Banking redefined: disruption, transformation and the next-generation bank
6 July 2018
Gareth Mackown, IBM Partner and iX Financial Services Lead
For generations, banking was nearly impenetrable to outside agencies. Value was generated by providing customers with core banking services. As critical intermediaries, bankers were able to sustain healthy margins. But a triple set of challenges have emerged, requiring bankers to rethink how they do business: many banks are struggling with sluggish profits; new classes of customers are easily dissatisfied and disillusioned, and expect new levels of engagement and experience from their bank; and a new breed of competitor is emerging for banking customers.
Traditional banking functions are being contested and becoming commodities. Consequently, value and competitive differentiation in banking is shifting from functional capabilities to customer relationships. While emerging competitors may be able to replicate banking functions better and at lower cost, they will find it much more difficult to build and manage the breadth and depth of customer relationships traditional banks have carefully built over decades.
So how does an established bank become customer obsessed? If the aim is keep the customer in mind in every aspect of the bank's business, then techniques such as design thinking are important, because design thinking can drive speedy change – not just for pockets or silos of the organisation, but potentially for the whole enterprise. Then there is the question of the supporting tools and infrastructure needed. To drive customer-centric banking, banks will need flexible and adaptable IT systems to be able to support both the new regulations coming into place, and the sorts of experiences their customers now want.
The key opportunity, particularly for large incumbent banks, is in their existing IT and, particularly, their data. Many banks still preside over data locked away in legacy systems, data which new technologies such as AI and cognitive computing could use to create new products, services and revenue streams – innovation for banks to address the questions they face from both the market and their customers.
To contact IBM about a Design Thinking workshop, please visit www.ibm.com/design/thinking. To download the Generic C Suite Study, please click here or to download the Banking Industry view please click here. Alternatively, email IBM to arrange a follow-up conversation. For more information, please visit IBM iX.
[MUSIC PLAYING] Customers often voice their criticism that banks are lagging behind. They get answers to their questions late, services a bumpy, and the interfaces are rusty. It seems that technology stands behind everything. Is this true? How could the banks and the financial institutions take control of the trends? This is what we're going to discuss with Gareth Mackown from IBM. Gareth, morning.
So what does the customer really want?
That's a really interesting question. I think, over the last few years, we've all been talking about customer engagement, the empowered customer, really kind of upping the customer experience. And these are all really important. But if you get to the fundamentals, what do we, as customers, really want-- we want to be able to complete our tasks quickly, do the things we want to do really quickly and efficiently. We want to kind of have services that are using the information you know about me to provide better insights so I can make better-informed decisions. And I just want to take less time doing things. I want things to be quicker.
There must be some trends emerging during these times. Tell me what those are.
Well, within the industry, the big current trend is all around Open Banking and PSD2. Most of the established banks are having to really focus on this to meet the new regulations. But also look at the new opportunities it creates.
And it creates a vast amount of opportunity allowing you to better serve your customer to give them a better, wider understanding of their financial position, whether that's just where am I at the end of the month in my finances all the way through to can I afford this mortgage based on my spend? Having a better insight in terms of your finances is really a customer-driven regulation, but has big implications for the role of the banks.
We know there's a lot of start-ups out there. How big of a threat are those start-ups to banks?
For the last few years, a lot of people have been talking about in start-ups, the challenge the banks really taking on and being a real threat to the established banks. However, in a recent study we conducted-- it's a global C-suite study of 12 and 1/2 thousand executives-- they measured 72% rated innovative incumbents as ones leading the disruption.
And it was much lower number for actually start-ups and challengers. And I think that's because, actually, when you look at where disruption is coming from, there's a lot of seeds of it within the challenges of start-ups. But doing it at scale is something that the established banks have real ability to do. And I think that's why we're starting to see more action happening.
Now, all of that sounds great. But if on the customer, I'm using my local bank. I don't see these changes. It seems like they're lagging behind. I think it's varied stories across the banks, in truth. And there are a lot of reasons why banks aren't finding it easy, day one, to do these things. They have legacy IT systems. Their organisational culture isn't yet set up organisation-wide to be customer-focused.
Most banks, all the banks I talked and work with, they all have a focus area where they're doing innovation, they're doing design focused around customers. But it's not necessarily organisation-wide where they're evolving all the organisation from top all the way through to the people in the branches to think about the customer, think about their needs, have real empathy for them. And I think that's kind of where the next step needs happen.
Tell me what design thinking is.
So design thinking is part of the answer to that problem I just posed, which is, how do you actually make sure you're thinking about the users and all of the things you're doing are centred around the user? It's not just about design in terms of creating the right imagery, the right kind of web design. It's about, actually, really having empathy for the end user-- understanding what they're trying to do, what they're trying to experience, where their challenges and pain is, and using that to inform your decisions all the way through.
What we found, in IBM-- and we've rolled out design thinking across our organisation and now helping many other customers with it. We found that doing it across the organisation has some real tangible benefits. If you only do it in one or two parts, you end up with broken pieces where you create a promise and expectation with a customer. But then, actually, when you try and deliver it, and the back end processes do not fulfil against that. So having design thinking leading to decisions across the organisation is key.
So with that in mind, what should the banks be doing to get rid of these outdated approaches?
So they need to be looking at their organisation and how they use things like design thinking in combination with agile and other tools and methodologies to really drive quicker changes focused around the customer. But they also actually have to look at their IT systems. Clearly, there is still a lot of work to be done to make them more agile, make little flexible, move into more API-led approach, which is what things like Open Banking bring along and where we're helping a lot of our clients.
And this is the role of technology you're talking about?
Yes. Technology is a challenge and a blessing, right? In many ways, the legacy systems hold back banks. But it can be a blessing. Because within all of that technology, within those legacy systems, with the new technology coming, there's a huge amount of opportunity to really deliver great service to customers and provide great insight. Cognitive is a great example of that-- cognitive and AI-- being able to use new technology to get better insight on the data you have on your customers to deliver the experiences and help them through their processes that much quicker.
IBM-- how are they going to help?
So as an organisation, we, as I mentioned, have applied design thinking to ourselves. From that we've--
So you've tested it out on your own internal teams?
We've tested our internal teams, from our marketing to our product team, to those who actually at work externally with clients. We've used design thinking, and we train everyone from our execs, all the way through to our kind of graduates who come into the organisation. And in doing so, we've learned a lot about what it takes to do that well. And we've now taken that as an approach, and we're using it with many other of our clients to help them roll it out. So in terms of being user-focused and user-centric, I think we have a lot we can bring to organisations. And we are doing it with many banks are how to do that.
Secondly, I think, when it comes to things like IT an IT transformation, IBM has been doing that for a long time with a lot of banks. And we are really helping a number of them now on that new wave of how they work in areas like Open Banking to create platforms that are going to enable them to move on to the next stage they need to be at.
And then thirdly, in the space of cognitive and AI, with IBM Watson, we have a huge amount of technology capability, but also a lot of experience implementing that for customers, whether that's operationally in the back around AML and fraud, risk and compliance, all the way through to front-end services. A great example is Orange bank in France where we've recently helped them go live with a 100% digital bank, but using cognitive and conversational chatbots to deliver a kind of a banking service. And 50% of their interactions are now going first for our artificial intelligence, which is fantastic.
So where do we see bank of the future.
So I think the bank in the future, to serve the industry to serve its customers, it needs to be customer- and user-led. And I say user-led as well because it's about the employee too. The employees are a really important part of this mix-- so your customer and your employees, being really focused around those and how you make decisions and what you drive-through.
It needs to have an IT set up that allows it to be flexible to handle new regulations, to handle new services and cater to new kind of experiences that customers want. And it needs to use its data, and its insight using cognitive and AI to better create better experiences for its customer and to be more efficient as an organisation. You get those three things right, then you'll be pretty set for the future I think.
Sounds exciting. Thank you for your time this afternoon.
No problem. Thank you very much.