BANKING

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IN A DIGITALISED

FUTURE

A new generation of Customer and the era of Digitalisation are changing the face of the world we live in and Banking is feeling this more than most.

Banking in a digitalised future

“Enhanced multichannel experiences, social media interactions and mobile technology can enable banks to achieve success—today and in the future.”

“Today’s banks must restore customer trust, defend against new competitors and avoid commoditization. These are three business models that can help banks overcome these challenges:

The “Intelligent Multichannel” bank.

The “Socially Engaging” bank.

The “Financial/Non-Financial Digital Ecosystem” bank.

Banks face three critical battles: restoring customer trust, defending their payments business from new entrants and avoiding commoditization.” Source - Accenture’s Banking 2016 report

These challenges are coinciding with and in fact are to a large extent being driven by a new digital, tech savvy generation (the Millennials born 1980 onwards) who are now taking over the reins of leadership from the old guard; think Mark Zuckerberg (Facebook), Kevin Systrom and Mike Krieger (Instagram), David Karp (Tumblr) – all under 35 years old. The result, an ever quickening roll out and application of new tech – Digitalisation.

“Personally I think banks as we know them will go out of date, I think banking will be mostly online and via call centres and I think the buildings will mostly disappear…” Thulani 17

‘73% of millennials say they would be more excited about a new financial service offering from Google, Amazon, Apple, Paypal, and Square than a nationwide bank’. Ian Rosen – Crowdfund Insider (14 Oct 2015)

Banking of the future as seen by a 17-year-old South African and a key finding from recent research conducted in the US. In order to better understand these consumers and what they expect of the future, TelkomlBusiness Connexion recently conducted research amongst Millennials (born 1980 – 2000) and Generation Y (born 2000 onwards). The purpose behind the research was to use the results to illustrate to Telkom|Business Connexion Customers just how this consumer of the future visualised their future world and the part they saw tech playing in it. The question is, how tuned into the needs and aspirations of this new generation are our banking institutions? Gone are the days when business calls the shots. Business either stays relevant to this new consumer or they will fast become relics in the new consumer and tech driven world.

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They are always-on – connected in some way with some device and at ease with tech.

They are multi-channel – they can split their attention between their phones, TV, games, computers and importantly from a retail perspective, enjoy multi-channel shopping.

They are knowledge driven – they have knowledge at their fingertips and they use it.

They are socially and environmentally conscious – they care about the World and what’s on it.

They live in a virtual world, an augmented world where everything is possible – boundaries no longer are.

Let’s have a look at this generation a little more carefully.

Millennials & Generation Y

What’s going to shape a successful bank of the future?

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This generation was born into a world of technology. They interact with the world in a completely different way to their parents or grandparents. They are the ‘digital first’ generation and have grown up with computers, email, mobile phones, and the Internet, as an integral and accepted part of their everyday life. Following on from their footsteps is generation Y (born 2000 onwards). They share many of the tech-focused characteristics of millennials, but they’re much more pronounced. While millennials may still remember the early stages of the Internet and cell phones, Gen Z will not remember a time before the iPhone or Facebook. Some defining characteristics of these two generations:

Customer experience (CX). Creating excellent customer experiences/service is nothing new, but what is new, is the emergence of the Millennials as the new consumer and the tech that is both driving change and being demanded by these tech savvy Millennials.

What does this mean for retail banks? That they need to build a digital customer experience that is engaging and relevant not only compared to all other financial institutions, but compared to the leading companies in other industries as banks do not hold a special place in Millennials hearts.

According to the Global Consumer Banking Survey 2014 by Ernst & Young, “in many ways, consumer banking is like other types of consumer activity. But banking customers expect more than an excellent mix of products: they are looking for superior customer experiences that fulfil basic expectations while providing added value.”

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International examples of banks embracing tech in order to improved customer experiences

In the survey - which included responses from more than 32,000 retail banking customers across 43 countries - customers selected ‘the way I am treated’ as the second most important reason for trusting their bank, following (of course) ‘financial stability’. Even more important, customer experience is also considered “the most common reason for opening and closing accounts, more so than fees, rates, locations, and convenience.”

The message is clear, that banks, whilst clearly needing to embrace tech and the age of digitalisation, importantly need to understand and service appropriately this new, more demanding, less loyal generation of customers – the Millennials. Source: Neosperience Sept 29 2015.

Commonwealth Bank of Australia (CBA) created a vastly improved customer experience by reinventing their home loan product through digitising it. Everything from looking for properties (pictorial listings and key property information), to electronic home loan applications (or setting up an appointment with a home loan advisor), to advising the current status of the home application status and being able to make payments from the home loan account to vendors anywhere, anytime was available on their chosen device (mobile, laptop etc.). This move helped CBA to reinforce its leadership in Australia’s home loan market.

In South Korea, Hana Bank has embraced mobile phone banking through their Hana N mobile platform. This serves as a full-service bank in a smartphone, working seamlessly with Hana’s branches. Customers can withdraw cash from ATMs via their smartphones, parents can send money to their children via their mobiles, and N money includes near-field payments technology that can be used to pay at many stores. Wrapped into the platform are engaging location-based offers and coupons, as well as the ability to borrow for larger purchases while in the store. A concept South African banks would do well to emulate. Source: Bain & Company June 18 2014

Some key issues to consider:

New customers - more demanding and tech-savvy, connected 24/7;

New competitors - online and digital banks, lowering the costs for clients;

New technologies - mobile banking and direct payments (Android Pay, Apple Pay);

New forms of payment - the infamous Bitcoins, the swap economy and the economy of experience.

The South African Banking landscape

The South African banking industry has a further set of challenges that need to be addressed and can be addressed efficiently and effectively through applied tech. Let’s have a look at just two of the most prevalent issues:

• Banking for the ‘unbanked’ - South Africa (and much of Africa) still has a long way to go in bringing electronic banking to many of its population. The proliferation of ‘scratch cards’ in the mobile phone industry is testament to this - the ‘scratch card’ industry is worth over $70 billion in Africa. It will require a consolidated and concerted effort from all stake holders (banks, government, merchants etc.) and an embracing of and investment in available technologies to move things forward.

• Financial illiteracy continues to be a stumbling block in South Africa’s economic development, particularly in the area of enabling the growth of SME’s. The Banking Association of South Africa is just one of many endeavours to help improve financial literacy through multiple programmes. Once again, the use of technology in disseminating these programmes via communications technology and the use of technology to enable and assist the financially illiterate is key.

It’s clear then that the banking sector has its work cut out in the coming months and years. Applying available technology and designing and implementing new systems and solutions is going to play an ever increasing role. This puts enormous pressure and responsibility on the shoulders of each institutions ICT resources. Connectivity, always on, 24-hour banking, payment via Smart phone, scanning, securitisation, integration, application, omni-channel banking, and communication, data collection and management; just some of the divergent technologies that need to be managed. How does banking, more specifically the CIO go about achieving this kind of digitalisation integration without having to deal with multiple vendors and the inherent problems of integration, security and communication that come with it? It’s a very real challenge.

Finally, banking securitisation in South Africa is a major concern amongst all levels of the population.

“Online banking fraud is on the rise owing to high levels of phishing and malware attacks in the country.”

“Social engineering is manipulating people so that they can provide certain information without being aware that they are providing it to criminals.”

“Cybercrime costs South Africa around R1bn a year and South Africa is one of the top targets of cybercrime in Africa.”

“As more bank consumers migrate to online banking platforms, the risk is that smartphones and handheld devices are being compromised,” Sabric CEO, Kalyani Pillay

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Telkom Park, 61 Oak Avenue, Centurion, South Africa Tel: 10217 | Web: telkom.co.za

The solution

How Millennials & Generation Y see the future of Banking

TelkomlBusiness Connexion is equipped to be a single vendor solution. We have the infrastructure (networks – copper, fibre, cell, Wi-Fi, satellite), the solutions and integration capabilities to make it happen. As an example, in the area of securitisation, we are able to encrypt to military specifications. We already provide key services to many of South’s leading banking and financial institutions. At the very least we can plug in into existing structures and provide partnerships that work with you and your existing vendors. We see and understand the whole universe of digitalisation and we can help make it work for you.

Finally, to give you a flavour of what this new generation of consumer thinks about the future of banking, have a look at this small selection of quotes taken from Telkom|Business Connexion’s recent qualitative research. These youngsters are aged between 11 – 18 years old and come from LSM groups 5 – 10. They’ve got a pretty good handle on what to expect.

“personally I think banks as we know them will go out of date, I think banking will be mostly online and call centres will be how you speak to them to sort out problems and things and I think the buildings will mostly disappear…” Thulani 17

“there are some things you need to do face to face, like if you have a problem, need a loan… things like that…” Katherine 16

“I think that there will be apps to pay for things mostly but sometimes you do need to go into the bank for some things…” Kyle 13

“I worry about money and budgeting… there’s never enough money but the world revolves around money…” Thobeka 18

“I only ever go the bank or ATM to withdraw… all my deposits are done by other people online…” Thuli 15

Source: Accenture Consulting (https://www.accenture.com/vn-en/insight-banking-2016-next-generation-banking-summary)Source: Bain & Company June 18 2014Sabric CEO, Kalyani Pillay