Retail Banking Innovation Roundup

Having been at RBI2017,  there was considerable discussion about Open Banking, what benefits it might offer to customers and the issue of customer consent for sharing data.

What is open banking

For those not in the know – which is apparently about 90% of the UK population, open banking is the competition and market authorities (CMA) response to the fact that whilst challenger banks & current account switching were introduced as a way of stimulating better competition, most of us haven’t bothered to move and the challengers are all pretty small (and I think regulation keeps most current account products pretty similar so there is minimal opportunity for innovation)

It’s pretty difficult to become a bank, you need around £50M of funding, at least, will probably take a number of years to get the banking license and create the necessary systems  – ultimately to create a product that is free for many people.

Open banking tries to address these two issues (it’s hard to become a bank and none of us move accounts) by defining a set of standards and working with the large banks to create a set of APIs on which other service providers can build.

New service providers might then spring up that offer full banking services,  without them needing to manufacture the products and have a lot of the overheads and capital requirements associated with being a bank. Companies might also offer niche services that break banking down into a set of micro products that can be personalised with different providers building a specialism in one area or another.

Ok, so what I hear you ask , in fact the speaker was asked how he saw that open banking might benefit consumers. He gave a pretty credible use case. A 3rd party (with whom you’d chose to share your data), could receive updates from your bank on transactions and balances and then if you were going to go overdrawn, offer a short term facility at a better rate than the bank. 

That sounds pretty cool, doesn’t it – well , maybe. I think there are two problems, firstly what’s the incentive for the bank if other providers cream off all the elements where a profit can be generated, they will be left with running current accounts for free that cost them money – interest rates are currently so low, there is little profit in traditional margin business (the difference between what you pay savers and charge lenders). We only need look at the Royal mail to see how this strategy panned out in that sector.

The second problem, I think is more interesting  – and potentially more transformative. 

Imagine this :

Today’s scenario: You have a sore back, so you go to your GP . The GP says I think know what the problem is, I’m going to refer you to a consultant with the right specialism. You go to the consultant he sorts you out, no problem. Behind the scenes he’s had access to your medical data in order that he can do his job and the GP made the decision who you should go to and you trust him to do this.

The “Open Healthcare scenario”: You go to your GP, tell him you’ve got a sore back, he says, I can refer you to 3 providers , a gynachologist, an orthopaedic surgeon and a chiropractor, which one would you like and do you consent for me to share your data with them. 

The problem with the second scenario are firstly, I don’t have the expertise to make decision about which “product” is right for me .. indeed, all could be valid solutions to my unknown problem (well except the first as , the last time I checked i didn’t have a womb)  and I don’t know how to decide on what basis it’s ok to share my data.

The same problem exists for open banking, customers have problems and needs, not a technical specification of requirements and my decision on whether I want to share my data is based on whether it will benefit me.

Therefore I (controversially) suggest that asking users permission to share their data is fundamentally flawed. I want my data shared with companies i can trust, won’t abuse my data and can offer me value… and i don’t want to have to share my data to find out the answer. 

It’s the same problem as channel preference, my preference is what suits me right here right now, based on what I’m trying to achieve. Most of the time i’m happy with my utility bill being online , until this morning I needed it for proof of address. So, I’d just like to click a button and have my provider send me a bill.. I can’t find that buttton on the mobile app, I probably have to call the call centre (busting my channel preference to do most things mobile unless I find them complicated) 

Whilst i’m ranting, this leads me onto another issue, so called “customer journeys” – when did you last hear any customer ever say, I want to go on a journey to get a “loan”, my journey is buying a car, going on holiday fixing the boiler or whatever. The “loan welcome journey” is an annoyance and anxiety inducing process somewhere in the middle. 

So, my message to the CMA and Banks is, stop trying to reinvent the system from the inside out, become your customers and reinvent from the outside in. 

Digital Transformation 

Alongside open banking and innovation,  digital transformation was discussed by many speakers. There were some genuinely innovative and inspiring case studies of the changes companies are implementing – the scale and complexity of which are mind-boggling. 

Having done a bit of research, Piyush Gupta from DBS (who wasn’t at RBI in London obviously), puts very eloquently the impact of digital transformation on his organisation :

“The idea of this separate group was to see if we could create a mobile-only bank, completely paperless and branchless. We have chosen to do this in India first, and if it works, we will take it to different markets. So far, we’re very encouraged with the results—over 800,000 customers in just nine months. It’s all driven by a digital identification process that uses artificial intelligence. An intelligent bot handles all inquiries, so you only need a minuscule call center. There are no checks or checkbooks. If you can do payments well, you can do online lending well, and you can kill paper. You change the customer experience immeasurably. We believe we can run a bank of this sort with 10 percent of the head count needed to run a traditional bank. Today, we are at 25 percent, but we think in another year or 18 months we will get to 10 percent.” – Piyash Gupta

Imagine if in 2 years your company had only 10% of the staff you had today. How would it look, how would we deliver that, because if you believe Gupta, that’s where we should be aiming.

When I look at some clients transformation programmes, I get the sense that they are just creating tomorrows legacy systems . The same monolithic programmes and IT solutions underpin tomorrow as they do today , just with the words “API, Open and cloud” thrown in to replace “client server” or “distributed computing”. 

What is really different today isn’t the technology – yes an iPad is very different to a main frame, yes we can do voice recognition accurately in real-time, but they are just point in time capabilites – tomorrow it will be holographic displays and neural interfaces – the real difference is the pace of change. 

You only need to look at the graphs for time to reach 50M customers – 75 years for the telephone, 35 days for angry birds, to see this.

In the old days , we had time to evaluate what was going on, gather requirements and build a solution that was going to last for 10 years. Today,  by the time we’ve decided its a good idea and got seed funding to stand up a team to investigate it, the world has moved on.

That’s when the lightbulb came on. 

The real point of digital transformation isn’t to chanage a capability, the point of digital transformation is to change the way we change.  The legacy we leave behind is an organisation with processes and a culture comfortable with agile, able to test quickly and fail fast and an investment approach that is risk based, not geared around black and white business cases. 

So, if you are responsible for digital transformation, ask yourself am I creating a legacy that will have changed the way my organisation changes. 

Some of the other points.

There was a  really clear summary of some of the trends and options for the large banks of the future. At present, challengers are just “copying” and the cost of customer  acquisition is high. Real disruption is about companies (e.g. TransferWise) taking part of a process and “nicking” that business.
The problem with digital take up isn’t our digital abilities it’s our financial ability. Ernst and Young data data suggest when compared,  50% of us say we are comfortably digitally savvy, whereas only 32% of us consider ourselves financially savvy. 
Four possible business models for the large bank of the future. The companies in brackets are comparative organisations who have done similar things in different sectors:

1. Leverage data (Tesco, Strava)
2. Reinvigorate traditional (John Lewis)

3. Provide infrastructure (Open reach)

4. Build a platform (trip advisor)

In conclusion

Thanks you RBI for a stimulating couple of days, there are some amazing things happening in the sector. The future is about more technology, we can’t imagine, delivering services  we haven’t thought of yet through an ever increasing array of devices and channels. So, focus on changing the way you change if you want to be part of it.


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