Transformation Strategies in Retail Banking

The Diebold Nixdorf International Management Seminar 2017 in Amsterdam provided insights on the digital strategies that banks are implementing today and what the future holds for retail banking.

Shaping The Future of Retail Banking

Around 200 banking industry managers from 35 countries were welcomed to Amsterdam by Christian Weisser, Diebold Nixdorf's SVP and Managing Director for EMEA. He noted that the Netherlands is a very suitable place for the Seminar as it was recently listed as the most connected country in the world on the DHL Global Connectedness Index 2016.

For Weisser, there are four global forces - macro trends - in the retail banking space: automation and self-service, digitalisation, individualism and ‘as a service’.

These trends were a common theme across the two-day agenda. In a keynote, Philippine Risch, Director Branches, Agents & Cash at ING Bank, provided a direct insight on the evolution of the bank branch by outlining the work that ING has made in this regard. Pondering if there is a future for the branch in the digital age, Risch said there is, arguing that the bank branch is an important bridge between the physical and digital worlds. While it was mentioned that the Netherlands is highly digitised and connected, ING still interacts with 8 million people through its physical network.

Risch stressed that human contact makes an important difference in a customer relationship. Banks should provide assistance to help start customers on their digital journeys and provide help quickly if customers become stuck with something in the digital world. Assurance and guidance are important and valued assets from a bank too, providing personal advice on big life events. It should be remembered that it is not just older people that need this type of reassurance - the 30-45 year old demographic are most likely to be making big life decisions.

For some visual inspiration, Risch included a photograph in the presentation that was dominated by a big blue whale. She commented that if you ever see a whale in person, you would never forget it. For banks, this means trying to turn every customer branch visit into a memorable encounter. Banks need to be able to advise, inspire and digitalise their customers, and the branch can play a key role in this. ING has opened an ‘experience’ branch in Amstelveen called ING House. In a video Risch showed, the branch looks like a coffee shop crossed with an Apple store - customers are greeted at the door and there are no counters to queue behind, just plenty of round tables and sofas.

For ING, this type of experience branch is the future of face-to-face customer engagement. Risch notes that the bank’s 45 compact branches will be closed within 5 years and standard branches (currently 60) will be reduced in that time period, and even more so out to a 10-year horizon. ING’s advice branches, currently totalling 140, will again be reduced over the next 5 years, plateauing in 10 years. For branch growth, you have to look to the experience branches. Currently ING House is the only such example, but this should grow greatly in the next 5 years, before that expansion also plateaus.

The next presentation, from Franz-Theo Brockhoff, CEO of Finanz Informatik, picked up on the evolving role of the branch. Brockhoff commented that IT strategy in the age of digitalisation has to consider the full range of customer needs, and that branches are part of that. On the future of the branch, Brockhoff was clear that he does not think we will see a branchless world. Rather, such as in the example of ING, they will be renewed. He predicted that the current reduction of bank branches in Germany will stabilise in the next couple of years.

Finanz Informatik is focusing on everyday solutions and services for its customers, with digital services available across all of its front ends. Brockhoff noted that the bank has 21 million users of its website, and 6 million users of its app in Germany. As well as availability, he stressed that it is vital to have uniform processes across the front ends.

Be Customer-Obsessed

In order to prepare for the next evolution of digital banking, Alyson Clarke, Principal Analyst at Forrester Research, advised the banks in the room to be customer-obsessed. She provided four examples of how this can be achieved.

1: You have to move to where your customers are. Clarke said that customers use banking apps because the banks make them, but in the digital world areas such as Facebook messenger and Amazon Alexa are where they are. As an example, she referenced a partnership between Honda and Visa where the car pays for parking. We live in a connected world, and Clarke said that banks need to change their business models accordingly.

2. Use data to differentiate and personalise the customer experience. Help customers uncover a financial need before they know they have it. The example that Clarke used here is Bank of America's erica, an AI bot that proactively helps customers make smart financial decisions. Conversational interfaces, which can be voice or text, enable richer and more personal experiences. Clarke suggested that financial institutions need to learn how to break down their products to a micro level, and also be prepared to make them available on other people's platforms.

3. You need to collaborate to create new value. The news has been full of stories about banks and fintechs forming partnerships, but Clarke commented that for true collaboration, you need to create new sources of revenue for both parties in the relationship: this is not just about banks buying technology. She used Fidor Bank as an example, which has an ecosystem of partners. It doesn’t need to control everything, but collaborate to serve customer needs. Clarke noted that the role of APIs in collaboration between banks and fintechs is crucial.

4. How can you be ready?  To prepare for the next evolution of digital banking, Clarke recommended that banks must have customer-obsessed DNA. Institutions need to move from being customer aware to customer led, thinking more than one step ahead and having a deep empathy for the customer. In fact, she suggested that banks need to reorganise their organisations around the customer journey, changing the mindset from 'how do we sell a mortgage' to 'how do we help a customer find a home', for example. Finally, Clarke noted that culture is the biggest barrier to being able to enact change, saying that it infiltrates everything.

In an on-stage interview, Diebold Nixdorf's CEO Andy Mattes shared his insight on banks being customer-obsessed, noting that this was all about individualisation. Banks should know who you are and what you like and be truly customer-centric. This can be put on top of the rails that automate the boring processes. Mattes added that this should be cloud-based, in order to be cost effective and to achieve agility.

Digital Banking Transformation

In Turkey, the median age of the population is 31, so it is well suited to the digitalisation of the banking network. Deniz Devrim Cengiz, Group Director of Digital Banking at CEPTETEB, provided the audience with an insight into how TEB, the parent institution, recognised this and decided to set up CEPTETEB. This is a purely digital bank within the existing financial institution. Cengiz described how the new operation had three core areas of focus: the human touch, personalisation and simplicity. All three of these are present in the account opening process. When a potential new customer applies for an account on the CEPTETEB website, they are then called by a customer service representative at the traffic centre who will arrange a visit from a bank staff member to the customer to collect the wet signature accepting the terms and conditions and agreeing to the account. The time from the signature to the account being available for the new customer is just five minutes. To keep things simple at the digital bank, the focus is on just five products: bank accounts, time deposits, personal loans, credit cards and mortgages. 

Cengiz explained how the bank has invested a lot in real-time customer alerts and notifications. With customer communications, web chat is the favoured channel by a lot of the bank’s customers, being used 70% of the time. Again, this demonstrates the human touch approach of the bank.

In order to promote itself, CEPTETEB has partnerships with various online companies, such as Netflix, Uber and a food delivery service, to offer discounts for its customers. People using these services that are not CEPTETEB customers also see what they could have saved upon check out.

After 30 months, CEPTETEB has 450,000 customers, with an average age of 32. In that time, the bank has attracted a deposit volume of TL3.7bn. In the Gartner 2017 CIO Analyst Report, CEPTETEB was used as a case study of a digital native business within a traditional business environment. The relationship between the purely digital bank and the traditional bank has had benefits for both parties, as Cengiz revealed that the digital traffic of TEB has also increased 50% since the advent of CEPTETEB.

Digital banking transformation is also happening at HSBC, as we heard from Julian Arnold, Global ATM Manager at HSBC Retail Banking and Wealth Management (RBWM). The goal of the RBWM transformation programme was to create a simpler, better, faster bank. This involved moving strategy to be mobile first, increasing accessibility for customers to bank from anywhere, as well as creating a more personalised service.

Arnold noted that the differences between markets around the world led to different innovations to best serve these markets. In Hong Kong, the bank has introduced the mobile branch, quite literally a branch on wheels that the bank can drive to remote areas of Hong Kong to provide bank access to customers in these remote locations. In Mexico, the bank found that they had a problem with non-customers clogging up the teller line as anyone can pay household bills at any bank. To remedy this, HSBC introduced and upgraded cash deposit machines for bill and credit card payments, freeing up the teller line for its own customers.

In China, Arnold described how the bank has introduced video teller machines. These multi-functional devices have the option for the customer to speak to a remote teller via a video screen, while the teller sees the screen that the customer sees.  These were launched in February 2017, and Arnold said that they were particularly good at onboarding new customers. After providing basic information on a mobile, potential customers can go to one of these machines, scan their ID card, and connect to the video teller who will guide them through the onboarding process and ask additional questions to go through the KYC process. Once this is approved, the customer can set their pin number, get their bankcard and set up their online banking profile, all on the video teller machine.

Bridging the Physical and Digital Worlds

There are several steps that banks can take to build a bridge between the physical and digital worlds, not only for their customers but for their staff also. Marian Ignat, Executive Director of Digital Banking at Romania's BCR, explained how his bank has created digital ambassadors to help bridge the gap. Known as the eDigital eXperts League, this group is made up of BCR staff that have a focus on promoting and activating digital banking products. As well as acting as digital service ambassadors, this group also are involved in commercial actions to increase digitalisation among customers and colleagues, and participate in dedicated digital events and training. Ignat described it as a self-organising organism - the bank let it grow without interference, but provide support where needed. It has grown rapidly over the past couple of years, from 250 members in 2015 to 2400 this year.

Pere Ràfols Castellvi from CaixaBank in Spain explained how enhancing leadership in banking digitalisation was a key strategic priority in the bank's 2015-2018 plan. As part of the digital strategy, branches must be 100% digital with no physical files - for the staff, as well as for the customers. Castellvi made it clear that the customer has to be at the centre of the bank's operations, and that they should be able to choose the channel they want to interact with the bank. In the branch channel, bank staff use smartphones or smartPCs when interacting with customers, to capture images and digital signatures, as well as uploading ID credentials.

Castellvi also highlighted how the bank realised the potential of the ATM to carry out the full cash service, offering cheque cashing, bill and tax payments, cash withdrawal, change of bank notes and deposits. Over the course of 24 hours, 86% of banking operations with CaixaBank are now carried out at the ATM rather than the branch, which frees up time for bank branch staff to be more customer service focused. 

With many insights into the changing roles of bank branches, ATMs, staff and services, the Diebold Nixdorf International Management Seminar 2017 provided much food for thought on the future of retail banking, how institutions can bridge the physical and digital worlds and, most importantly, how the customer should be placed firmly at the heart of banking operations.