The European banking industry has been struggling for years. The key issues that it suffers from have been known for some time. Indeed, many of them contributed to, and were highlighted by, the financial crisis which began in 2008. Yet they still need to be addressed. Here Anthony Duffy, Director of Retail Banking at Fujitsu UK and Ireland, talks Finance Monthly through a few considerations.
Some banks are still too big, others are undercapitalised and profitability is constrained. Low economic growth, pressure on margins (not helped by negative interest rates existing in some countries), and further regulatory change have combined to impact bank performance. The European Banking Authority reported that average return on equity for European banks was 5.7% in June 2016, down by more than 100 basis points in a year, while total operating income fell by 8.8%.
Of particular concern is the level of non-performing loans (NPL) plaguing already fragile banking systems across the region.
Who is Europe's sickest man?
The European Central Bank estimates that the total stock of NPL in the EU is estimated at over €1 trillion, or 5.4% of total loans. This ratio is around three times higher than other major regions of the world, such as the United States or Japan. Currently, ten of the twenty-eight member states have an NPL ratio above 10%. The worst performers are Greece and Cyprus, where almost half of all loans are under-performing and where the NPL ratio stands at 46.6% and 49% respectively. Yet, despite the size of the problem being known, progress in addressing it remains painfully slow.
Take Italy, where NPLs amount to some €350 billion, represent around 16.6% of the country’s loan portfolio and form about one third of the EU’s entire stock of bad debts. The country’s government and financial sector have spent the last eighteen months trying to address the problem. But the two “bad bank” funds created to help clean up bank balance sheets - Atlante I and Atlante II - have proved to be too small and underfunded to rise to the challenge. The funds are losing value, as the assets that they have bought continue to deteriorate. Italy’s two biggest banks, Unicredit and Intesa Sao Paolo, have written down their investments in the funds. This may, in turn, discourage others from providing fresh funds to be used to bail out problem banks, which means that further help is limited and so industry weakness continues.
Can the EBA be a game-changer?
One area of possible NPL progress could come from the European Banking Authority. Earlier this year, its chairman called for the creation of an EU-wide “bad bank”, to buy at least some of the underperforming loans which sit on the balance sheets of European banks. Andrea Enria suggested that banks would sell their non-performing loans to an asset management company at a price reflecting the real economic value of the loans. This would likely be below the book value but above the current market price. The asset manager would have up to three years to find other investors and sell on the assets.
If the scheme were implemented, it would probably mean that the banks would have to accept some losses. Should the final sale price turn out to be lower than the initial transfer price, a guarantee would protect the asset management company against potential future losses. These are commonly by the member state of each bank that chose to transfer loans to the asset management company in the first place.
Enria argues that such a scheme would remove the notion of a country’s citizens “bailing out” the banks. Any difference between the market price paid and the price the banks receive for their underperforming loan would be covered by Europe’s taxpayers, rather than national ones.
Such thinking is long overdue.
Time is of the essence
So what is to be done? It’s time to tackle the issue of NPLs head on. Further stress testing should be undertaken to identify weak loans and loan portfolios, which banks should then be required to divest via appropriate secondary markets. The impact of underperforming loans, both on the industry and on wider economic confidence, should not be underestimated. By ignoring the urgency of this, the overall structure of the European banking market has been weakened. It has also undermined the concept of a European banking system.
Instability within the European banking sector has been a feature for some time now, and it will be for some time to come. To date, too little has been done to address underlying key factors. This has to change. And, if not now, when?
With real estate markets in a bubble of volatility from year to year, mortgage rates due to rebound, and increasing purchase struggle for first time buyers, it’s about time we looked back through the years and really understood how we’ve arrived where we are today. This week Finance Monthly has heard from Tracie Pearce, Head of Mortgages at HSBC. Tracie gives us a rundown of mortgage history from day one, and points towards the shifts that are set to further shape how buyers afford their bricks.
I’ve always had misgivings about birthdays. But a 21st industry birthday taking us back to 1996, the year when the British Olympics team won 15 medals in Atlanta, Trainspotting was released and just 16% of households had mobile phones, feels worth a little retrospection. A lot has happened!
In 1996, I was an assistant analyst at specialist lender Sun Bank based in Stevenage, building and maintaining PCs and hardware for mortgage platforms. In that same year, 1996, a handful of lenders formed the Association of Residential Letting Agents (ARLA) marking the beginnings of the buy-to-let market with industry self-regulation in the shape of the Mortgage Code emerging the following year.
Through the 1990s, the building society sector, which did 72% of lending in the mid-80s saw further demutualisation but by 2000, the banks held sway with 70% of gross mortgage lending and mortgage brokers were estimated to be introducing just over half of this business.
The rise of the mortgage adviser
The early naughties saw the rise of the intermediated mortgage market, which brought mortgage choice and mass regulatory compliance ahead of the advice industry’s regulation on M Day, on 31 October 2004.
Disclosure documents including the Key Facts Illustration (KFI) became mandatory and more importantly advisers became Directly Authorised (DA) or Appointed Representatives (AR) to networks to comply with regulation.
The 2000s were arguably a fantastic time for the majority of mortgage consumers with immense mortgage product choice and loss-leading two-year fixed rates. There was easy access to credit fuelled by lender competition and record house price inflation hit 26.5% in January 2003, according to Nationwide.
On the timeline, was when I was lucky enough to be involved in launching The Mortgage Works brand. The market was buoyant, spirits were high and product innovation relatively fast and furious. It was around this time that the market moved from a position of bespoke products and pricing calibrated by risk, to more of a mass market offering and more agile processing timescales. Lenders were investing in automation, including conveyancer and valuation instructions and time to offer shortened to around 10-14 days, not so far from where we are now.
Mortgage Strategy ran a hero and villain of the week column and all the lenders were vying for the hero of the week position but desperate to avoid being called out as the villain. It was just a bit of fun, but certainly showed what was motivating product teams at the time.
The economic crunch
Meanwhile, the downside, of course, was that this perceived ‘magic porridge pot’ of equity also arguably softened the perception of borrowing risk for lenders and customers alike. By 2007, gross mortgage lending had ballooned to hit £360bn – and then, the market imploded as the credit crunch hit.
The bleak economic period and soul searching that followed handed culpability to borrowers, lenders, advisers and the credit reference agencies, alike.
One of my most vivid memories was Thursday 6th November 2008 when the Monetary Policy Committee slashed Bank Base Rate from 4.5% to 3% in one go, a really deep cut! The market was shocked. In the days and weeks that followed, products were withdrawn, lending criteria tightened and lenders retrenched to serving their direct channels first.
The FSA, was abolished on 1st April 2013 and replaced by a twin peak FCA/PRA regulatory system, with a new steely zeal for conduct regulation under the leadership of CEO Martin Wheatley.
The Mortgage Market Review was initially signposted in 2009 but took until 26 April 2014 to finally arrive after full consultation. For a period, lenders struggled to meet consumer demand as they embedded processes and training to give advice (in some channels) for the first time. Brokers leaned in to bridge this capacity gap and the industry (on the whole) gave the regulator credit for an exhaustive, clearly-trailed process.
In October 2014 HSBC entered the intermediary market for the first time, which was one of the single biggest strategic changes the bank has ever made on the mortgage side. As the adviser market’s star rose and the regulatory landscape changed, the bank made a commitment to the intermediary market, which has brought successes for both sides and clear benefit for customers.
We started with a pilot one intermediary partner – Countrywide – and London & Country joined the panel in August 15, over the last 18 months, we have been methodically and systematically expanding our reach and we now have 16 intermediary partner firms, with around 7,000 individual brokers, with more on the immediate horizon.
We are committed to working effectively with our broker partners, ensuring the best products and customer service as well as continuous improvement to deliver a market-leading customer experience.
So, George Osborne’s focus on landlords and the buy-to-let market almost brings us up to date. The Chancellor announced changes to mortgage interest tax relief in 2015 which will gradually be reduced to 20% between 2017 and 2020. The Stamp Duty surcharge of 3% was introduced from April 2016 was the next in a raft of affordability-focused, tweaks, joined the rule changes bringing in tighter underwriting on 1 January.
Inevitably the plethora of rule changes have slowed it down a little but the market is professional and I believe it is resilient. I believe it has the strength to recover, albeit it may be in a slightly different guise. As lenders have adjusted credit criteria, landlords will rethink how they choose to invest.
Looking forward to evolution
The last 21 years have been a whirlwind, and there is no doubt the next 21 years in this industry will bring more change, surprises and evolution than the last.
Mortgage lenders are on the horns of several dilemmas. Lenders understand the value of common sense lending into sectors like later life, interest-only or self-employed mortgages but must be considerate of capital adequacy and conduct.
Speaking more broadly, the demographic imperative is that the UK must build more homes and the buy-to-let market remains key to the overall health of the housing market, so should be left to adjust and recover. Not all customers can or want to own their own homes so it is just as important to help those who want to rent a property. The government has recognised this with its commitment to supporting mixed tenure homes.
What about the adviser?
Advice will remain central to the mortgage process, but I suspect honed and supported by technology. Digitalisation is set to reinvigorate the homebuying and mortgage application journey for consumers. This could mean automated confidential documentation exchanges allowing all parties in the process easy access to the same proofs of identity or even online passports which offer instant authentication.
We are going to see more screen-to-screen technology supporting the customer conversation at the front-end, for example with a tablet or mobile device from the comfort of the customer's living room.
For the adviser, online fact finds will help speed up the advice process and authentication of documents and I see Digital Advice, known more generally as RoboAdvice, working particularly well for an execution-only sale for seasoned remortgage customers who may choose to sidestep or not need face-to-face advice.
I strongly believe that those who work in the mortgage industry are very privileged to work with a product that has such a deep emotional connection for the customer.
Getting your first home, buying a bigger home to start a family in, or somewhere to retreat to if your relationship breaks down are all hugely impactful purchases. It is our pleasure to do everything we can to help people through this process. HSBC aims to empower customers with the right tools and advice to help them become knowledgeable as homebuyers and learn as much as they want to during the process.
The competition commission reporting in the summer will have plenty to say on how we could achieve this and benchmark good practice. But it’s safe to say we’ll have just as much to do and think about over the next 21 years.
Following a reported significant loss last year, the Co-op Bank has announced its bid for sale, inviting offers to buy all of its shares.
The bank’s so far struggle has bene put down to low interest rates and the unexpected high cost of turning the bank around after a near-collapse in 2013.
The sale of the bank will also have an impact on customers of the Britannia brand, which Co-op Bank merged with back in 2009. Although all customers Are protected by the Financial Services Compensation Scheme (FSCS), which provides protection to up to £85,000 of an individual's deposits in the eventuality of the bank failing. However, for now ‘business as usual’ is the word on the street. A full message to its customers can be read here.
A group statement on the Co-op Group website reads: “As a minority investor in The Co-operative Bank, the Co-op Group is supportive of the plan to find the Bank a new home. We will continue to work with the Bank and other investors through the process. We are focused on finding the best outcome for our members, two million of whom are Bank customers, as well as the members of our shared pension scheme which is well funded and supported by the Group. Our goal is to ensure the continued provision of the type of co-operative banking products our members want.”
There is no news so far on a potential buyer, and a full takeover is uncertain on the horizon.
According to the BBC, Dennis Holt, bank chairman, said: "Customers value the Co-operative Bank and our ethical brand is a point of difference that sets us apart in the market.
"While our plan has been impacted by lower for longer interest rates, the costs associated with the sheer scale of the transformation and the legacy issues we faced in 2013, there is considerable potential to build the bank's retail franchise further using the strength of the brand, its reputation for strong customer service and distinctive ethical position."
DH Corporation (TSX: DH), a leading provider of technology solutions to financial institutions globally, has published a white paper to guide banks as they consider the impacts and opportunities of open Application Programming Interfaces (open APIs) on their payments businesses.
Titled "Open APIs: A Survival Guide for Banks," the paper explores the driving forces behind the open API movement, including the proliferation of new immediate payments schemes, regulations like PSD2, and the rise of FinTech service providers. Through real-world examples, it shows how financial institutions worldwide are deploying and benefiting from open API-based initiatives. Balancing time-to-market considerations with the realities of legacy technology environments, it also sets forth a comprehensive roadmap for banks seeking to pursue an open API enablement strategy.
"Open APIs are the vital glue holding together the interconnected ecosystems that will make up the future of banking and payments services, and will serve as a catalyst to foster innovation," says Veejay Jadhaw, Chief Technology Officer, Global Payments Solutions, D+H. "In strategically approaching the decision on whether - or, more likely, how - to embrace open APIs, a bank can both clarify its future direction and strategy, and also secure its desired competitive positioning in the industry."
(Source: DH Corporation)
With abundant statistics that more and more young people are using mobile payments and that hardly any go without using social media, despite a disinterest in finance, there are still plenty of opportunities to invest in the future generations of banking. Finance Monthly here benefits from exclusive insight, authored by Kerim Derhalli, founder and CEO of invstr, into exactly why financial institutions and young people are ever more detached than ever, and how that can be changed.
Banking has an image problem.
Almost a decade on from the financial crash, the big institutions are finding that young people simply aren’t switching on to finance as a career or, for that matter, a passing interest.
The upheaval of financial institutions in the months and years since 2008 has meant that traditional talent pools have been dwindling, while hedge-funds, who tended to snap up the top bank-trained traders, have been left with next-to-nothing to pick from since the Dodd-Frank act came into place.
The industry still suffers from years of scandal and poor reputation which has caused young people to switch off.
Plus, notwithstanding the imminent and widespread deregulation being pushed forward by the newly-elected President Donald Trump, even a retracted Dodd-Frank would take years to have a positive effect on the talent pool.
Financial Times research into the changes in popularity of investment banking as a career option, among students at the top international business schools, shows that interest has plummeted – in some cases by more than 50%.
The banks represent the old way: untouchable institutions, unapproachable for those who aren’t in the right set.
As distrust in the markets has risen, popular interest has dwindled. It’s not just the professionals; where once it was the norm to invest in stocks, it has become a rarity among the person on the street.
In the UK, native individuals own just 12 per cent of shares in UK-listed and incorporated companies.
Mirroring the statistic across the pond, a report released by Gallup last year found that just 52 per cent of Americans now own stocks – that number drops to 38 per cent for those aged 18-34.
Yet, there are opportunities for upstart fintech disruptors to reenergise young people, and encourage a fresh enthusiasm for the markets and investing.
In consumer banking, digital-only start-ups such as Atom Bank are gaining traction – the UK-based challenger recently reported £100m equity investment – by providing a simple, mobile-based proposition which average people, particularly young ones, can identify with.
It may now seem obvious to raise social and mobile spheres as areas of opportunity, but both avenues remain largely untapped by the large banks.
The Office for National Statistics currently reports that the internet is used daily by 82% of Britain’s population, with 70% of adults accessing the web using a mobile or smartphone last year – up from 66% in 2015 and nearly double the 2011 estimate of 36%.
The same report also states that 63% of UK adults use social networks on a daily basis, with 91% of young adults (aged 16-24 years old) engaging in social networking in 2016.
The banks are missing a trick.
Despite massive spending and development power, they have been surprisingly lethargic when it comes to using technology to engage millennials, identify new talent pools and unearth the financiers of tomorrow.
Prompted by a need to identify new talent outside of traditional hiring pools of economics and finance graduates, it was as late as November 2016 when Deutsche Bank became the first major bank to use social media feeds to find promising candidates who may consider a career in finance.
This is where the innovative disruptors have stepped in and found their niche. We’ve seen through our work at invstr, the trading game app which is dedicated to engaging more people in the positive possibilities of savvy investing, that given the right tools, young adults will certainly show the enthusiasm in finance that the big institutions are trying to draw out.
Meeting those young people in the space that suits them – social and mobile – has been one of the key starting points. To date, the invstr app has been downloaded more than 200,000 times, with many of those being young people looking to discover more about finance without the fear of losing real-world money.
We’ve now taken that to the next level with the launch of the Student Investing Championship – a virtual trading tournament which directly engages students from business schools across the globe. The idea is simple: help students learn about the art of trading and investment in a competitive arena, developing the financiers of tomorrow.
invstr has also sought to bridge the gap between the finance employers and the extended talent pool of candidates, by introducing prizes such as access to internships at top companies in London and elsewhere, and connections with finance experts and training partners. The engaging, educational facet of the championship is a crucial theme for the industry to take note of.
The talent is certainly out there. We were impressed – yet not surprised – by the incredible trading talents of those taking part in the championship. For example, the top eight performers in the inaugural tournament in November turned over $13.5bn and made over 140,000 trading transactions in the four week competition period. The second iteration launched on February 6 and we’re excited to see bigger and better results.
Plus, having the possibility to engage business school students directly through seminars and presentations, without the burden of the reputation of the banking olde worlde, has provided invstr with an opportunity to excite young minds with the possibilities of the interwoven worlds of finance and technology.
It’s a beginning, but we’re just one fintech startup example that the big banks should learn from. At the moment, many appear to be running scared of the possibilities that new technology can offer; changing consumer trends could have as big a negative impact as they could have positive, and the public distrust in institutions as a whole (read Brexit and Trump), prompted by the social revolution, have meant that traditional banks have a lot of catching up to do in the reputation stakes.
There may be an image problem with finance at the moment, but with the help of the digital innovators, leading with direct engagement with young people through mobile and social, the industry’s reputation can be repaired and we can see a whole new generation of enthusiastic bankers, investors and financiers ensure its health into the future.
You may have heard the words ‘data management’ flying around left, right and centre with no clear understanding on what it is and how paying attention to said meaning could be useful to you, so this month Finance Monthly heard from Maysam Rizvi, a 15-year banking innovator, who provides particular insight into exactly why the data revolution is worth paying attention to. Maysam is the Founder and MD of Aelm, and is responsible for managing change initiatives at international institutions including J.P. Morgan and National Bank of Dubai.
In 2006, UK mathematician Clive Humby coined a phrase that was utterly obvious, hugely prophetic and unerringly timeless. Pointing at the raw material with which we'll build life's next phase, he said: “Data is the new oil.”
In 2017, some 2.5 quintillion bytes of data are created each day. At this rate, it'll take just three months to double the world's entire existing data stock. So Humby's statement is truer now than it was then: data is every industry's imperative. And that's quintuply true for banking.
If financial institutions want to edge ahead, and stay there, it's time to fully embrace data and its possibilities for the long term.
Financial institutions have been longsighted enough to harvest data, but our putting it to work has been sporadic and disorganised. We've been slow to deploy data in areas like regulation and compliance, and we've probably been over keen, and under-effective, in areas like credit and risk.
To digress slightly, I grew up watching movies like Terminator 2: classic struggles depicting robots (bad) versus humans (good). As a young man, I learned – as many of us did – not to trust a world that's in the hands of Artificial Intelligence (AI).
Whenever machines edge out a human workforce, or Hollywood spawns a new cyber villain, robots' reputations nosedive. But it's important to remember that AI is simply a manifestation of data: sets of numbers, trends and analytics built and programmed to perform tasks.
It's daunting, but today's data is the foundation of tomorrow's AI. And the effectiveness of banks' AI will, as the future of finance draws nearer, separate the wheat from the chaff.
The proposition is this: banking will soon rely incalculably on AI. The bedrock of AI is data. We are in a position to mine and manage rich data now.
If the story of the industrial revolution is one of optimising processes and stripping out costs, the tech revolution has utterly multiplied that paradigm.
Twenty years ago, cars started to, basically, build themselves along production lines. Today, quantum data and real-time machine learning means cars can now drive themselves. That's data in action.
And so is this: a 2013 study by Oxford University’s Carl Frey and Michael Osborne estimates that 47 percent of US jobs may be replaced by robots and automated technology within 20 years. Owing to all the brains required, banking is the kind of high cost industry where an AI coup is inevitable.
Since the ATM, we've given pieces of banking over to machines. From internet banking to intricate trading algorithms, anything that can be handed over to machines has been – and will be.
So, that's the proposition. And we can probably make peace with it. Then comes the practical.
How can banks adapt and ensure a steady transition?
On that, there's no quick answer. Whether it's retail or investment banking, preparing for mass AI means dramatically improving technology infrastructures, and sorting a lot of data.
Aside from what already sits in banks' data vaults – and what data is being crunched this very moment – 2017 will bring more machines, software and apps that'll further swell the data highways. We will probably never hit a data ceiling so I can't overstate the importance of a sound and forward-looking data management strategy now.
Central to that strategy are things like business intelligence: drilling quickly to the truth in your data. Storage: expensive server farms versus the Cloud. And security: Tesco got hacked, TalkTalk got hacked – the threat is very real.
Unfortunately, fix-all, pan-department, off-the-shelf AI systems aren't available. So, automated platforms, AI, robots – call them what you will – need to be mapped, developed, integrated and trained. And this data management strategy can't exist in isolation: banks need to roll it up as part of a wider digital strategy, and as part of an overall business strategy.
For starters, new talent is required to develop, design, deploy, analyse and work with new technologies, while current employees will need to be reskilled for a new reality.
Then there's clients and customers. Institutions that are able to construct and manage efficient, intertwining data flows must find ways to push benefits down the chain.
Like it or not, banking is not a trusted industry. Putting more automation between customers and their money or goals may be a bitter pill to swallow. In addition, the AI push will see certain people nudged out of jobs, so banks must think about payoff.
Customers aren't daft. Facebook, Google, Uber - we wearily trade our data in exchange for what, in the end, are personal, hyper-relevant services. Banks need to, basically, come up with their own 'crystal ball' technology.
Uber knows where you are, before, during and, now, even after your ride. It knows where the driver is; how much you'll pay; what service you require.
Uber has a crystal ball. But all that goes to show is that we're not staring down an impossible task. Banks have power, reach and resource at their disposal so my last point, which might sound laughable after all that, is to try and keep things simple.
A comprehensive data strategy for your bank may include only a dozen key end goals, so start there and work back: there are some great brains out there to help you with the detail.
Banks need to believe in and invest in a future made of data. If you don't, the others will.
In fact, the others are.
If you’re a bank looking at AI solutions, I advise you to consider
Where can you apply AI and how to set it up?
How quickly can you adopt an AI solution?
How to manage your team's transition through this technology upscale;
What do you need to do to your existing infrastructure to make this successful?
Tying business strategy closely with technology strategy;
Taking baby steps, solving one problem at a time;
Building the right partnerships to facilitate the transition.
Mark Roper, Commercial Director at Collinson Group discusses a bank’s role in preventing fraudulent activity.
Telco TalkTalk suffered its second data breach in a year recently, as the Wi-Fi codes of 57,000 customers were revealed, while in December a cyber-attack on Tesco Bank forced the company to repay £2.5 million of losses to over 9,000 customers.Experts claim that customers who don’t bank with Tesco Bank were also left at risk of cybercrime because the bank issued sequential debit card numbers, which means it is easier for hackers to work undetected as they move through customer accounts quickly. While cyber threats aren’t just of concern to financial organisations, these high-profile cases have ensured that banks recognise the need to invest more money in protecting customer’s data at wearehivemind.com.
The scale of fraud continues as internet use grows. In Singapore alone, 72 per cent of residents have experienced cyber-crime in their lifetime. The cost of which almost exceeds US$1 billion. Meanwhile, cyber-attacks are predicted to cost Middle Eastern economies more than US$100 billion by 2020. Social media also plays its role in identity fraud. In 2015 there was a 52 per cent rise in younger victims of cybercrime in the UK due to their use of social networks.
For decades, financial services organisations have provided add-ons to accounts and cards that protect someone’s computer when it stops working, an antique when it gets broken, or luggage when it gets lost. But, when a customer’s identity gets stolen there are few products on offer that either help to resolve the matter quickly or better still prevent it from happening in the first place.
The current scenario
It’s pretty much impossible not to interact with a financial services brand online now almost 60 percent of us use online banking. Not only does it provide a valuable service to customers and deliver cost efficiencies, it also enables banks to collate, analyse and use this data as an important asset. It helps them to understand their customers’ behaviours and tailor products and services to them that encourage customer loyalty.
Most of us do not think twice about where their personal information is being stored online, trusting that it is being protected. Banks should ensure that their customers understand the benefits of ID protection, and the impacts of phishing. When we polled 6,125[3] of the top 10-15 percent of earners globally (the middle-class mass affluent), we found that there’s a strong demand for ID protection with 57 percent of consumers seeing ID protection as a valuable product. Looking across generations, it’s the millennials (62 percent) and generation X (58 percent) who rate ID protection as more important than the global average.
With more of our personal data being stored online, it’s not clear why identity theft protection is rarely provided as a benefit on a card or account, or within a loyalty programme. It is certainly not due to a lack of consumer demand.
As the facilitators of online transactions and holders of valuable data, retail banks could seize the opportunity to provide their customers peace of mind and enrich their digital experiences by offering identity protection products.
An opportunity for financial service providers
With the falling of the interchange fee credit card loyalty programmes aren’t as lucrative they once were for banks. This creates a strong argument for banks to provide ID protection as a value-added benefit. When Collinson Group conducted their mass affluent research, it was revealed that only 13 percent purchase it from their bank; much lower than specialist providers (22 percent) and credit card providers (20 percent). Educating customers on the importance of online protection and offering specialist products will help banks re-establish trust with their customers, encourage a better digital customer experience and help build brand loyalty.
At Collinson Group, we recommend that banks consider three points. How do their customers …
- Mitigate risk of public or stolen personal information online
Criminals scan the internet for personal information that can be used illegally or traded on the ‘dark web’. Banks need to be providing online monitoring platforms to mitigate the risk of customers falling victim to identity crime.
Monitoring solutions will alert customers when they are in danger of fraud or identity theft, and classify the level of risk. Details of any potential security risks or breaches can be viewed and assessed, so that action can be taken as required.
- Protect lost or stolen cards and documents
Card and document assistance helps keep a customer’s identity secure in the event that cards, documents, and data is lost or stolen. Assistance in blocking or cancelling lost or stolen cards, while making sure that copies of important documents are stored securely for easy retrieval, will allow access to missing items without delay.
- Protect personal information when online, across multiple devices
Today’s consumers access services and information across a variety of devices. Whether customers use their desktop, or a mobile while on the move, protection from phishing and key-logging attacks (two of the fastest-growing online threats) can be offered.
Final thoughts
Banks have provided additional products to protect our homes, cars and livelihoods as part and parcel of their services for years. As more of us spend time on social media, and indeed the vast majority of transactional banking is done online, banks need to help us protect our identities and personal information from fraud too. Ensuring consumers understand the importance of ID protection, and providing it as an additional customer service will help banks build trust with their customers and build loyalty towards their brand.
Future central bankers in the UK will have to deal with a compromised Bank of England following the government’s intervention in Mark Carney’s management of monetary policy, according to a leading critic of Bank of England policy.
Anthony Evans, an economist at ESCP Europe business School in London, says that the government has overstepped its remit in questioning Mr Carney’s decisions – with some members calling for his resignation.
“The government has effectively reminded Mr Carney that he answers to them – and that is a dangerous mistake. He has responded robustly, and it is unlikely that this will affect how he runs his office – but I believe that this has compromised the position for future central bankers in the UK, with the independence of the central bank being questioned so openly.”
“To call for his resignation is unwarranted – in making forecasts he was only doing his job. Personally, I think that his forecasts are overly gloomy, but he must have absolute independence to make calls as he sees them, or the future efficacy of the Bank of England as an independent body will be questionable. The whole point of the central bank as an independent voice is defeated if policy makers can influence it.”
(Source: ESCP)
By Mark Roper, Commercial Director – Collinson Group
It wasn’t all that long ago that a bank manager was more than a person who ran a branch. They were financial advisors, mortgage brokers and trusted confidants. They held a personal relationship with their customers – they would be consulted by customers on many important life decisions from funding weddings, purchasing a car, planning for children or buying a home. Then, over time, the branch manager transitioned to more of a salesperson than an advisor. The personal relationship customers once held with their bank has been reduced even further through the rise of digital banking – although it has given customers more flexibility in how they engage. While a seamless digital experience is vital for a modern bank, customers still appreciate that human touch, and it remains key to forming relationships with customers and building loyalty. This presents an opportunity for banks that can strike the right balance between delivering great digital experiences and being a trusted advisor again. For this to occur, banks need to shift their focus from product-based, transactional interactions, to a model that is more customer-centric.
In the last year alone, more than 600 bank branches were closed in the UK (http://www.bbc.co.uk/news/business-36268324). Branch closures are not just a trend in the UK, in the US the number of bank branches has reduced by six percent since 2009, and is now at the lowest level in more than a decade (http://www.reuters.com/article/us-usa-banks-branches-idUSKCN10X0D6). The decline of the branch is being driven by increased demand for digital services, and improvements to online banking platforms. It is understood that banks need to harness the power of these digital tools to offer more personalised service and build customer engagement. But, now they need to put the customer at the heart of everything they do – designing and offering products and services around the customer need, not products and banking infrastructure. With reduced interchange fees impacting revenues and thus the ability for credit cards to offer rewards as they may have in the past, and emerging new ventures disrupting the market, banks must change to meet customer expectations or risk reduced customer engagement and even custom.
Being customer-centric is not just about listening to how customers want to interact with you, it’s about recognising what they value beyond your products and services, so you can identify the total worth of the brand-customer relationship. Many FinTech firms disrupting the sector have built their businesses from an end-user’s perspective rather than a product perspective. This is what gives them their competitive advantage.
Customers now expect to have an experience tailored to their individual needs. Our global study of more than 6,000 affluent middle class customers found that over half (56 percent) feel more loyal towards brands that know who they are and treat them differently and nearly three in five expect their bank to proactively offer products and services that meet their needs. Furthermore, the research found 65 percent of bank customers expect to be rewarded for staying, and 67 percent actively want a choice of rewards and benefits to best suit their tastes and interests.
Banks have the potential to use data to both improve the customer experience and to build a more personal and emotional relationship. Financial service organisations can use customer insights to become a customer’s ‘financial friend’ and trusted advisor. For example, banks could analyse spending behaviour to identify key moments in a customer’s life such as getting married, starting a family, or booking an extravagant holiday. Data collection and analysis—at transactional, behavioural, and attitudinal levels—is what drives this insight and creates opportunity, and should be better used to deliver tailored offers and services that customers truly value.
To seize this opportunity, banks must offer solutions that help serve customers broader lifestyle needs. When polled, 72 percent of global affluent middle class customers highly value health insurance, 66 percent travel insurance and 63 percent lost cards assistance. Indeed, all of the following services were rated highly valued by over half the 6000+ respondents: motor breakdown recovery, identity theft protection, discounts or offers with partner retailers, purchase protection insurance, SOS travel assistance, home emergency/boiler cover, and airport lounge access.
Customer demand for these additional services creates an opportunity to build bank wide loyalty and significantly improve both customer value perception and the customer experience. Research indicates that customers would value a one-stop-shop for all their financial services products, rather than spreading their current account, home insurance, mortgage provider. But currently, there is no incentive for them to do so. By analysing customer data to capitalise on key life events and providing relevant, tailored offers off the back of this insight, banks can deliver incentives to encourage multi product purchases. The end result is bank wide loyalty, engaged customers and increased profit.
Focusing on customer needs as central to business strategy brings the ‘human’ touch back to the banking relationship, even across digital channels. However, for this to work successfully, banks would benefit from collaboration with partners, and by adopting an open API approach to facilitate greater levels of data enhancement. By aggregating their own data with that from third parties, brands can paint a picture of their customers across multiple touch-points. This would include granular detail about unique customer journeys, preferences and behaviour to deliver relevant and seamless customer servicing and experiences on digital channels and others.
Ultimately, financial service organisations need to set very clear goals and objectives for customer engagement and align their investment against these to build functionality that facilitates key customer actions effortlessly. Be this repeat purchases, purchasing of additional services, or accessing incentives and rewards – the experience should make the customer feel in control. In most organisations this requires an organisational shift to better align processes and resources, and to better connect marketing and customer service departments. While this sounds challenging, there is a significant pay off for those that get it right. We are seeing this happen already in growing markets with high levels of wealth. In the UAE, bank-wide loyalty initiatives are driving increased customer satisfaction, and increased engagement. Our research into the UAE affluent middle class found that participation in bank loyalty programmes increased 56 percent in the past year.
Once banks reward, incentivise and engage customers, it becomes easier to cross-sell other products and services. This could include savings and loans to protection and experience products. A single customer view lays the foundation for bank-wide loyalty initiatives to be developed and funded—something that will drive incremental revenue for the sector and allow customers to be invested both emotionally and tangibly in their bank.
The rapid increase in demand for digital services provides financial services brands the opportunity to develop deeper meaningful relationships with customers by optimising and integrating data, interactions and offerings. The provision of more self-selected and tailored products and services, could herald a new era for the role banks play in the lives of consumers now and in the future. The bank of me may not be that far away after all.
The final design for the new Bank of England £5 note, which will enter circulation in September, will feature the image of Sir Winston Churchill. The new note will be made of plastic rather than cotton paper, which is believed to be cleaner, more durable and harder to counterfeit than the current cotton paper banknotes.
However, the use of new material might create difficulties since the notes may initially be prone to stick together. Although countries such as Scotland, Australia and Canada have been using the thin, see-through polymer, plastic banknotes are brand new to England. The new polymer notes, which are 15 % smaller than the current ones, will be accompanied by advice to businesses about dealing with them.
The decision to feature Churchill was made three years ago. Churchill’s declaration "I have nothing to offer but blood, toil, tears and sweat", a view of Westminster and the Elizabeth Tower from the South Bank, the Great Clock and a background image of the Nobel Prize are all present in the artwork on the banknote. It will take a year for the new note to completely replace the current 329 million Elizabeth Fry £5 notes in circulation.
Plans for other notes include featuring Jane Austen on the new £10 note which will be issued in 2017, and JMW Turner who will appear on the next £20 banknote expected by 2020. New polymer banknotes are being issued in Scotland as well.
In an attempt to give companies the ability to experience how technology is transforming the financial world and how it can be deployed to solve critical business issues, an ultra-modern innovation centre has recently opened its doors in central London.
Dedicated to next generation banking and finance, the state-of–the-art centre was launched by Synechron Inc. – a global consulting and technology innovator in the financial services industry, which has plans to open innovation centres in New York, Florida, Amsterdam and Pune over the next few months. The first innovation centre that the company launched was in Dubai in October 2015 and was the first of its kind internationally.
Through the combined innovation of augmented reality, artificial intelligence, block chain, natural language and biometrics, mobile, and touch and smart technologies, the brand new centre gives businesses the chance to fully immerse themselves in the plethora of new technology available.
The Synechron Digital Innovation Centres’ aim is to act as innovation hubs for individuals and businesses willing to invest in technology and particularly in digital transformation - solving critical business issues and scaling these investments to achieve greater future business success.
The Synechron’s centre will be fully-operational from May 25th 2016 and will offer a number of options: from a half day of brainstorming session for executive management, to a rapid prototyping challenge, or even just a one hour dedicated technology workshop. Some of the key technologies available to visitors include artificial intelligence, Amazon Echo (Alexa), new apps around block chain and tablets with new apps and gamification.
Faisal Husain, CEO of Synechron, said, “We envisioned and invested in building a space where our clients can come and touch the latest in the digital world, get inspired and learn about what trends and technologies are disrupting their customers’ banking experiences worldwide. We want to help our clients be at the very forefront of digital transformation to drive an entirely new concept of banking interaction and engagement.”
The European Central Bank has announced its June policies, which include leaving interest rates unchanged and hinting at further action if inflation fails to improve. President Mario Draghi said at a press conference that external shocks, such as a possible exit from the EU for Britain, would affect the market negatively and he recommends that the UK remain in the EU.
Mr. Draghi hinted that there is still the possibility for future stimulus if needed. This is following the ECB’s increase in its qualitative easing programme in March from €60 billion to €80 billion. The ECB will also start buying high-grade corporate bonds in early June.
The euro barely reacted to the news that interest rates will not be changed. Most recent forecasts now expect inflation to hit 0.1% this year, 1.3% in 2017 and 1.6% in 2018, possibly due to a rise in oil prices.
David Cheetham of XTB.com comments: “As was widely expected the ECB have announced that they will make no alterations to the three benchmarks interest rates or QE programme following the conclusion of their latest meeting. During the press conference shortly after the rate decision President Draghi struck dovish chords as the markets have grown accustomed to in recent times, stating the rates will stay at present or lower levels for some time. Market reaction so far has been fairly subdued with the slight upward revision to this year's inflation forecast of 10 basis points arguably the biggest takeaway, but seemingly not a big enough development to cause a sustained market move.”
David Cheetham is a market analyst at XTB. For more information about him, please visit: https://www.xtb.com/en/market-analysis/our-analysts/david-cheetham
