IDC Interview with FIS

IDC EUROPEAN BANKING EXECUTIVE DIGITAL FORUM 2020

We had the great pleasure to exchange views on the topic with the Keynote Speakers and Breakout Session Leaders of the IDC European Banking Executive Digital Forum 2020. The following interview was conducted by Thomas Zink, Research Director for IDC Financial Insight and Adrian Sturley, Head of International Growth Strategy at FIS.

Thomas Zink, IDC: COVID-19 has forced the pace of digitalization throughout financial services. How can the industry put the human into digital banking?

Adrian Sturley, FIS: In today’s world, there is a lot of competition to be the customer-facing brand, whether through merchants, fintechs, social or financial interaction using social media. Many familiar bank brands have been disintermediated by newcomers, for example PayPal which deftly positioned itself between card providers and their customers.

As digitalization continues apace, banks continue to close branches to reduce costs, but in doing so they lose human touch. There can be little doubt that banking has become a technology business – technology determines the customer experience and what customers do next; it has become the bank’s chief brand ambassador. And In the digital age customers are better informed, more demanding and less loyal than ever. All banks know there is a real threat that customers will move to a competitor offering a more compelling digital service. In recent years regulators have also acted to remove the risk and hassle of moving an account to a new provider, so it has never been easier to switch bank.

Bank customers have high expectations of digital services. The tech giants constantly raise the bar of possibility and bank customers expect an engaging digital experience, so banking has often lagged behind. Moreover, many other industries are pursuing digitalization to augment human interaction. For example, restaurants encourage customers to order through an app for table service, or home delivery. In practice technology only works with humans and the best technology augments human interaction, for example, by reducing payment friction and keeping accurate records of transactions.

In the case of banking, customers expect a consistent experience across all channels, and they should be able to change channel or device at any time. Most customer journeys begin online but they may need the human touch to complete. For example, the search for a mortgage is likely to begin online or mobile but many customers will wish to ask questions in person or visit a branch to finalize an application.

Despite the chaos of the pandemic, life events have not changed materially. People still buy houses and cars, have babies, send children to university and change job. All of these life events have a financial impact that banks must support. And while some life events may be joyous, they can also be stressful, especially the financial side. Banks should position themselves as trusted advisers who are on hand to help when needed.

Modern technologies can empower banks to deepen their customer relationships, for example by using customer data to predict life events and provide compelling offers. Although branch banking may be in decline for transactions, many banks are repurposing branches as advice centers where customers can benefit from an optimal mix of digital and human interaction.

Smart banks are already engaging with customers to build a dialog around digital services and to consider how banks can use technology to support life events, build savings and promote financial wellness. At time when the world craves human interaction, banks have everything to play for. But sustainable success must combine human interaction with intuitive, engaging digital services. For banks, the decision to digitalize is never binary and customers are much more than numbers.

Zink: Throughout financial services, customer self-service and customer-facing tools have moved up the priority list. How can financial services providers turn these into great customer experiences?

Sturley: This is the age of the great digital customer experience. A quick Google search reveals over 2,000 million results so there’s no lack of information or opinion. But what does it really mean?

The basic principles are that a great service must be personalized, timely and engaging. And sustainable success necessitates services are also intuitive, interactive and enjoyable to use. In the world before lockdown, most of these attributes could most easily be met through human action but with limitations on social interaction, many banks have accelerated development of customer-facing tools.

Even before the pandemic, many banks were investing heavily in customer-facing tools to increase engagement and add value. Many apps allow customers to plan savings and monitor financial wellness. But to offer a truly great, customer data on life events becomes key.

Consider a situation where a bank customer is considering a house purchase. In the absence of the usual interaction to consider the physical and financial aspects of the purchase, there is a real need to support the customer journey with options along the way. Traditionally, bank services have focused on the transaction, which in reality is the end of the journey and too late to add value.

A great customer experience must begin far in advance of the transaction, when a life event first appears on the horizon. Banks should empower customers to plan a journey around a life event, such a house purchase or wedding. This will include financial tools, for example to evaluate financing options, but the key requirement is to maintain regular contact. A virtual client journey must include visuals, likely challenges and options, all included in a dynamic process.

Open banking creates unlimited opportunity for banks to increase customer engagement by allowing third parties, such as estate agents or wedding venues, to participate in the bank ecosystem. The aim for banks must be to make the bank the channel of choice that supports life events. The technology to do this is already proven: application program interfaces (APIs) are already mainstream in the sharing economy with companies like Uber dependent on them for their very existence. Banks need to act soon to engage customer earlier by offering compelling journeys.  

The same criteria can be applied to savings and other aspects of financial planning. Forward- thinking banks already offer reward schemes and discounts with recommended retailers while advising customers of payment and financing options.  All of these services can be offered in real time and personalized to match an individual customer’s circumstances and financial goals.

Although there are many customer-facing tools already available and many more planned, banks must not lose sight of the need to offer human interaction as an alternative and complement to great technology. The pandemic has shown how technology can support face-to-face interaction, for example with virtual tellers and personal financial planning meetings on Zoom.

Zink: The “connected” core is becoming a reality. What are the pitfalls of the new platform strategies?

Sturley: Open banking is becoming mainstream globally and may redefine what it means to be a bank. Historically a bank’s vault was a metaphor for all that it stood for – privacy, security, and reliability. Open banking challenges this closed mindset and gives customer the right to access their data and share it with authorised third parties. In many respects, open banking must be applauded as a triumph of consumer sovereignty and for spurring innovation throughout the industry.

Banks are at different stages in the adoption of open banking; some regard it simply as a matter of regulatory compliance while forward-thinking banks see open banking as an opportunity to increase customer engagement, reach new markets and participate in a growing financial ecosystem. But to do this, many banks must first look inward at the core.

For many banks, the core banking system is being asked to do a lot more than originally intended. Many bank cores have been in place for decades and are a manifestation of the “vault” mindset above. The core was the original system of record for the bank, that often reflected the manual processes and ledgers it sought to replace.

Traditionally, a bank’s core was designed to maintain records and process transactions but was not designed to be open. Today, a bank’s core must be open to customers who interact 24/7 using a range of devices. With the progression of open banking, customer data must be extracted from the core and made available to authorised third parties. Few legacy cores were designed for this and many banks have met open banking initiatives with clever kludges and workarounds, including data lakes and warehouses. The new open world of banking calls for new open technologies that can be developed, deployed and amended quickly and cost effectively.

While open banking and the idea of a connected core may be viewed as a technical issue, this is second to the business challenge. Even the best technology only works with people and banking is fundamentally a people business. As discussed, open banking is about doing new things and doing things differently and this requires fresh thinking. To succeed in open banking a bank must first consider the business case and strategic objectives.

Every bank must consider which role/s it wishes to play in the growing financial ecosystem. APIs offer a great opportunity to bundle bank products and offer them where they are most needed. But this raises some fundamental questions about important issues around product branding, positioning and support. In an industry where banks have traditionally manufactured, distributed and supported their own products, this needs careful consideration, because the bank’s brand may be at stake.

Having decide on an open banking strategy, there remains the challenge of moving from theory to practice. As open banking evolves, it is easy for product support responsibilities to become blurred. There is a universal need to educate bank staff and customers about bank roles, responsibilities and new possibilities.

Banks have everything to play for in the new open work. But they must remember that banking is as much about people as it is technology. Customers want a good experience, but this cannot be delivered by technology alone.

Thomas Zink: Thank you for the interview, Adrian.

If you would like to learn more about FIS @ the IDC European Banking Executive Digital Forum 2020 please click here.