“Network banks enhanced by digital technology”, published in Revue Banque, may 2016
The digital revolution has transformed existing relations between individual customers and their bank. We were obliged to reinvent our business – both in terms of customers’ ongoing banking needs and our structural assets.
For each one of us, the digital age has created a new relationship with the world, a new way of conceiving time and space, another way of thinking about information, knowledge and autonomy of action. In fact, it has triggered a chain reaction of revolutions in daily life and in business. The bank – and more specifically the commercial bank – is not immune to these upheavals.
Customers rely more on the Internet and all its applications. Visits to branches are on the decline. Between 2008 and today, visits to branches have reduced by a factor of 3. However, this reduction concerns mainly day-to-day banking transactions: account to account transfers, follow-up of transactions, etc. Appointments at the branch have fallen only slightly and the decline more than offset by telephone appointments. Added value meetings have increased. This is satisfactory because we would prefer sales staff to be advising customers rather than restricted to tasks without real added value, such as handing out cheque books or managing cash. We are glad our customers use the tools available to them with increased autonomy, so our advisers can dedicate their time to customer relations which create value for both the customer and the bank.
Adapting to the new world
Yet the technological revolution has justifiably made customers increasingly demanding of their bank. If banks fail to adapt, they will be overtaken by online banks which now frequently offer more convenience at less cost, but frequently without any offer of support from a well-qualified adviser. Or physical banks risk disappearing, possibly to the benefit of more disruptive models.
Provided it can continue its metamorphosis and adapt to the new world and confront the fundamental customer revolution, added value network banks will most probably remain at the heart of the banking relationship.
In this perspective, two types of high added value developments merit a more detailed examination. First, we must offer more convenient banking which we are now doing thanks to gradual integration of digital technology and process review. Following the technological revolution, many tasks are performed online – no one wants to wait in a queue or make a pointless journey. Previously banks were not shining examples of convenience. For example, in the past, our advisers were not always easy to contact. Today, the situation has changed. At BRED, for many years now, customers have been able to contact their personal adviser directly by phone or email, without getting lost in the maze of interactive servers on anonymous telephone platforms. We must also prove we are adept at handling customer complaints or problems. This requires upgrading our practices to enhance the customer experience.
Simplicity and convenience
Improving the “customer experience” is fundamental. The customers’ dealings with the bank must be fluid, efficacious and transparent. For example, opening an account, which is very easy to perform at an online bank, must be just as easy at our bank. Another telling example for our customers – taking out a mortgage. The procedure to obtain a mortgage is already completed in a very short time, but soon our customers will be informed in advance at each stage in the process, by text or email, according to their choice. They can consult their digital case file and if necessary add missing documents directly online. All thanks to digitisation and considerably increased ease of use and convenience for customers.
We must also take the initiative vis-à-vis our customers. Our proactivity is a key factor in our success. We will be well received by our customers if we call them intelligently and proactively to discuss their needs and their projects. E-sales are also important. They must be carefully fine-tuned to match the conduct and profile of each customer. Depending on their lifestyle and problems, when customers want to approach their bank they may prefer to call at the branch and discuss a specific issue directly with an adviser, or deal with it remotely by email or telephone – but with the same adviser. The bank can then send out an agreement once the question is resolved and the sale concluded, in digital format or by post, according to the customer’s preference. E-selling is a facility our customers really appreciate.
Quality of advice
Second major topic, the quality of advice. Digital technology has also increased the requirement for advisers’ skills. Simply because access to information and comparison has become the norm on the Internet. It is obvious that 100% of our advisers cannot be 100% competent in the full product range, but 100% of our advisers are specialists in their own customer segment, so they can offer the necessary skills according to the specific needs encountered. We are continuing segmentation according to customer profiles to match the right advisers to the right customers. Obviously, the product range offered is not strictly identical for all types of customer. Personal projects, whether major or minor, may require savings, a loan or insurance. If these are dealt with separately, customers feel their plans are being split up without any overall vision. Dealing with customers’ needs on a holistic basis adds value and convenience.
The quality of advice is also largely improved by the time an adviser spends following up the same customers. Digital technology is also of decisive importance from this standpoint, because banks have an exceptional wealth of data in relation to other distributors and, if correctly analysed, this data allows for a combination of human skills and strong personal relationship with advisers with the power of Big Data and artificial intelligence – for an optimum response to customers’ personal projects. At Banques Populaires we want to offer our customers the best of the human and digital worlds. This is what we call a banking without distance, a bank which abolishes physical and temporal distance thanks to the best possible combination of technological and human resources.
Will FinTech threaten existing banking models – whether physical networks enhanced by new technologies or online banks? This challenge should not be underestimated. Thanks to the widespread use of mobile technology and development of the ability to exploit data sources, FinTech could lay siege to various financial service market segments: credit card payments, savings or factoring. Would this result in a true “disaggregation” of banking relationships to the benefit of companies who each capture a part of the value chain? This risk was further increased by European Directive DSP2, which opens up the financial services market to all, notably aggregators, so they can act as operators. For the moment, they have not disintermediated banks which remain operators and the point of general relations with customers. They are happy to act as pure aggregators, capable of collecting together all the accounts of a customer at various banks so that at any moment they can provide an overall summary. Tomorrow they will also have the possibility of making account-to-account transfers, for example, or even offering third-party sales offers. Customers would then not need to visit their banking website, with an increased risk of disintermediation. This poses major security risks since the aggregators will need personal access codes to obtain information concerning a bank account or possibly to carry out transactions.
The question of what happens next is crucial, since widespread use may be made of services based on artificial intelligence, the famous “talking robots”, with the aim of automatically offering products to customers that are certainly relevant, since based on an analysis of all customer accounts. We can also imagine that an aggregator, combined with an artificial intelligence tool with the ability to send texts and emails to customers making appropriate proposals, could become a substitute – even a far more efficient substitute – for a personal adviser. But banks, like insurers, health funds, etc. are almost all in the process of acquiring or establishing aggregators. The excess number of aggregators may avert the feared result. Perhaps the answer resides in the capacity of each bank to have its aggregator and combine the latter with an even more virtuous customer relations model. For if we can further valorise and improve the overall relationship model, it is not certain that all customers will want to “split” their banking relations. Individuals already receive a large number of advertising emails or texts which permanently make offers, despite the development of systems to block them. Confronted by the future excess requests and subsequent saturation, telephone conversations with a qualified adviser, combined with sending relevant texts and emails by the bank, could represent significantly increased added value, specifically because there will be a positive differentiation by targeted customisation of the relationship and the specific contribution of the adviser who knows both the customer and the business. Now, for all commercial offers sent by text and emails to our customers, the sales conversion rate is multiplied by ten if backed up by a call from the customer’s qualified adviser.
Moreover, FinTech cannot autonomously develop services that will compete with some banking activities. They are forming cooperative relationships possibly by banks acquiring FinTechs or entering into partnerships to integrate some aspects of their innovations in the banking offer.
Complementary digital and physical approaches
It is very probable that the dominant model, as in all other sectors of distribution, will ultimately be complementary digital approaches – many of which are not profitable in the real world if they are the only channel used – and physical models which, if they remain unchanged, are certainly condemned to extinction. Already there has been major convergence of the human-digital mix. For example, recently Amazon announced the creation of 400 physical bookshops. We would add that banking involves dealing with finance and personal or business projects which require even more trust and a long-term relationship. We deal with highly emotional topics over a long timescale, i.e. security, assets, inheritance … and probably, human contact.
Of course, several approaches may coexist, but if we evolve rapidly and effectively, the dominant model can remain that of the bank, not classical or traditional, but a banking network enhanced by digital technology.