What the future of digital holds for retail banking

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Banks set to lose the ‘offer’ as digital disruption continues to transform industry.

Banks are finding it increasingly difficult to reach and ensure value to their customers in light of the challenge by existing and new fintech competitors who are muscling in on the ‘offer’ – the point at which a customer’s process of research and assimilation culminates in the customer acting.

Before our mobile and internet-driven world, customers would collect information, talk to friends, respond to advertising and, in the case of a loan, approach their bank manager for a facility. This reasonably well-defined process has changed dramatically over the past ten years, and is expected to continue unabated for the foreseeable future.

In both breadth – the array of applications from healthcare to financial services to music and the broad application of social media – to depth – the detail and niche development of smaller and smaller verticals within each application into greater and greater detail – customers today expect personalised offers to come straight to them.

It’s highly unlikely banks are playing any role in the multitude of financial decisions that customers make every day, and a simple analysis of the offers being received by customers on mobile, by phone, and the internet will show that very few are being sourced by a bank, let alone the customer’s bank.

First frontier

Historically banks met their customers face-to-face, until the telephone’s arrival meant physical branch visits were only undertaken when the telephone process failed. With the arrival of the internet, both banks and customers have deemed online access to be more time-efficient and sometimes simpler manner of engagement.

Key to this is that it was banks who determined the process, the terms (authentication, identification, origination, etc.) and the time (for how long, and when). As new technologies arrived, banks in effect automated their current process and ensured all their process requirements were met.

This process is referred to as Frontier 1 (see graphic), where the customer enters the bank’s process, performs what is need, and leaves. These Frontier 1 processes are an extension of branch and Internet processes, providing remote access to customers at their leisure, and generating substantial process efficiencies and cost reductions for the bank and the client.

Most banks are progressing rapidly to complete as large a suite of functions on mobile as possible in a race to claim leadership innovation credentials. Although this is hugely beneficial for customers, and banks can’t escape not competing, it’s a zero-sum game because at some point all banks have done all they can based on their existing propositions, and they are then in the same position and need to look at the next curve. And herein lies the challenge.

Second frontier

As banks increase their scale and volume on Frontier 1, some are recognising the possibilities of harnessing their knowledge of customers, their IP in terms of risk and product design, and their architecture to respond to customers’ payment activities with real-time offers.

A customer uses their credit card to purchase an item, and the bank’s BRI (Behavioural Risk Indicator), its product rules and pricing configuration immediately make an offer for a loan, which is converted immediately. While it’s true that such a product could and has been offered today, these have been virtually hard coded and have not occurred as an automated by-product of a combination of different parts of an architecture, i.e the BRI evolved from the customer data, the product rules, and the automated origination via the online channel.

In this second frontier, banks are still operating from within their own processes with little to no influence from external data.

Final frontier

Frontier 3 marks the complete disaggregation of the bank’s processes to be initiated and consumed on-demand from within the customer’s day-to-day activities.

In light of the features delivered by a mobile banking platform, this third frontier of customer engagement allows customers to pay, transfer, withdraw, open, close, and alter according to their rights from within any application they may be using.

Some examples of this includes:

  • A customer walking down an aisle at a major retailer shopping for a new computer finds geo-location services triggering on online offer for the purchase of computer equipment. This, coupled with a special deal from the retailer based on previous behaviour, provides an offer that is converted before the customer reaches the pay-out counter.
  • An interest rate or currency exchange rate changes and an automated analysis of the customer’s profile suggests changes to product pricing and term. An offer is made without any physical process intervention, and the customer confirms, declines, or negotiates, with fulfilment occurring immediately.

This frontier is immensely challenging to realise as it requires banks to disaggregate their services in a manner that allows them to be completely consumed from within the customer’s day-to-day processes, or by groups of other service providers delivering value to customers. Conceptually this is tremendously difficult, as banks generally insist on having end-to-end control of where bank processes and customer processes meet. To achieve this, they need to break up their processes, which is the antithesis of what occurs in Frontiers 1 and 2.

Banks can – and should – start building toward this third frontier, by disaggregating their proprietary processes and systems, and working with other business to access the customer’s value chain across a range of industries.

Banks should also start working with other role-players to adopt information sharing standards, and share relevant customer data as long as regulatory compliance is ensured. Finally, by reducing back-end complexity, banks can deliver a clear separation of business rules, pricing, and core processes to unlock the final frontier of banking customer engagement.

Software companies spend an enormous amount of time persuading customers to buy software that solves a specific problem, but less thought and effort is applied to getting the right capabilities in place to complete with particularly retailers.


Darrel Orsmond | Financial Services Industry Head | SAP Africa | darrel.orsmond@sap.com | www.sap.com |