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Disrupting the Disruptors: Winning through Value

I’d like to consider what Value now means to the retail banking customer and what that means, in turn, for the retail banks that serve them.  I'll offer a point of view on how banks have approached innovation in the past and the results; how this is changing but, arguably, not fundamentally or fast enough; and how new approaches to innovation offer the prospect of real competitive advantage. based on new value.

As an example of how this is starting to work in practice, I’ll propose how the Personal Financial Management services now starting to coming to market have the potential to reposition the bank - customer relationship for the good of both.

Customer choice and the banking relationship

Today, UK retail banking customers have more choice perhaps than they have ever had, in products, in providers and in the way they can now interact with both.    And with that consumer choice comes increased complexity, both to the consumer who needs to  understand clearly what is on offer and to the bank’s customer-facing staff whose job is to keep on  top of constantly evolving  products and  to sell compliantly.

Against this backdrop we shouldn’t be surprised that many retail banking customers find the question of choosing a particular bank and a particular product, one they would rather avoid completely, or at best, take the line of least resistance by sticking with ‘the devil they know’ and falling in with recommendations from  the bank’s front line sales and service staff.   

Neither should we be surprised that, despite the introduction of the Current Account Switch Service in 2013, net switching remains stubbornly low.   Nor that the idea that retail banks are to blame for this, by virtue of their size, has been overturned by the October findings of the Competition and Market Authority report which recommended not the break-up of the banks, but better consumer information about current account offerings.   In this context at least, the devil is indeed in the detail and not in the structure of the industry. 

Waves of innovation are disrupting the industry

But loyalty through inertia is no longer sustainable as a strategy.  If the period since 2008 has been  one where product portfolios were di-risked through withdrawal or  unbundling, it has also been a time of sharply accelerating innovation, generated outside the banking industry  but squarely targeting it for change and which has now reached globally significant size and consistency.   Something which seemed initially to be ‘out there’ on the radar is now being recognised as central to banks’ ability to compete for their future customers’ business.   There is a new sense of lively competition and experimentation which holds out the promise of customer loyalty based on transparency, relevancy and value and not simply on customer inertia.

How ready are retail banks to ride the wave?

But is the industry yet equipped well enough to deliver innovation effectively?   A glance in the rear view mirror would suggest ‘not quite’ but the direction of travel is right and the pace is starting to move from a canter to a gallop.   What is driving this?  Two things:  first, the convergence of  digital technologies - social, mobile, analytics and cloud - which can deliver new service delivery models,  even completely  new  business models. 

And second, the industry’s realisation that this creates new, major opportunity, there for the taking at every level and offering real  competitive advantage in ways not seen before.

Banks are engaging: some with the disruptors, others by going it alone

A sample of industry headlines from the past few weeks tells the story:

‘BBVA takes 30% stake in Atom Bank’ (24 November)

‘Santander signs global PFM deal with Meniga’ (9 November)

‘UOB calls on bank staff to join new startup accelerator’ (9 November)

‘Robot revolution poised to wipe out millions of jobs – Bank of America’. (6 November)

‘Wells Fargo pumps $1.5m into three graduates from its start-up accelerator.’ (5 November)

'Santander to run global blockchain challenge’ (5 November)

‘Banks boost innovation investment to see off fintech rivals’. (5 November)

‘HSBC opens Singapore Innovation Lab.’ (28 October).

So, lots of activity, but how well is it being translated into real improvements in customer experience and efficiency?  And in how many cases could we say that the bank has undergone digital transformation?   

Leaders have embraced digital transformation as a strategy

An increasing number of major banks have placed digital transformation at the centre of their group strategy.  BBVA Chairman Fransico Gonzalez declared at the bank’s 2014 shareholders’ meeting:

                ‘Our goal is to turn BBVA into a totally digital company, including all our products and   services, and with our over 100,000 employees working digitally’. 

Its recent investment in UK’s Atom Bank shows the strategy starting to impact the UK banking landscape.

In June HSBC’s CEO Stuart Gulliver said:

                ‘We recognise the world has changed and we need to change with it’

as the bank announced a $5 billion transformational cost reduction programme, with a $1 billion injection into its digital and automation programmes.  

Barclays Interactive Marketing Director recently said that the bank is undergoing transformational change and is channelling innovation into the digital space, but seeking to balance branch with digital in what he called ‘a huge evolution’.               

And Standard Chartered’s recent announcement of 15,000 job cuts was accompanied by the intention to improve its retail and digital capability to automate 30% of sales and 40% of payments.

So more, much more, than just activity.   Indeed, Digital has become a key part of retail banking business  strategy domestically and globally.  Big headline investments are now earmarked to reap the digital dividend.

Are the capabilities yet in place to reap the digital dividend? 

Perhaps too few banks, even those in the vanguard, have had the time to build out and integrate a fully effective platform for the new wave of innovation.   

Banks have in the past, by and large, looked to their own people to be the engines of innovation as well as to their existing customers.  And innovation in this era was often incremental, introduced gradually and collaboratively across the industry.   

Today, however, investment is called for to design and build the infrastructure for innovation which is better able to fulfil its twenty first century purpose, where speed and agility are key and new  areas of competitive advantage are opening up.  The design studios and in-house labs which have sprung up are only the start.  Something more is needed and that ‘something’ is to build the capability and skills to enable the better Sourcing and Management of innovation, rather than expecting to do all the innovation yourself.

So who are these innovators who can unlock new value from better customer experiences?   With the emergence of Open Source technologies, they are to be found everywhere.  The two-person organisation in Silicon Valley; the really smart geek working out of a garage in Cambridge;  the college drop-out in Mumbai.  And they are crying out to test their ideas with ‘real’ businesses and ‘real’ data.  

Building a platform for sourcing and management of innovation

So in view of this ready supply of innovators we would hope that banks would want to build and enable their own platforms for innovation to enable these innovators to provide their customers with a better experience.  

This platform would be combination of first, Application Programing Interfaces to expose the bank’s Systems; second, a set of Creatives who have retail banking knowledge and third, an environment in which there is ‘real’ data to work with. 

The bank’s role could then evolve to audit quality, effectiveness and compliance before new innovations are exposed to their customers.   This model would operate a little like an Apps Store, where many ideas are developed and brought to market at an early stage and where the strongest take off, to the mutual advantage of innovator, bank and customer.  

Success factors in building the innovation platform

What would be needed to make an innovation platform like this succeed in practice?   Here are some thoughts drawn from our discussions with banks and fintech hubs.

Attract the innovation community

First, it would be important to develop ways to identify, attract and engage the fintech communities of interest , whether they be existing start-ups,  fintech hub organisations which provide hands-on activities such as ‘hackathons’, or loosely affiliated groups of developers  building open APIs.

Invest early for momentum

Second, it would be important to create strong initial momentum by, for example, investing early in a small number of high potential propositions.  This may mean taking a stake in a differentiated  Fintech firm to prove commitment and value more quickly; or by creating a new  mechanism, such as a payment gateway, to facilitate the deployment of a good idea.

Share the rewards

Third, to demonstrate, by a proportionate legal and commercial model, that the benefits of the innovation generated by the new ecosystem of partners will be shared.  Innovators want and need to maintain a high degree of flexibility to exploit their intellectual property in the marketplace and may well steer clear of cumbersome commercial frameworks.

Manage for reinvestment

Fourth, that in order to manage a portfolio of competing ideas, it would be important to develop and apply an innovation management cycle to drive the discovery of ideas as well as govern the allocation of investments, measure and reinvest realised benefits.

Recognise the new competitive set

Fifth, recognising that the new competitive set - google, amazon or apple – as well as the start ups are unencumbered by yesterday’s IT legacy, makes speed  and agility essential but not at the cost of regulatory compliance,  security or technical performance.

Think differently

And lastly, empower the innovation organisation to think and act more like a venture capitalist, in the expectation that some ideas will break the mould completely and require longer time horizons, different hurdle rates and a higher tolerance of risk.  

We expect these practices will be adopted not only by the leaders in the industry who already are advancing in this direction, but by the industry as a whole, to  create the durable and well functioning innovation infrastructure that fits the environment.  

Those who stay the course will be the best positioned to win the business of their future customers by delivering innovative,  relevant and transparent customer experiences which deliver the digital dividend and generate customer loyalty based squarely on value and not simply on inertia.

Personal Financial Management:  innovation in action

A topical example of this innovation in action is the development of Personal Financial Management services, in which a bank could guide its retail customers on managing their wider financial position by combining account aggregation services with analytics and natural language dialogue with a ‘virtual assistant’.


With the customer’s express consent,  account aggregration services widen the set of financial data available for analysis and can enable the bank to provide in-context information to the customer on progress towards his or her financial goals.

It can enable the customer to understand available courses of action and prompt a better informed discussion with a customer sales or service professional, whether by phone or in the branch.

Equally, it can respond to customer’s requests for help with particular needs or opportunities, for example a growing family needing to think through options for more accommodation;  a parent wanting to provide a private income in for a relative in need;  or the MD of a business wanting to understand different options to finance business  expansion.   

It’s worth noting that in none of these cases would advice be given.  Rather the onus would be on the customer to decide, based on the facts, which courses of action to consider and pursue. 

Why does this matter now?  In part, because customers have woken up to the idea that they have real choice and are readier than in the past to exercise it.   ‘The Economist’ gave us another clue, last month,  declaring that ‘The grip Banks have over their customers is weakening’ and discussingPersonal Financial Management services as a case in point.   And it mentions PSD2 which, it says, will ‘in effect force banks to impart data to third parties in a convenient format’.

Against that backdrop, Personal Financial Management is a timely response to what customers are starting to demand, as well as repositioning the customer-bank relationship, whilst maintaining privacy through compliance with data protection law and regulation.

This is just one example. There will be many more.  The question is, who will be first to seize the initiative and reap the digital dividend?




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