Building a modern retail bank requires strong leadership, a clear vision that can be communicated to and bought into by all employees, and effective change management skills. This is a multi-year, bank-wide, top to bottom, bottom to top inside out, outside in transformation.
Concepts discussed in Customer Management and Fintech I play an important part in this section.
There’s no Burning Bridge, yet. In most cases, the ‘bridge isn’t burning’, but it is getting warm. Unless there’s an overriding critical situation, many banks believe they can make do and mend or transform gradually. Budgets will be skewed to keeping ageing core banking systems running. Data quality issues will prevent the bank from understanding their customers and offering personalised, relevant, and timely solutions.
Customer satisfaction, trust, and loyalty will continue to be lost to new challengers who better understand the incumbent bank’s customers, offer profitable propositions that customers want to buy and use, and optimise the customer’s experience.
New challengers include digitally based start-up banks, incumbent competitors who are setting up purely digital banks, smaller niche Fintechs who are launching on SaaS platforms, and technology giants who leverage their user base. These challengers are inflicting ‘a death by a thousand cuts’ on laggard banks.
It may not be currently happening in every country, but the pace of change across the world means that it is only a matter of time.
Legacy Systems: Typically, retail banks have built layers of new systems that add functionality on what had gone before, and those systems were often based on the needs of the corporate bank. This has resulted in a monolithic core banking platform that doesn’t easily integrate with new channels and customer relationship management systems.
Being a modern customer-centric digital bank isn’t about adding another layer that offers another digital channel, such as mobile banking or augmented banking through a headset. It is digitalising every procedure and process throughout the bank, from how the bank hires people in Human Resources, acquires and manages customers even through face-to-face distribution channels, to how it organises employee events. It even means digitalising the annual results investor presentations.
Fragmented Data: The same basic data such as the customer’s name and address is frequently held in different formats by different systems, making it difficult to integrate into a single customer view.
As mentioned earlier, data protection regulations are forcing banks to improve their data quality and break down silos of fragmented data.
Lack of Customer-centricity: Often banks want to be (and fully believe that they are) customer-centric, yet continue to operate in a product-centric or channel-centric way. This often manifests itself in the management information reporting or strategy that focuses on product sales and market share (rather than mutual value and mind share).
Banks can’t think or wish that they are customer-centric and act otherwise, as that will continue to destroy their customers’ trust and loyalty.
Build the Bank, Run the Bank Dilemma: At least 80 per cent of a retail bank’s annual technology budget is spent ‘running the bank’, leaving little budget to undertake rapid transformation (‘build the bank’). Due having to keep aged, inefficient core banking systems running, continuous regulatory changes and focus on short-term results, there is a lack of investment in building a modern bank that meets the needs of its current and future customers.
Banks need to invest more in building the modern, customer-centric digital bank.
Leadership: By far, the most important core component for change is the leadership shown by the Board, Chief Executive Officer, and their leadership team.
Customer-centric Culture: Unless the bank changes its culture, it won’t be able to transform into a modern bank.
Customer Management: The customer management function orchestrates how the bank and its employees interact with its customers.
Where possible it should be automated, using AI and RPA to deliver personalised and responsive interactions, but with access to humans when the customer wants it.
Customer Data Analytics Capabilities: The bank must invest in distinct customer data analytics to undertake the functions of a modern digital bank:
Customer Data Management: Banks with legacy systems also usually suffer from fragmented data that hampers their attempts to understand their customers, communicate with them effectively and offer the right products and services at the right time. This can prevent them from building trust and loyalty.
When a customer defaults on a repayment, poor data quality can make it difficult for the bank to take the right action because it don’t understand the customer’s full financial situation. It can make collecting the repayment or recovering the debt impossible.
Customer Relationship Management: Because customers may use multiple channels to complete a task, such as buying a new product, effective use of the bank’s CRM system is critical to success. It is not acceptable for employees at any level to ‘opt out’ of using the system when interacting with customers.
Old, preconceived ideas of CRM being used to control or micro-manage employees must be overturned in favour as CRM being the tool that helps the employee deliver a superior customer experience.
Omnichannel Banking: Most banks have at least one channel and treat them largely as independent, which is the opposite of what the customer wants or needs. Multi-channel delivery is no longer suitable for the customer who may start their buying journey discussing their need on the bank’s mobile app chat function, buy the product online and later, end up reviewing their overall financial needs with a specialist in a branch.
Open Banking: Where available, a bank should use Open Banking technology, including APIs to become the customer’s financial services hub, gaining a 360º view of them, including products and services with other financial service providers and sources that help merge a view of their financial health. Where Open Banking is no available, a shift to APIs is the next best approach and helps prepare for Open Banking regulation.
Target Operating Model: Define the bank, and how to get there. This is where solutions to the legacy problems are resolved with a modern solution.
It is crucial that the ‘To be’ operating outcome is practical and achievable for the bank. Too often consultants or over-enthusiastic employees design a ‘To Be’ solution that can’t be achieved or is unsuitable for the bank. The TOM provides the blueprint and prioritisation for transformation programme that follows.