The banking industry is undergoing significant change.
Banking customers are starting to flex their muscles, knowing that they have choice and prepared to exercise it. Technology change is blurring the industry’s boundaries and allowing non-banks to compete effectively for banking services. And, new regulation is raising the cost of doing business. As a result, banks need to simultaneously invest in innovation while lowering their costs. This is no mean feat and will require them to make smart, strategic investments in technology. These are our predictions for the top investment areas in 2014:
1. Digital channels
Changes in technology have rendered banking anytime, anywhere, and accessible through multiple different channels and apps. While most customerfacing industries are reacting fast, banks are encumbered by old technology that makes it difficult for them to offer a rich, interactive and seamless experience to their customers across digital channels. As such, banks need to make disproportionate investments to catch up and provide an experience comparable with other retailers; a matter made more urgent by the fact that many of these same retailers are launching banking services themselves.
We see this investment principally being in renovating old legacy internet and mobile banking applications. We believe User Experience Platforms (UXPs), productivity enhancing solutions that allow banks to build apps and deploy across multiple channels and devices, will see strong growth. We also think we’ll see more examples of banks engaging in “open banking”, where they allow third party developers access to their platforms to develop apps and other extensions. We also believe there’ll be more instances of banks opening their own app stores.
Digitalisation has changed the competitive dynamic from “economies of scale” to “economies of access”. Whoever controls the point of customer interaction will control pricing and margins, so it is critical banks get this right – and fast.
Investing in analytics is key to unlocking the value of customer data, to transforming customer experience and to seeing off the most existential competitive threats.
Banks need to extract actionable insight from their customer data. They are custodians of massive amounts of customer data, but they do little with it, partly because it is locked up in siloed databases. One of the most important ways for banks to improve their RoE will be to cross-sell effectively, and this will require them using data to make appropriate product and service recommendations to their customers. Given the extent to which customers are switching providers, it is also essential that banks use customer data to reward loyalty, and to identify and act early when there are signs that a customer may be considering defecting.
But, as well as using data for their own ends, banks are now expected to provide banking customers with value-added services based on their data. Increasingly, in the consumer’s mind, there is a tradeoff between entrusting an organisation with their data and getting some service in return. So far, banks are doing little in this regard and, as such, they run the risk of losing out to providers who offer these services, such as Mint, which offers financial management, or the providers of digital wallets, like Amazon.
Within analytics, we foresee banks making large investments in areas such as data extraction tools, in-memory databases, digital wallets, predictive analytics and loyalty services.
Download the full document to read our predictions for the top investment areas in 2014: