20 April 2014

The Bold War

Michael Nuciforo - Keatan

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Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Manage to Maximise

31 October 2012  |  4690 views  |  0

Money, and wanting more of it, is guaranteed to be dominating the mindshare of most Europeans at the moment.  Austerity measures are in place and unemployment is embarrassingly high.  Times are tough and the public has been left searching for new answers.  Consumers have embraced discount and reward based businesses models and this trend is slowing making its way to banking.  It is no longer sufficient for banks to be a place that assist customers in storing and managing their money.  Banks need to start answering the ‘so what?’ by helping customers maximise their money…

We humans have a wonderful ability to adapt. We wouldn’t be here without it.  Over the last few years, a significant portion of consumers have had to make big adjustments to their spending habits.  In parallel new business models have emerged and we have seen the rise of discount services such as Groupon and cashback programmes like QuidCo.   Heavily discounted goods are now a regular sight on the high street and it is forecast that the UK discount channel will be worth £11.4 billion by next year.  There is no longer just one segment of budget conscious consumers – there are elements of it in every segment.

For years banks thought Personal Financial Management (PFM) would assist customers in managing their money better.  By giving customers a tool to manage their finances they assumed that the output would be savings.  The issue with this was that PFM never answered the ‘so what?’ It didn’t give you any meaningful advice or recommendations on where or how to spend your money more wisely.  There was too much effort and not enough reward.  To understand its failure is to understand human psychology.  Humans will do work if there is a reward at the end of it.  Discount vouchers and cash back rewards play right at the heart of this.

The desire for the best deal in combination with the information age has led to an evolution in consumer behaviour.  We research on comparison sites, text our friends and check group discount emails before we buy anything – even in store.  We are the Groupon generation.  We expect a reward or discount for every purchase we make. This trend is now about to hit banking big time.  In America, we have seen the launch of AmeriDeals, a partnership between Bank of America and Cardlytics that offers cashback on card purchases at various merchants. In the UK, Santander has heavily promoted its ‘1-2-3’ Current and Credit Account package that promises significant savings on rail and utility costs.  Santander even has a calculator that lets customers determine how much money they will save by using the account. 

UK banks must embrace this trend now.  The next great evolution in banking is subtle in language but massive in cultural shift. Banks need to move away from offering tools that allow customers to manage their money, and instead offer capabilities that help customers maximise their money. Manage to maximise.  A slightly different word means a brave new world. At the moment most banking services are relatively dumb. They don’t really do anything with the data they have, and everything is initiated by the customer. Unless you are in trouble - or the bank wants to sell you something - you never really hear from them. They don’t help you save or spend appropriately. They just give you some (average) tools so you can manage it yourself.

 

Some things to look out for in this space:

1. Banks will differentiate themselves on how much they claim to save customers i.e. 'On average we saved customers £300 a year'.

2. Banks can encourage the right behaviours through persuasive design and gamification. It will become like weight watchers.

3. They will partner with retailers to promote products based on transaction history i.e. buy flight tickets and get cheap car hire.

4. They will use account aggregation to understand what products you have with other banks and offer direct switching offers.

 

Here are two examples of new services that banks could utilise and that are likely to emerge over the next two years:

Augmented Reality Pricing

Jack is a teacher and loves using his banks new mobile banking service.  With his new app it actually helps him save money.  Using augmented reality he can hover his phone in front of a TV he wants to purchase.  The app presents Jack with a personalised price based on his purchase history, social influence and income.  It even suggests some alternative TV’s based on brands that Jack likes.  The bank even tells him which account he should use to purchase the TV.  With one click he purchases the TV and it’s delivered to his home.  The TV is automatically insured.  The bank has helped Jack make an informed decision and helped him save money.

Dynamic Offers

In the next example we have Diane.  Based on Diane’s recent transaction history when she walks past a store she is notified of any suitable offers nearby.  Because Diane purchased a skirt recently she is alerted to a great deal in a store nearby for a matching belt. Diane enters the store and finds the belt she needs.  She can then use her mobile wallet to make a purchase without standing in a line. 

In both examples banks are being proactive and also servicing a customers need in the context of the situation they are in.  They are using data, whether that is TV prices or belts, bank account information and also the user’s location and preferences to the give them the maximum amount of benefit.  Most importantly they are doing it right at the point of impact – at purchase intent.

With increased competition from new entrants, significant customer disillusionment and new UK switching rules, the banking space is about to become a whole lot more competitive.  The old adage that customers don’t switch banks will subside and banks will be judged by not only on the tools they offer but the money they help customers save.  Are banks ready to offer maximum value? 



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Michael Nuciforo

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Mobile and Digital Consultant

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Keatan

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