these innovation initiatives—to achieve their goals across multiple areas of the business.

The reality is that we are not in a period of “business as usual”—and we won’t be for some time. Evolution in customer needs has shifted, suddenly and seismically. Banks now need to look at how they can turn challenges into opportunities, innovating banking services in a way that creates efficiencies on both sides, while retaining laser-focus on the needs of customers.

First appeared in International Banker

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