Happy new year everyone!

As 2012 is now history, I would like to review the trends and predictions I wrote in my previous blog posting titled “Top 10 possible trends in retail banking for 2012”.  As always, not every prediction came through (such as the end of the world).

2012 was an interesting and absolutely challenging year in the financial services industry / banks.  Either one of these 3 broad strategy headings were generally deployed by FSIs across the world: (i) turning around to stay alive, (ii) to wait and see on how the market moved or (iii) thirdly to innovate to the next level, be it organic or inorganic.  Which they took highly depended on the economic regions and the relative positions in each country.

Review of the 10 trends I stated in 2012:

1. Consolidation.  There was not much action in terms of M&As but we saw some consolidation in terms of internal process, management and focus from regional banks where steps have been taken to improve operational efficiency by merging, streamlining operations, vendors and some having a single platform, be it from IT, procurement or marketing areas. The motivation was not solely on cost but consolidating the brand image and customer journey as mobility of users are increasing and the need for cross-border banking.  We believe this would be on-going until the next year.

In terms of inorganic growth/ M&As, we have seen increase in activity among banks in Asia that still have a strong war-chest to acquire undervalued or trouble entities. Most of the acquisitions were strategic in gaining a stronger presence such as CIMB (a regional bank in Asia, headquartered in Malaysia) purchase of Royal Bank of Scotland Group (RBS) securities operations in Asia for US$142 mil. This acquisition enables them to compete with banks like JP Morgan Chase in Asia while complementing their Asian retail banking footprint.

2. Creating an innovation division. This idea is still at its infancy where banks are starting to hire fresh blood to lead new innovation within the organisation. The main challenge here is not so much of creating new innovation but pushing through these innovations within the organisation where any new or radical products / services are bound to receive strong headwinds. It needs to be driven or supported right from the top. What was encouraging was even a traditional bank such as Sberbank (Russia’s largest) has now a tech R&D/ innovation department. Whereas some other Banks did not go as far as creating a division, but instead took baby steps by having more strategy sessions and management time to consider new innovations.

3. Revamp in online and mobile banking.  Banks were doing changes to their online banking but we felt that it was more of a cosmetic change than anything else. We believe a full blown revamp was hampered by existing back-end IT limitations and the tremendous effort required if they want to do a radical shift. Therefore they have to go with this stop-gap measure to stay relevant. But to their credit, some have started a parallel process in revamping entirely their online banking. We are aware that CMS and online banking solution providers have been responding to RFPs on a complete revamp. A consistent request throughout this RFP process was the need to create a personalised dashboard for the different needs of a banking user. (A little advertising here, Perfectsen provides user experience consulting in this process).

In terms of mobile banking, we observed it was a year of strategy planning on what should be the right way going forward for mobile. There wasn’t much groundbreaking mobile banking app that caught my attention, unlike when Kaching by Commonwealth Bank first launched in Australia.

4. Data mining.  Big data is known to be the next financial innovation frontier. FSIs are sitting on a gold mine. There has been tremendous talk about big data but having all the data in the world but not having a clear intent or the capabilities to process them is an issue. Data is still approached in a very ad-hoc sequential manner where whenever there is a request, the data within a certain timeframe is taken out, analysed and output is then provided to the person requesting it. A far cry from new web technologies where everything is real-time on the fly processing.

There is also another approach to going about data. Most data mining and analysis is about how can the Bank benefit and is normally used internally but UBank in Australia (backed by NAB) approached things differently. UBank presented People Like U during Finovate Asia2012 which is an econographic tool that gives consumers the ability to compare their own spending to the actual spending habits of other Australians. From their definition, “Econography is the study of spending profiles of a population of a region and the culture of its people, down to the postcode level, including consumer and business spending by age, location, family status, income, and spend.” This is definitely interesting to us as it has elements of start-up mantras of being social and location-base.

5. Adoption of Personal Finance Management (PFM) solutions.  Initially when PFM was first launched a couple of years back, many thought of it as a “killer app” for banks, but from what we have experienced, PFM is definitely moving forward not as a special offering to customers but a natural progression that has to happen. We also observed that PFM should be integrated seamlessly instead of a stand-alone offering by the Bank. Perfectsen deployed its PFM with Maybank (the top bank in Malaysia) under the name m2u planner. It was a success being the first bank in South East Asia to launch a full fledge PFM, where rave reviews was obtained and internal user growth KPIs during their pilot were above expectations. Barclays impending launch of their PFM is a big step in emphasising the importance and trust in PFM.

6. Lifestyle focussed   We fully encourage the steps taken by Financial Institutions in this area to have more lifestyle focussed elements in their communication together with efforts to re-brand not only marketing campaigns but also at the retail and service centre levels.  It benefits the users when things are relevant that they could relate to. A big part of this focus was driven by the push from creative / brand agencies in search for new projects and trying to up-sell their existing to add to their billable hours.

However, being a branding consultant, I would like to see less of the disclaimers and fine prints in their communication materials if they want to grow the brand value of trustworthiness (though I have to admit not many have that as part of their core value).

7. Increase in partnerships. As Banks get more isolated and afraid of being just a place where people go to put in or take out money, they are taking steps to stay relevant.  We have seen partnerships in various forms.  For example in my previous blog, we gave the example of Maybank working with Groupon. The other notable categories are:

  • We know of a regional bank who are going in talks with online fashion clubs (ie, the Vente-privee or Gilt groups of the world)
  • Working with telecom operators to explore reaching out to the unbanked.
  • Other banks in different geographical regions that are not in direct competition. For example Bank of America (BoA) established a partnership with Barclays in the UK enabling BoA users to easily withdraw cash from Barclays ATM.
  • On a lower level, more partnerships with retailers have been established to grow the credit card rewards

What is the right formula and who to partner remains to be seen.

8. Online and mobile payment. In the payment field, what we saw taking place in this area was firstly, banks were adding on bill payment features to their offering.  Secondly, they are now building payment portals / APIs for e-commerce companies to connect directly to their payment facilities to take advantage of the growth of e-payments. We expect this focus to continue moving forward.

In previous years, there has been lots of talk about NFC but personally, I am not very bullish about it. I don’t see a clear growth path in NFC, product champions are too fragmented, sunk cost too high and the effort to create an ecosystem is too much. The mobile wallet concept is probably facing the same problems with only sporadic success stories, probably would take another two to three years for something substantial to happen in a big mass market way.

9. Rise of virtual banking or otherwise called branchless banking. While Simple (formerly BankSimple) has been getting most of the headlines on this topic, what caught my eye was Holvi, a Finnish start-up that could potentially create an impact in this field. After testing it out, I found the clean interface and user experience has been rather well thought through for its initial version. However, it is only available in Finland right now.

Others are tackling the banks on niche areas.  For example, an area that always has been painful for users is transferring cash abroad. Companies like Transferwise and Currencyfair are now trying to disrupt this particular market with their innovative offering of bringing the social marketplace concept into cash transfer.  Another area is loans. For example players like Prodigy is coming in to disrupt education loans.

10. Segmentation of customers.  This was also a key area we noticed that was in the minds of the management where they were looking into personalisation and customisation of products. Some Banks even ask help in hiring top management consulting firms to figure out and map this out. This would enable them to provide contextual banking.

But what we noticed was that they were working only on what existing info they have about the customer. I feel a forward thinking should also be done in looking into what other information that they wish they had. This would encourage them to think out of the box. And with technology these days, I am sure there is a way to get that information.

Looking into this need, Perfectsen launched the Hook targeted ad platform where it doesn’t just segment users on the fly but also trends the users based on their lifestyle and spending patterns. Combining real-time analytics with cross-channel ad management solution, banks can now pick out the needle in the haystack automatically. So they not only are able to target mass needs but also long-tail needs of the customer.

Another big area in segmentation was asking what segments they can concentrate to solidify their position or new segments that have not been tapped.  In developing countries, there has been interest towards the unbanked customers where it involves an entirely new distribution, product offering, partners, IT infra and other related fulfilment capabilities.

So what does 2013 brings us? Two big points I missed out was social media banking and also personalisation. Stay tuned for my next blog posting.