Thursday 27 April 2017

Banking on loyalty – a bet worth making

Data protection has quickly grown from being a buzz-word to a concern keeping board-level executives up at night.

As demonstrated by recent high profile cyber attacks, the cost of a data breach now comes in all shapes and sizes – from significant financial repercussions to damaged reputation and loss of existing customers. Ensuring this is avoided while improving the customer experience is the real tightrope challenge.

It is clear that law makers are only just getting started in their pursuit of stricter privacy measures. This time next year, there will be a raft of new regulations in place such as Payment Services Directive II (PSD2) and the General Data Protection Regulation (GDPR).

While PSD2 is about making data of individuals available to third parties and creating a new world order of ‘open banking’, GDPR is about keeping that data safe. Both regulations share a substantial area of common concern: customer data.

This leads to a fundamental issue. Every financial institution in the UK and Europe now faces a mounting tension between finding new ways to offer services most relevant to customers and implement technologies that protect and genuinely improve privacy.

It is no secret that banks will be feeling the heat of that challenge, especially as they already struggle with customer retention. Since the Current Account Switch service launched in the UK, more than 3.5m people have swapped their bank accounts for alternatives.

This is a pivotal moment for the industry. The push to make switching easier has put the power back in the hands of the consumers. Banks need to work harder than ever to keep them. And while they have the data at their fingertips to know customers in ways they could have only dreamt of previously, the onus on protecting this information almost makes it a double-edged sword.

Those banks wanting to remain part of customers’ daily lives must find new ways for customer-centric form of smart and engaging banking.

While a level playing field brought along by ‘open banking’ will enhance competition across the board, the responsibility will be on banks and third parties to ensure their data is as safe as possible and compliant with the new rules.

Agile start-ups with digital readiness in their DNA will be quick to see the opportunity to fill a gap that banks with legacy technology might not be ready to embrace.

For banks, there is an opportunity to turn the seismic shift in their favour by finding unusual innovation partners to identify new ways that ensure personally identifiable information (PII) is not compromised, leaving customers exposed.

But stringent safety measures aside, banks have a bigger challenge in their hands. If new banking players find ways of engaging their customers better than they can, there is a very real risk that they are relegated to mere back-end service providers.

We know all too well that the concept of loyalty has evolved rapidly in little less than five years. The days of first-time savers establishing an account used by their family and staying with that same institution for life are long gone.

Generally speaking, banks have done well to weather the fallout of the financial crisis and kept hold of the majority of their customer base.

But a new wave of disruptors are gathering pace: peer-to-peer (P2P) lending has been growing fast, as has crowdfunding, and scores of ‘challenger banks’ are getting their hands on banking licences and starting to build brands.

It is not just smaller-scale disruptors, which pose challenges. Big technology companies with hundreds of millions of loyal users are already dabbling in the world of banking and financial services.

Alibaba’s digital payments arm, Ant Financial, recently applied for an e-money licence in the UK, while Amazon Payments makes it easy for customers around the world to pay on thousands of merchant websites using the information already stored in their account.

In less than 12 months, banks will have to open up their valuable treasure troves of customer data to all third-party providers, to established technology giants and smaller players alike.

That said, banks are perfectly positioned to thrive in the midst of current tech disruption.

They have a first-hand insight into how cardholders spend their money every day and have the ability to provide their customers with relevant offers that help to save both time and money.

The key will be to focus on new sophisticated reward schemes to forge deeper customer relationships – not least because customers with positive experiences are significantly more likely to stay with their bank.

The ability to leverage loyalty will favour the banks that push forward and define those whose role will relegate to mere pipes and fittings of the new system. Not underestimating loyalty and ensuring it is part of the existing boardroom discussions around customer retention will be a good place to start.

Campbell Shaw,
Head of Banking at Cardlytics

No comments:

Post a Comment