How to prepare for the future of digital banking

Although dig­i­tal bank­ing was accel­er­at­ing before the COVID-19 pan­dem­ic, the events of the past two years have pushed the ped­al firm­ly to the floor. Con­tact­less pay­ments are now the default option for mil­lions of peo­ple. Chat­bots and app-based bank­ing have been embraced by more age groups, and new pay­ment providers have caught the eye of con­sumers look­ing for finan­cial flex­i­bil­i­ty and con­ve­nience.

Cen­tral bank dig­i­tal cur­ren­cies are also loom­ing on the hori­zon. Mean­while, so-called ‘super apps’, which bun­dle togeth­er finan­cial ser­vices with numer­ous oth­ers, are begin­ning to make the jump from Chi­na and South­east Asia to west­ern nations. And let’s not for­get big tech’s big push into the finan­cial sec­tor.

So how do banks fit into this rapid­ly devel­op­ing dig­i­tal land­scape? Are they equipped to deliv­er the prod­ucts, ser­vices and expe­ri­ences that con­sumers want? And what are the key oper­a­tional and tech­nol­o­gy chal­lenges that will define their future?

KPMG is help­ing banks to answer these ques­tions and devel­op the right tech­nol­o­gy strate­gies for suc­cess, along­side reg­u­la­to­ry and risk strate­gies, in a high­ly dig­i­tal world. One key find­ing is that banks will need to tap into the wealth of data that’s avail­able today to antic­i­pate cus­tomer needs and pro­vide high­ly per­son­alised offer­ings.

“It will feel to the indi­vid­ual as if they are now being treat­ed as one,” says Paul Greenan cus­tomer and dig­i­tal direc­tor for bank­ing at KPMG. “And so it should, because their bank has so much data about them.”

Unlock­ing this data could pro­vide cus­tomers with the kind of insights and analy­sis that will help them make bet­ter finan­cial deci­sions. “You move away from ‘here’s some­thing you might want’ to ‘actu­al­ly, you should take this course of action.’” Greenan explains.

Grant­ed, this is already hap­pen­ing to a degree. But the rec­om­men­da­tions many cus­tomers receive from their bank today are most­ly broad brush rather than tru­ly focused on their indi­vid­ual cir­cum­stances. So what’s stop­ping banks from pro­vid­ing a more per­son­alised ser­vice?

“There’s cer­tain­ly a greater degree of aware­ness around the crit­i­cal­i­ty of cus­tomer expe­ri­ence and also the crit­i­cal­i­ty of data to allow you to improve that expe­ri­ence,” says Isabel Zis­sels­berg­er, head of strat­e­gy and oper­a­tions for finan­cial ser­vices at KPMG Chi­na. “[But] it’s like mov­ing an oil tanker: it’s just hard work to unbun­dle archi­tec­ture and years of prod­uct-cen­tric think­ing to become more client-cen­tric. And even if you’ve got it nailed for your front office, you have to do it con­sis­tent­ly through­out your organ­i­sa­tion.”

Personalised support

One finan­cial ser­vices firm that has made seri­ous head­way on this issue is USAA, which took the top spot in the 2021 KPMG Cus­tomer Expe­ri­ence Excel­lence (CEE) report.

“Cus­tomers say the expe­ri­ence they deliv­er is the best they get any­where – not just in bank­ing but in every aspect of their lives,” says David Con­way, who co-man­ages KPMG Nunwood’s cus­tomer expe­ri­ence man­age­ment prac­tice. “…They [USAA] are able to pre­dict with some­thing like an 80% lev­el of cer­tain­ty when a cus­tomer is about to go into a life event. And that means they can be present at the point in time when the cus­tomer needs help or sup­port or sign­post­ing to things that might be use­ful to them.”

This isn’t altru­ism. Life events are trig­gers for buy­ing finan­cial prod­ucts, so the bank is able to sell its offer­ings at the same time as pro­vid­ing help. But from the customer’s per­spec­tive, the ser­vice they receive – and the rel­e­vance of the prod­ucts they’re offered – is sec­ond to none.

If the banks allow them­selves to get into the posi­tion of just being an inter­me­di­ary in a big­ger ecosys­tem, they will lose valu­able data points

Such advanced approach­es to cus­tomer seg­men­ta­tion, which focus pri­mar­i­ly on uncov­er­ing unmet needs and inter­ven­ing at oppor­tune moments, are far from the norm today. For many banks, that’s part­ly down to the lim­i­ta­tions of their core plat­forms and tech­nol­o­gy stacks, which can be a major road­block to meet­ing evolv­ing cus­tomer needs.

“There are still a lot of silos with­in banks at a func­tion­al lev­el, and data is trapped with­in those func­tions and then lines of busi­ness,” says Celeste Diana, a prin­ci­pal in KPMG’s finan­cial ser­vices strat­e­gy prac­tice in the US. “Banks need to have the right tech­nolo­gies in the right tech stack to unlock that data and make it com­mon­ly acces­si­ble.”

As well as break­ing down data silos with­in their own organ­i­sa­tion, banks will need to ensure they have the right tal­ent to deliv­er data-enhanced prod­ucts and ser­vices. Data sci­en­tists, cyber­se­cu­ri­ty spe­cial­ists and dig­i­tal trans­for­ma­tion experts will all have a cru­cial role to play in enabling data flows, imple­ment­ing cloud-based solu­tions, and ulti­mate­ly deliv­er­ing the kind of dig­i­tal bank­ing ser­vices that cus­tomers want.

True per­son­al­i­sa­tion of prod­ucts and ser­vices will also require more data from part­ners and oth­er sources. “If you’re a small busi­ness own­er, then it could be buy­ing and sell­ing activ­i­ties that aren’t nec­es­sar­i­ly trans­par­ent from your bank trans­ac­tions but are from your Shopi­fy or Ama­zon trad­ing account,” says Greenan. “That kind of data would allow the bank to real­ly under­stand your busi­ness – per­haps that there’s an ele­ment of sea­son­abil­i­ty, which cre­ates a bit of risk that they can help you with.”

Finding the right partner

Many part­ner­ships in the dig­i­tal econ­o­my will, of course, go beyond data shar­ing. To meet cus­tomer expec­ta­tions in a rapid, agile way, banks may seek clos­er rela­tion­ships with a vari­ety of fin­tech or e‑commerce firms, as well as inno­vat­ing more with cloud providers. For exam­ple, if a fin­tech can help to stream­line a cer­tain process safe­ly, at scale, there may be lit­tle point in the bank build­ing that capa­bil­i­ty itself.

The rise of Bank­ing-as-a-Ser­vice could also enable more mutu­al­ly ben­e­fi­cial part­ner­ships with non-bank­ing firms that wish to offer their cus­tomers finan­cial ser­vices and prod­ucts. But to remain vis­i­ble and rel­e­vant to cus­tomers, banks will need to strike the right bal­ance between build­ing things them­selves and build­ing an ecosys­tem of part­ner­ships.

“Part­ner­ships and alliances for me are absolute­ly crit­i­cal, but it is about find­ing the right part­ner at the right point of the val­ue chain,” says Joe Cas­sidy, a part­ner and head of FS strat­e­gy for KPMG UK.

Get this wrong, and dis­in­ter­me­di­a­tion becomes a real risk. “If the banks allow them­selves to get into the posi­tion of just being an inter­me­di­ary in a big­ger ecosys­tem, they will lose valu­able data points,” says Zis­sels­berg­er. “They lose the abil­i­ty to under­stand what…clients are look­ing for [next].”

One thing they do want is a bank that has clear val­ues and pur­pose, and acts in an eth­i­cal, mean­ing­ful way. “Cus­tomers now are look­ing in a much more judge­men­tal way at the organ­i­sa­tions that they deal with,” says Con­way. “This start­ed with mil­len­ni­als, but it has now moved up the demo­graph­ics.”

For exam­ple, peo­ple are more like­ly to dis­con­tin­ue their rela­tion­ship with a bank because it’s not meet­ing their sus­tain­abil­i­ty val­ues. “Increas­ing­ly, cus­tomer expec­ta­tions of banks will be about more than just their car­bon foot­print. It’ll be about the ecosys­tem of things that the bank inter­acts with and whether, soci­etal­ly and envi­ron­men­tal­ly, it is using its pow­er to dri­ve good.”

Data secu­ri­ty is anoth­er issue that cus­tomers expect their bank to take a lead on. Firms are, of course, well aware of the impor­tance of robust cyber­se­cu­ri­ty mea­sures. But in an increas­ing­ly dig­i­tal land­scape, the stakes will be high­er than ever before.

If they can’t demon­strate that cus­tomer data is tru­ly safe in their hands and used pri­mar­i­ly for the customer’s ben­e­fit, they may find cus­tomers are unwill­ing to share more of it with them – and that could be huge­ly detri­men­tal to the bank’s abil­i­ty to pro­vide tru­ly per­son­alised prod­ucts and ser­vices.

Cas­sidy believes that banks must there­fore strive to become true data cus­to­di­ans. “With­out [cus­tomer] con­fi­dence in data – how it’s being used and where it’s being used – you can’t actu­al­ly build those dis­tinc­tive propo­si­tions,” he says. And ulti­mate­ly, it’s these dis­tinc­tive, per­son­alised propo­si­tions that will deter­mine who thrives and who gets left behind when it comes to dig­i­tal bank­ing.

---

Q&A: The future of customer experience

Paula Smith, part­ner and head of bank­ing and cap­i­tal mar­kets at KPMG UK

How are cus­tomer expec­ta­tions evolv­ing in the finan­cial sec­tor?

The chal­lengers that have come in have raised the bar of cus­tomer expe­ri­ence, and they’ve now raised it for every­body. So whether you are a main­stream bank or a build­ing soci­ety, you have to pro­vide that great cus­tomer expe­ri­ence because that expec­ta­tion is out there. But you have not got a green­field site to work with. You’ve got the lega­cy of years of core bank­ing plat­forms, and yet you’ve now got some – but not nec­es­sar­i­ly all – of your cus­tomer base want­i­ng to inter­act with you in a hyper-dig­i­tal way.

How might the finan­cial land­scape change over the next 5–10 years? Will the shift to cash­less accel­er­ate, for instance?

Cash will still exist…and that’s part­ly gen­er­a­tional, and it’s part­ly to do with the black econ­o­my (the unrecord­ed and untaxed por­tion of the econ­o­my). The oth­er big thing that’s going to hap­pen in the next few years is that we’re going to move into a com­plete­ly dif­fer­ent inter­est rate envi­ron­ment. We’ve been in a low inter­est rate envi­ron­ment since 2008, so there are indi­vid­u­als who have nev­er known their mort­gage to go up. It’s just been on a down­ward tra­jec­to­ry.

The advent of dig­i­tal and the abil­i­ty to pro­vide insight and infor­ma­tion also cre­ates an expec­ta­tion on the cus­tomer side that there will be some sort of proac­tive engage­ment. They want ear­ly warn­ings. They want alerts. They want insight into the direc­tion of trav­el and how it will impact their dis­pos­able income. Where­as before, it was a let­ter through the door that came too late [to be of use].

What tends to frus­trate cus­tomers when they’re inter­act­ing dig­i­tal­ly? And will the option to speak to a human being remain impor­tant?

Dig­i­tal inter­ac­tion is bril­liant as long as it’s bril­liant. But any time you get below that lev­el, you run into prob­lems. If you have a fab­u­lous web­site that’s total­ly intu­itive, you don’t get cus­tomer frus­tra­tion. But, if it’s not high­ly intu­itive, then you do get cus­tomer frus­tra­tion, and peo­ple want to speak to a human being.

There is also a gen­er­a­tional play here. Some­one who is twen­ty may feel that speak­ing to a human being isn’t nec­es­sar­i­ly that help­ful. Where­as my default feel­ing is that if I can speak to some­one, I can sort things out a lot quick­er than I can through dig­i­tal inter­ac­tion.

How can part­ner­ships with fin­techs help to improve the cus­tomer expe­ri­ence?

There are some clear use cas­es for fin­techs that will real­ly help banks – one being the move­ment of data. So any fin­tech that can help move data from one source to anoth­er – whether that’s through open bank­ing or whether that’s from accoun­tan­cy soft­ware – for the ben­e­fit of the cus­tomer, and which allows them to then man­age that data and inter­act with it in a bet­ter way, could be real­ly help­ful.

For more infor­ma­tion please vis­it home.kpmg/uk/futureofbanking

---

Pro­mot­ed by KPMG