02 September 2014

Tripliii

Rachel Hunt - Tripliii

1 | posts 1,907 | views 0 | comments

Are banks doomed to be infrastructure managers?

22 May 2014  |  1908 views  |  1

Tripliii attended NextBank Asia, a 2-day event in Singapore focused on innovation and building the bank of the future. Pitched to challenge the status quo, the event had the additional spark of hosting Innotribe Asia (more on this in next post), showcasing how the FinTech market is hotting up and not just in Silicon Valley.

The banker’s dilemma

By the time we reached the mid-morning break, the organisers delivering on their promise to offer the best event-coffee possible (Jimmy Monkey Café, ‘cause Singapore likes its coffee), J.P. Nichols’ presentation was leading some of the attendees to discuss a Christensen moment for the industry. Most by now will know of the Innovator’s Dilemma and the concept of disruptive innovation. So let’s put some of his questions to the test:

  • Has the financial services industry made the mistake of adding too many features and complexity to its products, making it expensive enough for customers to consider alternatives? Yes
  • Are smaller, nimbler start-ups introducing simpler, lower cost products better targeted to customers’ requirements to get a job done? Yes
  • Taking it a step further: Are we at an inflexion point and will the large financial services institutions go the same way as the integrated mills or the floppy disk? Probably

J.P. Nichols’ presentation also described that an organization is either focused on customer engagement, product innovation or infrastructure management. I am not sure he went as far as suggesting this but I would certainly agree that banks today are infrastructure managers. The industry has built complex systems to process large volumes of transactions, where running the bank (keeping the lights switched on in the creaking legacy infrastructure and dealing with compliance) absorbs 85% of its resources. Products have evolved and become more complex but essentially are the same principle since the first concept of interest and Letters of Credit were issued, whilst a multi-channel environment has fragmented the view of the customer and stifled engagement.

If we go back to the principles laid out by Christensen, then the only solution for the industry is to launch a liferaft.  A business rarely dies overnight, so to survive disruption banks need to set up small spin-off companies that can function as start-ups, away from head-office influence. Low! Could this explain the rush to open incubators for FinTech start-ups? I think perhaps the Innovator’s Dilemma was on Mr Francisco González bedside table at University? If indeed I do not agree that the Amazons, Googles, Ebays and Apples of this world want to become a bank (they may have bank licenses, but who would want to be regulated like a bank?) I do agree that the financial services ecosystem is changing dramatically as a consequence of a consequence of the Internet.

The brilliant but unassuming Professor Jonathan Briggs (Hyper Island) stated we are at the beginning of the beginning of the Internet. Indeed. If only we could have discussed this point further…Certainly for me the consequences of the Internet are only now starting to appear, with much of the iceberg still to rise out of the water. The deep consequence of the Internet is not the way it rewires our brain but how it creates a new society based on sharing or collaboration. It is a forum for open innovation, uncontrolled and unbridled. That is why crowdfunding, crowdlending are not fads but the first business elaboration of a collaborative culture.

Beautiful Basics

So if our industry is currently about infrastructure management, how, other than rushing for lifejackets and rafts, can we move towards better customer engagement? If the danger is death by overdesign, then perhaps we need to simplify banking? Beautiful Basics was discussed by both Pf Jonathan Briggs and Edrick Ho (Head of Delivery Channels and Platforms, Asia Pacific) from ANZ during a panel discussion. This to me is reassuring, as I get increasingly nervous about the impact of the plethora of mobile applications on customer engagement and in particular core systems. Before we rush towards more complexity lets first do the basics well.

The theme Beautiful Basics continued in a number of bank case studies and other presentations:

  • Alexandra Almond and Louis Long of the customer experience department of NAB shared their experience of leading the bank towards greater customer centricity. For me the telling piece was the need to redesign the business processes as customer experience was not built into the organization’s business rules
  • Andrew Sidwell of DBS shared the bank’s journey to become RED (Respectful, Easy to Deal with) and their objective to reduce 100,000,000 hours out of their processes. As in the case of NAB, Andrew highlighted the fact that small changes, such as in a call center script, can have massive influence on the customer experience and quality of service.
  • Novus Technology showcased their YouBank solution.  Amongst its functionality it can help to stage your transactions anytime using your mobile before going to the bank and reducing waiting time. Did you know that apparently Singapore requires you to visit your branch for 200 different types of transactions? I don’t know how Novus estimated this but my branch-averse self shudders!
  • Finally, Jon Blakeney made the point that many have been thinking and not dared to voice: Not everybody needs a branch of the future! To me they are like a concept car, promising many beautiful things whilst I continue to drive a boring, inefficient 4-door saloon (which I don’t as I live in Singapore…)

For me this extends to the multi-channel network. Not everybody needs to offer all channels to all, as few banks can possibly deliver an omni-channel strategy well. 

The case for innovation in Asia

Innovation needs to focus on those “liferafts” and especially in Asia Pacific were the total number of mobiles users reaches over 2.5bn, the case for mobile first strategies is strong. This goes beyond the trend for mobile money users, who account for 59.2 million in the East Asia & Pacific and South Asia regions. The key areas for growth, as well as ensuring financial inclusion, are:

  • Reaching the un- or under-bank population (2.7 billion people in the same region according to the Worldbank in 2012);
  • Diversifying savings;
  • Offering capital funding to the large underserved SME population, the bedrock of the economy.

We are seeing real disruption in the provision of payments services as the networks open up on the edges, but the trend towards a collective economy (internet based or not) is also disrupting the provision of financial services at large.

In the short term, banks need to focus on harnessing their big data (focusing on contextual analysis) as suggested by Neil Cross of DBS and Duena Blomstrom of Meniga (who suggests finally to move to PFM driven marketing although I would recommend to get the basics right first).

Longer term, banks need to explore the collective economy to find new ways of engaging and serving customers. In particular, I believe that new models in the SME lending sector will be a main focus for competition from banks and non-banks. The Asia Pacific region has to date few players (Crowdonomics is more Kickstarter than FundingCircle) but it presents a real opportunity. Perhaps then banks will be less infrastructure managers and more product innovators.

TagsRetail bankingInnovation

Comments: (1)

Jeanne Capachin - Capachin Research - Norfolk MA | 22 May, 2014, 12:44

Hi Rachel - so nice to read your commentary! I love the idea of beautiful basics, it's a great way to think about processes and what we can do better as an industry.

Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Latest posts from Rachel

Are banks doomed to be infrastructure managers?

22 May 2014  |  1908 views  |  1  |  Recommends 1 TagsRetail bankingInnovation
name

Rachel Hunt

job title

Head of Research

company name

Tripliii

member since

2014

location

London and Singapore

Summary profile See full profile »
Based in Singapore and London, I a financial services market strategist focusing on innovation in...

Rachel's expertise

What Rachel reads
Rachel writes about
Rachel's blog archive
May 2014 (1)

Who is commenting on Rachel's posts

Jeanne Capachin