8: Navigating Rapid Change Dynamics
Change has been rapid in the financial services sector. In just the past decade, companies have been subjected to increased regulation: Sarbanes-Oxley, the Patriot Act, Anti-Money Laundering, and more. Technology has provided increased facility for electronic funds transfer, and customers have switched to the Internet and mobile channels is droves (in developed countries, half of product applications and 90% of transactions take place online)
Where Will the Changes Impact the Most?
The author asserts that the banking industry, which changed little for centuries, are still "playing catch-up" with changes that have occurred, and are ill prepared for the ones that are coming.
The author lists five arenas for change:
- Platform. This is the capabilities of technology, which is constantly changing. Banks have been slow to adopt new technology and cling to older systems until they are forced to change (as evidenced by the "year 2000 bug" crisis)
- Channel. Customer preference, more than technology, requires banks to provide seamless service across multiple channels.
- Intelligence. Banks have considerable data on customer behavior, but are doing a poor job of mining it for meaningful information that would enable them to serve customers individual needs
- Marketing. Traditional advertising has lost its ability to reach a large audience with a credible voice, and banks must learn entirely new ways of communicating to prospects.
- Metrics. Banks must move away from navel-gazing metrics that study branch operations and operational efficiency, toward measuring actions that are based on acquiring and retaining customers and improving LTV and SoW.
What are Some of the Trends Dictating Change?
The author acknowledges that it is difficult to predict what current developments will drive change in future, but notes a few areas that "warrant serious consideration."
- Technology is an obvious factor - but there's more to it than that: it's the rate at which customers adopt technology is much faster than in previous times, requiring banks to be innovative rather than reactive.
- The desire of customers to have a "gridless" experience, being able to have instance access to services wherever they are, drives banks to respond to this demand in innovative ways.
- "Web 2.0" technologies that enable individuals to communicate with one another through social networks challenges the bank's ability to dominate conversation and control their public image.
- The "death of cash" is embraced not only by customers, who increasingly find paper money to be an inconvenience, and by regulators, who desire greater ability to monitor the financial activitires of citizens and potential threats.
- Customers are no longer reached by traditional advertising. They avoid it when possible, and when they are unable to avoid it, they do not consider it credible.
In general, banks have done a poor job of predicting change: technology, regulation, competition, and other forces have resulted in a pace and degree of change that was not anticipated or predicted. Moreover, the ability to focus on the right developments seems to be happenstance. In arrears, we find it risible that banks latched onto technologies that turned out to be fads, or dismissed as fads the ones that have gained acceptance.
Organizational Changes and Impact
To meet the needs of the current market, and to be poised to deal with changes, banks must change the way in which they are internally organized.
Presently, banks remained structured according to the traditional (branch) model, fractured into divisions that serve geographic areas. They also remain split into divisions that service individual products (checking and savings, loans, credit cards, etc.). They are also fractured along channels, with different business units handling branches, ATM, and Internet operations. As such, they provide a fractured service to the customer.
This is in direct conflict with the customer, who considers his own financial needs holistically (not by product or channel), expects the bank to act as a singular organization, and expects to be served with the products he needs, when and where he needs them, without having to negotiate a labyrinth of fractured departments.
It's also noted that this is not merely the young consumer who has a penchant for technology and little in the way of assets, which is the traditional reason for dismissing the digital channels: 50% of high net worth customers (the wealthiest and most profitable banking customers) currently see the Internet as their primary channel. And they (rightly) expect a heightened level of service from a "personal banker" who is familiar with their needs and provides a single point of contact for all their financial needs.
The first major change banks must make is to move away from the focus on specific channels. From the customer's perspective, the bank is one company, and they expect a seamless experience regardless of whether they walk into a branch, visit the Web site, access an ATM, or use a mobile application. So long as channels are run by different business units, with different (and conflicting) agendas, the experience will not be seamless.
Second. Banks must consider products from the perspective of the customer, rather than the other way around. Rather than expecting the customer to determine which products might be a fit for his needs, seek to discover his needs and provide products that fill them - which may involve adapting existing products or inventing new ones that are more suitable. The focus is not on what can be sold, given the bank's organization, but on discovering the needs of the customer and adapting the organization and products to fit.
The author cites personal experience: that the development of new products is "totally devoid of any thought" about how the product will be accessed through non-traditional channels. Msot often, products are devised to suit the perceived needs of a market segment, but not a specific channel of distribution. As such, they are (poorly) adapted afterward, when it is "discovered" that the customer also wants to service or obtain the product through other channels.
A better approach would be to consider channels during the product design process. There are some variations in the fundamental qualities of a product (the benefits the customer will derive, how to promote the benefits, how to apply, how to service) differ among channels, and the solution will be more suitable if it is designed with all channels in mind, from the start, rather than designed for one and badly ported to others.
Since technology is a significant factor, the IT department is often engaged to provide a solution. The trouble is: they are engaged after the fact, and they have different priorities in terms of economy (leverage existing skills and assets rather than obtaining new ones), security (any "new" proposal is a threat to system performance, stability, and security), and politics (the desire to build an "empire" and exert control over operational decisions rather than providing support).
Aside from an obvious change in philosophy, IT departments should seek to be more adaptive and nimble, taking the perspective that the systems are means to an end (serving customer needs) rather than an end in themselves; meanwhile the organization must seek to better leverage and involve IT in the planning process.
(EN: this is a vicious circle. IT wants to participate - but when invited to a meeting, they behave in an imperious manner, seeking to monopolize and control the conversation by making it about the technology, rather than the need that it is intended to serve. Hence, business seeks to exclude them. Various other books have explored this phenomenon more thoroughly, and authors are divided on whether IT should correct this behavior, or whether business should be more tolerant of it.)
Marketing is also an issue: universities still teach a traditional, mass-market approach that is an "outmoded relic" based on primitive psychological theories about human behavior (conditioned response). To succeed in the present age, marketers must first seek to gain an understanding of customers and prospects - rather than dealing with the mass-market, or a segment that is still essentially a poorly-defined group of people with similar demographic qualities, marketers must seek to understand the individual consumer.
Customer analytics are key to doing so. Presently, the marketing department has very little insight into the behavior of the individual customer, and must statistically consider the masses, and at specific instances - but it must be to the level of the individual customer, not only for a given transaction or contract, but to know the sum of all contacts, and all actions taken, by a particular individual, then aggregate in an upward fashion. This requires solutions that not only perform basic functions, but also report information, so the behavior of an individual customer can be monitored effectively.
All facets of the business that manage communication and contact with the customer must also be orchestrated: in the present system, multiple business units have contact with the customer independently - no-one knows what others have said to the customer, hence the messages a single customer receives are often disjointed and sometimes in conflict with one another. Moreover, since customers now network with one another and share information, you cannot assume a message reaches only a specific audience and goes no further. Specifically, if you say different things to different people, they will compare notes - and it will not reflect will on your company.
Communication management is not to be confused with (or dismissed as) content management. The latter was a fad of the late 1990's that sought to create a single repository of "data" - but failed to coordinate the information it contained to ensure consistent communication to the customer, a task which has not been (and likely cannot be) automated successfully.
Coordination across the enterprise is also essential to regulatory compliance. It is not uncommon for companies to be compliant for one product, in one channel, but remain out of compliance with the same regulation for different products, or the same product in different channels. While consistency and control of customer experience is the main reason for coordination, regulatory compliance should also be a strong motive (but often does not become one until regulators discover a problem and begin levying fines).
It's also noted that companies often seek to satisfy regulatory requirements by controlling their customers. An example is an application form that was three pages in 1995, and swelled to 20 pages in 2009 as a result of various regulatory requirements. Some of this can be addressed internally (using information that's on hand so the customer doesn't have to re-provide it and doing a more reasonable risk assessment to determine if the most conservative and difficult approach is truly necessary to be in compliance), but it may also be necessary to forge working relationships outside the organization - to have a conversation with regulatory authorities to mitigate the pain they inflict on companies and, by proxy, the customers.
Conclusion: Tradition or Innovation?
Of all the obstacles to change, complacency is the greatest, and this has been especially true of banks who have a comfortable level of income from traditional customers - a steady stream of income from affluent customers, commercial customers (small business), and a sufficient number of mass-market retail customers.
(EN: it's worth noting that complacency of the bank is the result of complacency by its customers - so long as customers will settle for a given level of service, the bank assumes they are happy with the way things are, and sees no need to change. And while this all seems very casual, a bank that waits for customers to begin leaving before making any changes will have lost a lot of lot of ground against proactive competitiors.)