Banking institutions face an array of daunting revenue and profit challenges in 2012 as they grapple with cut-throat competition from other banks and financial companies as well as a growing dissatisfied customer base. Customers are listening to and becoming increasingly concerned with the endless political chatter (in the old and new media) focusing on the ‘good, bad, and ugly’ – with emphasis on the ‘bad and ugly’ of continual (unnecessary) product fee increases coupled with a lessening of service efficiency and effectiveness and outrageous executive compensation packages and golden parachutes.
2012 Bank Influencers
What key influencers will face the banking industry in the New Year? In the US, the housing crisis, access to credit markets and high unemployment will persist as obstacles for full recovery. In Europe, the euro debt crisis will continue to threaten the continent and the global financial market. In China, currency valuation and government fiscal and monetary policy will have continuing negative impact on the world stage. Healthier financial geographies around the globe are too small and too export-oriented to escape a downturn in the West.
In 2012, within this unpredictable and impulsive background, banking institutions will need to re-evaluate the type, pricing and delivery of products to customers with key goals to improve revenue and profit in tandem with improving customer loyalty and increased wallet share. Previous years’ strategic considerations focused on growth. In the current unsettled economy, a new consideration is survival! Banks are reacting with a variety of strategies including crafting and implementing strategies and plans for profitability and competitive capabilities, products and services enrichment, precision pricing, and targeted customer acquisition
In the face of this market quandary, bank expenses generally are being trimmed across the board with the exception of technology. For example, in 2011, technology investment increased and 2012 appears poised for modest growth. In this climate, banking executives will need to re-examine their value proposition with an eye toward more creative and effective use of technology. There are numerous practices available to slash costs but the only way to concurrently shrink costs and innovate is to leverage and exploit the bank’s technology assets focusing on the customer touch points.
Key Banking Technology Investments
For 2012, key banking technology focus includes:
Mobile Environment: Mobile has become one of the fastest growing business tools and is changing the traditional banking paradigm. Apple’s success with iPhone (and iPad) and the rapid growth of mobile devices based on Google’s Android have led to increased use of special client programs, called apps, downloaded to the customer’s device. Mobile banking is quickly moving from a “techie” to conventional capability that is changing how consumers think about and handle personal finances.
Customers can now easily acquire apps through the Apple and Android marketplaces, by scanning a promotional QR Code (Quick Response bar code) or requesting a link be sent to their mobile device while visiting the bank’s website or Facebook page.
A recent report by market research provider First Annapolis found that 54% of top 100 US financial institutions surveyed offered a selection of mobile banking services. In this regard, consumers are conducting an array of banking activities on their mobiles, and in many cases these devices are now their first point of entry. It is estimated that in excess of 32 million Americans are using mobile banking services, and that the market segment is primed for growth as the technology matures in 2012 and beyond.
While some banking customers will never accept mobile banking as a way of being serviced, for many, the expediency of paying bills, transferring funds, and handling other key financial transactions anywhere, anytime is too much to resist.
Some banks are now realizing that customers are continually in search of new capabilities that provide additional flexibility for managing their finances. In this regard, banks are offering innovative services such as:
- Financial tools that monitors spending, manages finances, and recommends additional financial products and services effortless on the mobile.
- Instant “micro mobile loans,” with application, approval, and disbursement via the mobile device.
- Loyalty programs that integrate with the retail, entertainment, travel and vacation businesses that provides financial incentives for customers that are ‘on the go’.
With the wide range of mobile capabilities available it is vital that banking executives resist the temptation to launch a mobile platform of services until the appropriate research and planning is completed that validates the consumer requirements. Banks also need to understand which customers to target with each new mobile service, as well as the optimal fee structure for each feature.
Social Media: No longer do banks talk and customers passively listen! Web-based social media tools facilitate online conversation and interaction that allow people globally to easily share ideas, insights, experiences, and perspective. The rapid acceptance by consumers everywhere have left the banking industry scrambling to come up with ground-breaking strategies to unleash the power of social media as an alternative sales and service channels for the digital-aware segment of the population.
The current economy has led large numbers of consumers to mistrust banks. This is one reason why so many banks are now turning to social media as a way to become more transparent and intoned to customer requirements and concerns in ‘real time’ in an attempt to build stronger trust and brand loyalty.
The crafting of a social media strategy is vital to formalize the approaches necessary to successfully capture direct consumer product interest as well as current trends and service breaks discovered from consumer use data, customer comments and other interactions collected from an aggregation of the bank’s social media sites. Analyzing social media data in real time allows banks to quickly identify key issues as they occur and respond swiftly before they spiral out of control.
Online Banking: Unit costs for online activities are measured in pennies while costs for human-mediated transactions are expressed in dollars. On-line banking activities include a wide range of services, for example: (1) providing consumers with capability to initiate money transfer payments to other consumers and vendors worldwide; (2) allowing customers to scan checks and deposit images; (3) providing customers with an efficient and effective online lending and investment processes.
Customers favor the increased convenience obtained from using online banking with the significant positive impact on their personal time. The key benefit for banks in deploying online activities is either maintaining or obtaining a competitive advantage in their targeted markets as online banking is a component of the ‘level playing field’.
Cloud Computing: The banking industry is in the early stages of accepting and adopting the cloud computing approach to support mission-critical business activities. Gartner recently reported that more than half of bank industry transactions will be processed within Cloud-based systems by 2015.
In the Cloud, security and stability are key concerns. With some justification, control and risk managers fear that moving essential functions from internal server-based systems to the Cloud will subject sensitive information to undue exposure and risk. Yet the potential advantages of the model are such that for banks to reject the Cloud outright would be financially imprudent.
Banks have invested significantly over the years in enterprise systems that support customer activities. Today, these “legacy systems” employ outmoded technology, until now they continue in production because of the expense, difficulty and risk of migrating daily operations and vast quantities of data to more sophisticated state-of-the-art infrastructures. Banks will need to understand the real impact on their capital, investment, operating cost, product enrichment and innovation, and customer requirements as they plan to upgrade and develop new systems and make decisions to migrate to a Cloud environment.
Business Intelligence (BI): The ideal BI system provides employees and stakeholders straightforward and timely access to the information they need to effectively perform their jobs and ability to analyze and easily share this information with others. BI transforms raw transactional data generated by customer activities into customized reports, dashboards and repositories of meaningful and actionable information.
BI as a rule enables an increase in the customer ‘wallet share’ by targeting banking products and services to customers based on an appreciation of their specific characteristics, needs and behaviors at any given point in the Customer Life Cycle (CLC). (CLC Definition: The stages each bank customer will pass through in a long-term relationship through acquisition, retention and extension.)
Use of the CLC approach creates greater demands on data mining, analytics and CRM capabilities. These activities need to be integrated and operationalized through enhancements to the bank’s campaign management and point-of-sale (POS) systems.
Multi Channel Integration: Bankers face a multitude of difficulties when it comes to integrating all sales channels and customer service into an integrated and streamlined business process. Channels customarily symbolize silos of channel-specific customer data that lack integration across the enterprise given that they are often managed and serviced by different business units and managers.
Multi-channel integration is a vexing task for many banks, as it generally requires sharing and collaborating information across organizational boundaries and reconciling seemingly incompatible business and information architecture models.
In the current environment, customers require the means to interact with their banking institution using a variety of channels of their choice. The consequence of a bank’s helplessness to provide an integrated channel approach is little or no sharing of information across dissimilar channels, duplication due to channel-specific processes and a disorderly, unsatisfactory multi-channel experience for the customer.
The use of a Service-Oriented Architecture (SOA) framework is viewed as a feasible and pragmatic tool to support development and deployment of a successful multi-channel customer experience. For example, SOA allows data, applications and processes to be identified and set-up as services, which can in turn be re-used across different channels, ensuring that all channels have access to a universal set of processes, systems and data. Banks with SOA typically achieve tighter coordination and integration of their valuable channels so that customer interactions can be managed, tracked and completed successfully.
In 2012 and the remainder of the decade, banking institutions must confront and challenge the traditional banking models by positioning technology as one of the top drivers of their institution’s success. Banks need to ensure that they understand and fully appreciate their institutions’ strategic business requirements and be able to provide the appropriate capabilities and resources to execute in a successful manner.
The bank’s strategic technology positioning should engulf their total product delivery and service apparatus by computerizing in an integrated manner all of a bank’s mission critical activities that interact with and support revenue producing customer touch points. The technology-centric strategies employed should be pragmatic, creative and disciplined so as to facilitate total alignment with an evolving, knowledgeable, savvy, and engaged customer base.
In conclusion I will leave all with a topical and associated W. Edwards Deming quote – “It is not necessary to change. Survival is not mandatory.”