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SunTec Confluence Dubai Highlights the need for being ‘Digital at the Core’

Perhaps no industry is undergoing as dramatic a disruption as the financial services, as many organizations are transitioning to stay ahead of the digital curve. This was clearly apparent at the recent ‘SunTec Confluence’ conference, as banks from around the world gathered at the Palazzo Versace Dubai, to discuss the unprecedented opportunities in today’s financial services space.

The theme for this year’s Confluence was “Digital at the Core”, an essential strategy in today’s world, as leading organizations seek to digitally transform modernize their legacy systems and build a new core that is intelligent, immersive, integrated and invisible – one that can help in creating highly personalized customer experiences.

Among the various insights and impressions collected this year Brett King –  financial services influencer, award-winning speaker, co-founder and CEO of Moven – stood out. As a futurist, he visualized how four major trends – Artificial Intelligence, Voice based Artificial Intelligence, Smart Glasses and Machine Learning – are changing the ecosystem dynamics and how these will need to be embedded in customer experience journeys across industries like banking, telecom, and retail.

“Access to credit is not the same as needing a credit card”, Brett explained, “It’s about creating an all-new Credit experience, where banks can predict and assist your daily life credit requirements without a credit card and how open banking can tie all these data together for the banks”.

Nanda Kumar, CEO of SunTec, also took to the stage to talk about the ever-pervasive effects of Industry 4.0. He stressed upon the need for organizations to understand and embrace the ‘basic human-needs’ driven approach if they want to succeed in today’s digital world.

The second day opened to an eagerly awaited session hosted by Jost Hopperman, Vice President, Forrester Research on “The New High Ground – The Digital Core”. This set the tone for the next two days with interesting sessions including:

  • Elevating the ‘Customer Experience’ through Digital Transformation
  • Hyper-personalization to meet customer expectations
  • Digital at the Core – Crafting a successful strategy
  • Product innovation in the age of ecosystem economy
  • How organizations are enabling an end to end digital experience

The key takeaway from the event was the growing need for organizations to focus on the ‘Customer Experience’ part of their Digital Transformation programs. Replacing the core is not a viable option for most banks and this is a big hurdle for modernization projects – but not anymore. The SunTec product session demonstrated how banks can adopt a simple approach of Hollowing the core and separating the customer engagement layer to leap-frog the customer experience ladder. This simple yet highly effective strategy enables banks of all types, to exponentially increase their customer experience orchestration capabilities.

Amit Dua, President, SunTec, said, “via Confluence, our goal is to provide a meaningful platform for industry thought leaders to come together and deliberate upon the state of Digital Transformation. The response has been extremely positive with a generous appreciation for high-quality content. We are delighted to have delivered to expectations of our clients and partner eco-system in helping shape the Digital Transformation roadmap for the industry ”.

Keeping the event in Dubai highlights SunTec’s growing presence and focus in the Middle East,  with most leading banks in the region preferring to work with SunTec in meeting VAT regulations as well as moving further in their legacy transformation journey by creating a truly Digital Core.

Digitalisation and Open Banking are joining forces to change your banking experience

New regulations such as GDPR, PSD2, and MiFID2 are challenging financial organisations to adapt faster to the digital world. However, they are increasingly seen as burdens as businesses race toward compliance. As banks and financial organisations speed up to adapt to the demands of these new regulations, they are at risk of satisfying themselves with surface, superficial changes without truly seeing the necessary, radical shift they need: a true digitalisation.

In this digital world, customer experience and business models are changing and evolving at a head-spinning pace. Faced with demanding regulations urging them to adapt to this changing landscape, banks are faced with a choice. They can become a simple utility provider, working silently in the background to provide a smooth, painless customer experience. Or they can become a customer owner, fully in control of the customer experience. It is the difference between selling coffee beans (utility provider, in the background but crucial to the experience) and being a high-end coffee shop (bringing together different partners: coffee bean providers, bakeries, music, etc. to offer customers a unique experience).

Digitalisation is essential to own the customer experience

To be a customer owner and be able to offer that experience, financial organisation need to adopt digital and see it as more than just a channel to reach their customer. Digitalisation has now become a race to accumulate, manage and use relevant customer data.

High street banks have an advantage in that regard – they have years’ worth of data on very large amounts of customers. However, they aren’t channelling it enough as they haven’t managed to narrow the data down to useful customer insights that could allow them to package new products and make customised offers for their customers. High Street banks have almost everything they need to become customer owners (the infrastructure, the funds, the data), but legacy systems are preventing them from taking that decisive last step.

If banks could manage their customer data efficiently to extract insights and use it to bundle new product or offers, it would create a virtuous circle. These insights will lead to more customers being on-boarded on a specific product or several products which further means banks gain additional data they can use to be even closer to their customers’ needs.

Digitalisation is crucial to gain the analytics and the data-management necessary to create a partner ecosystem with a positive feedback loop – pricing models, tracking partner consumption patterns and product bundling. This is the primary reason for digitalisation becoming the fourth industrial revolution.

Open Banking and digitalisation empower each other

 However, digitalisation can help getting insights on the customer behaviour for products related to the bank. With open banking, banks can gain a greater view of their customers’ behaviours on how they interact with multiple (if not all) products. Through sophisticated analytics they gain insight which they can transform into precise understanding of their customers’ needs. They can then create an adapted product catalogue meeting these specific needs perfectly with products from multiple industries packaged in a context-specific offer.

The way Open Banking and Digitalisation interact is probably more obvious when put in context by an example. Let us take the case of Ivan who banks with National Bank. He visits a mall in London and makes a purchase. Based on the retailer Ivan visits, Tesco, who are partners with National Bank on an open ecosystem, the bank is aware that Ivan is a known chocolate connoisseur. The bank has an SME customer, Chocs Inc., in the mall who sells chocolates. With Ivan’s location information and known retail habits, the bank can choose to send a specific offer to him. Ivan gets a message on his mobile giving him a discount offer on Lindt chocolates at Chocs Inc.

This offer then becomes extremely context specific and more likely to be accepted by the customer. Similarly, based on this data and an analysis of consumer habits, offer bundles and deals specific to the customer’s location and patterns can be created for individuals and their family. This increases customer satisfaction, and can convince their families to join in enhancing product penetration – a win-win for both. 

Banks & Fintechs partnering up to achieve the full potential of Open Banking 

Traditional banks have more data but are not able to channel it into actionable insights. Fintechs, however, have already invested deeply in analytics and are able to channel that data very effectively. Although they are lacking the vast number of customers and therefore the proper data to make an interesting ecosystem.

Placing an “orchestration” layer on top of their system could help traditional banks syphon necessary customer data and make that data available in the right places to be read and acted upon. This is an important step for traditional banks to take if they wish to become a true customer owner and manage their own platform economy.

For now, High Street banks still hold the advantage over their challengers as Fintechs and newer digital banks have much less customers and therefore a lot less data. As they both have something the other needs, the best foot forward is for Fintech and traditional banks to work together. 

Upcoming fierce competition to be part of successful partner ecosystems

An increasing number of businesses are seeing the value of ecosystems as they add new products all the time which consequently enables them to collect more data.

Traditional banks have a natural advantage in becoming a true customer owner at the centre of an ecosystem. As Fintechs need to tap into their pool of customers, collaboration with High Street banks is bound to increase.

As the popularity of ecosystems keeps increasing, more companies will want to join partner ecosystems and competition to join the “best” partner ecosystem will be rife. Organisations managing successful partner ecosystems will be in a very good position on the market to face any future challenges.

This competition to be part of successful ecosystems will extend beyond the Financial Services industry. It will, and in some cases, has already extended increasingly to the Retail sector, Telecoms, Energy and all service providers. Ultimately this intensifying competition will benefit consumers as they will be offered much more beneficial deals that are context specific and closer to what they need.

However, while it affects all industries, it is especially important for Financial Organisations to grasp now, as the new regulations that are coming into force are hastening this competition and intensifying it.

Financial organisations need to understand the implications of the game-changing regulations that will soon come into play. High Street banks have some good cards in hand. It is now up to them to play their hand right, using them to reach a dominant position in the Open Banking game.

Tathagata Kandar

Tathagata, or Teekay is a marketeer working in the financial services domain.

VAT in GCC – Unexplored territory

Tax compliance as a regulatory requirement is fast changing and for the better. The western world have streamlined their tax regimes for quite some time now and the remaining countries in the world are quick to catch up. The Gulf Cooperation Council or GCC have planned for introduction of Value Added Tax or VAT with a planned date of 1st January 2018 for implementation although there has been recent developments which lead us to believe this date might be pushed by a bit. So, the big question is, what can we expect? With not a tremendous amount of pressure from the government, are we looking at a relaxed attitude from most organizations or are they gearing up to tackle a monster they have not met before? Remember, these countries did not have any kind of tax before.

Been there, Done that

We can definitely look at a few other countries who have recently gone through the same process. The latest of these being India, we can look towards this country as a precedence. Having said that, even though both are introductions to new tax regimes, the context in India is quite different from that in the Gulf Countries. GCC consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates. Herein lies one of the largest differences – VAT in GCC countries are going to be implemented by 6 different countries whereas in India it was being implemented within the country – of course the central government still had to deal with the individual states – 29 of them – and that’s not counting the 7 union territories. Like The Economist once pointed out, “India is a continent masquerading as a country”.

Most of the delay and the political debate in India was due to struggles between the central and state governments to come to a decision on the split for GST or Goods and Services Tax. In the middle east however, the six countries control their tax separately and can create their own policies within the proposed framework. Having said that, we are probably looking at very similar policies from all of these countries with a couple of them leading the way.

The other major difference, and this is mostly from a system perspective, is the fact that India was already under a tax regime – they shifted to a different type of tax. Whereas for GCC, this is the first kind of tax which is being introduced. This means two things. Firstly, the complexity of implementation from a system perspective would be much more. Some banks would assume that this means opening up their core systems and making changes to it which is a risky business and will consume a lot of resources from both money and people perspective. Secondly, since the understanding of the tax regulations is still evolving, there will be frequent changes in the laws which needs to be accounted for while implementing the system – the system should be flexible enough to quickly bring around changes to the existing processes, something which hard-coded core systems are often not able to handle.

What’s the verdict, doc?

So, what is it that banks in GCC countries ought to be looking for. As discussed before, scalability and flexibility should be the primary focus with major consideration for business continuity.

As mentioned before, the tax laws are still evolving in the GCC countries. Once we see them implemented through 2018, my prediction is that, the regulators will look at how these can be further enhanced and sharpened to better serve the end customer while at the same time maintain revenue for the government. This means frequent changes in rules – including products which are excluded from VAT in the current regime, changing the way VAT is calculated, and finally newer laws as to how customers are taxed for more complex products where multiple suppliers (who are also paying VAT) are involved. These changes need to be addressed fast – not only from a compliance perspective, but also from a competitive one – your competitors should not be able to offer some products faster just because they can implement the new rules sooner. Flexibility of the system that you choose now will go a long way in addressing these ‘updates’. Also, it will help if the changes can brought about from the UI itself through configuration rather than going back and changing code each time – this will ensure business can make the changes themselves and need not reach out to IT each time, thereby incurring delays.

Currently, each country is defining their own tax rules. Therefore, whatever systems the banks land upon will need to address only these laws. However, since some of the banks also have operations in multiple GCC countries, there will soon be the need to extend the solution to other countries as more of them start implementing. Also, tax between countries becomes a factor once all the countries are on board and possibly have some differences in the way they are setting up tax rules. A scalable solution which can handle multiple installations or can service multiple countries through a central installation becomes of great importance here.

Nobody can predict the future. The changes in regulations that we are seeing are just the first steps – it would slowly unfold into a complete tax regime but the final shape and form is for anybody to comment on. I believe these are important considerations for a bank looking to think strategically and from a long-term perspective. Just don’t leave it till the last moment!!!

Tathagata Kandar

Tathagata, or Teekay is a marketeer working in the financial services domain.

Smarter collaboration within your ecosystem is the mantra for successful marketspace

The top three global banks, which are the Industrial and Commercial Bank of China, the China Construction Bank, the Agricultural Bank of China have a combined income of £7.12 trillion, a vast revenue for only three companies. Traditional banks have almost had a monopoly on the market for the longest time now across the globe.

Following the successful disruption of other industries using technological advances, e.g Netflix to video content, Uber to public transport; non-traditional financial services (FS) companies are smelling blood in these very profitable waters, and are looking for ways to infiltrate this market.

After a long period of undisturbed calm and tranquility, the old, unchanging banking industry, like many such industries in the last five years, is finally showing signs of disruption.

The banking space is growing with the influx of third parties like Virgin Money, and challenger banks such as Monzo, Atom and Tide using technology to infiltrate the lucrative banking market. The size of customer wallet share for traditional banks is shrinking as customers are now exposed to more choices. Sharing information on social media means customers are more aware than ever on how to manage money and are evaluating the different options available to them. As a result, customers are more willing to move money to different banks with competitive offers.

This increased competition is great for the customer, as services and offers are having to become tailored to fit them, rather than the one-size-fits-all product oriented model of the past. In order to remain competitive, banks will need to respond by delivering personalised products and services and larger value propositions.

Open Banking and its impact

Customers want to see technology driven services from banks, like the ones they have experienced in other industries like retail and travel. Banks are gearing up for this in most parts of the world; and in those where there is a lag, governing bodies are bringing in new regulations to accelerate this. One such regulation is PSD2 in Europe. PSD2 is forcing banks to open up their systems to third parties and is a decisive step forward towards a more transparent banking world.

The Open banking trend has been further accelerated by the PSD2 regulation. With European banks being mandated to open up their customer information to third-party service providers, thanks to PSD2, they are running the risk of losing exclusivity to data and customers. Banks need to act quickly and get the most out of PSD2 for themselves, otherwise they won’t be competitive. Embracing the innovations made available through Open Banking is the answer to this.

Leveraging Open Banking to track and monitor the way customers interact with banks and third parties more accurately, can help to create better user patterns which can be used as a framework to improve future services. Open banking can enable banks to gain a greater customer insight in two ways; through AISPs and Partner Ecosystems.

AISPs

An AISP (Account Information Service Provider) enables customers to gain a full overview of all their payment accounts, like credit, debit, joint. Banks could themselves register as AISPs and consolidate customer information from all the parties involved.

This consolidation of customer information, including transaction data, revenue flows and account details will allow banks registered as AISPs to be able to tell which other third parties their customers are banking with, and gain insights on their consumption patterns. Banks could leverage this to cross-sell and up-sell products and services to these customers and thereby improve customer wallet share. This could also be a means of acquiring new customers.

Partner Ecosystems

Open banking ecosystems are formed when banks enter into partnerships with various third-party service providers – both financial and non-financial with the intention of improving their value proposition to the customers. Banks open up their data through secure encrypted platforms to partners, who in-turn could utilise this providing various products and services through the bank. The banks could deliver innovative revenue models with the partners and expand their value proposition through a diverse array of products and services as well as co-innovated solutions.

This allows banks to cater to the entire value chain of customers, thereby making them a value aggregator, which in turn opens up a number of revenue channels for the bank through increased customer wallet share from existing customers and new through the network. This also gives a sea of customer insights from the partner ecosystem, which the banks could use to up-sell and cross-sell solutions to customers.

Through partner ecosystems banks will be able to move from a utility-based service provider to a true value aggregator by providing financial, and possibly lifestyle services, to every customer. Ultimately, this will create even greater competition as banks try to increase their customer wallet share. This ability to “see” across all partners enables both banks and third parties to not only know who the competitors are, but also how to beat them.

By taking advantage of new technology and embracing Open Banking, any bank could become a true value aggregator with insights relating to a customer, and their partners’ customers, increasing customer retention and wallet share. The winners will be those who can use the insights in the smartest way, in the fastest time possible.

Nandakumar

Nanda Kumar (NK), the Founder & CEO of SunTec Business Solutions (the world’s #1 company for relationship-based pricing and billing), is a pioneer in building customer-centric software-platforms. He single-handedly built India’s first automated billing solution for MTNL. With an experience of nearly three and a half decades as a technology and business evangelist across industries, NK has helped shape the wave of customer-centric software platforms and solutions for pricing, billing, and product management, particularly in transaction intensive verticals. An innovator at heart, he holds several patents including a patent for real-time value-chain management, a patent for developing software using the product-application-solution framework, as well as a patent for building system and method for collaborative designing, development, deployment, execution, monitoring and maintenance of enterprise applications.

Banking in Thailand – A digital pathway to avoid ‘fragile’ revenues

…evolving customer habits have left 30% of [Thai] bank revenues ‘fragile’…

-Accenture

The banking sector in Thailand is a highly competitive one. While in the other countries in Asia Pacific, consolidation has either already happened or are in the verge of happening, in Thailand someone is always at your heels. With the ASEAN Banking Integration Framework opening up the market, foreign stronger banks are adding to the competition, even though the effect has till now been minimal.

Looking at the chart above, it is clearly indicative of how competitive the current scenario in Thailand is. So, there is an inherent and urgent need to differentiate yourself from the competition. “But how do you do that with financial products which are already commoditized?” – that’s the million baht question. The only way you are going to differentiate yourself is to provide your customers with what they need, when and where they need it – highly contextual offers wrapped in digital experience.

The digital elephant in the room

Thailand has always been at par with the rest of East Asia when it came to their banking practices and readiness.

Source: The Global Competitiveness Report 2016–2017, World Economic Forum

So, it should not come as a surprise that almost all the banks in Thailand are thinking of digitalization in some shape or form. Planned investments in digital technology has gone up over the last 2 years even though results are yet to be seen. Most of the investments seem to have gone into digital channels. As mentioned above, the differentiator for banks comes in the form of the digital experience they are able to provide for their clients. So channels are important but more important are the underlying offers to be provided. Most of the banks are now struggling to put together the underlying structure to enable those channels with context-specific offers.

Source: McKinsey Asia Personal Financial Services Survey

Customer stickiness is a direct factor of the number of products that the customer avails. In the more mature markets, that is the only differentiator which is playing in the favour of the banks. The product penetration in these markets are very high and the banks have achieved this by offering extremely context specific products – based on a number of parameters which are highly dynamic and can include the location of the customer or the point in the life cycle of the customer – be it a person or a company.

Source: McKinsey Digital Banking in ASEAN

A June 2015 study by Accenture found that although Thai banks have intensified their focus on digital banking, most still consider it to be a customer access channel, rather than aiming to provide comprehensive services like deposits, withdrawals and lending. According to the report, evolving customer habits have left 30% of bank revenues “fragile”, meaning banks should increase customer transactions through expansion of convenient digital offerings to shore up revenues.

So how can we go about offering digital products which are also context specific and catering to the needs of the customer? There is a definite need for a system which can sit in the middle of the banking ecosystem and enable the organization to gain unique insights on the value it provides to the ecosystem. The ecosystem is not only the customers and would include partners and suppliers as well. These insights can progressively be based on each micro-activity and this is where banks become perfectly dynamic and contextual for their customers. This brings me to my conclusion that the final step in true digitalization would be to understand the extent of value exchange at each and every touch-point within your ecosystem. However, for starters, getting a middle-office system which can speak to upstream and downstream systems and still give you the flexibility to react to your market, would be the way to start your digitalization journey.

Tathagata Kandar

Tathagata, or Teekay is a marketeer working in the financial services domain.

A deep-dive into the trends and benefits to harness the fourth industrial revolution

The first blog on Industry 4.0 focused on the arrival of the newest industrial revolution, its brief history and its birthplace-Germany. The blog also talked about the technological advancements leading to Industry 4.0 and the aspect of digitization. Let us now move ahead with a look at the emerging market trends and further explore the digitization aspect.

Courtesy: Deloitte

Global Trends-What do they tell us?

PwC’s 2016 Global Industry 4.0 Survey puts the pace being gathered by Industry 4.0 into perspective, and also the pace with which it is being adopted by industries worldwide. When 2,000 senior executives from industrial products companies in 26 countries across Europe, the Americas, Asia Pacific, Middle East and Africa were asked about the importance of data in decision making w.r.t. Industry 4.0, this was their reply:

A closer look at these figures showcases that the importance shown to data as being the influencer is low at present(only 50% of the firms across industries), but this will jump leaps and bounds in the next five years. Not surprisingly, Electronics industry leads the way, being the closest touch point and the easiest interface to gather data from. But, things will develop rapidly and other industries will likely keep pace.

Industry 4.0 promises new business models that will disrupt existing ecosystems. With IoT at the fore, new technologies integrating all of its platforms coupled with deep data processing and analysis is a realistic future prospect. With most platforms consolidating and use cases being defined by the end customers themselves, there will a lot of collaboration between various IoT players to provide low-priced solutions, leading to a shift in focus from Big Data and Machine Learning to Integration and Security.

The benefits will be widespread and felt globally

Ignore the ‘first movers’ advantage at your peril. Digitization, and the consequent adoption of Industry 4.0 standards, will not only bring in cost reductions but also incremental revenue gains. The payoff is overwhelming, and according to the PwC study mentioned above, these ‘early adopters’ are likely to see revenue gains of more than 30% and cost reduction and more than 30% cost reduction at the same time.

Firms across industries expect is significant cost reduction, primarily because of greater efficiency in light of the technological integration. The replacement of the legacy systems with a single central enterprise-wide system will naturally help bring the costs down.

This transformation will also result in revenue enhancement. Use of predictive analytics and real-time data will help in better personalization of products and offers. The below infograph (again, courtesy PwC) highlights the gains anticipated by industrial product companies across the globe. (No surprises as to which region and country currently heads the pack)

Digitization at the core of Industry 4.0

Industry 4.0 focuses on the end-to-end digitization of all physical assets and to form an ecosystems of value chain partners. As already talked about, this will not only bring in cost reduction but also help increase revenues enormously. When PwC asked respondents about their current level of digitization and integration, as well as the future scope of the same, the following was the result.

As can be seen, there is high optimism among the industry leaders that digitization and technology integration can be doubled in the next five years.

An overhaul of the current operations at a company, to include digitization across all processes and transferring data seamlessly between them will not only bring down the lead time but also lower the cost for bringing new products to market. A prime example is the current technology laden inventory management systems, which connect retailers, distribution centers, transporters, stockers, manufacturers, and suppliers. As these products become more perceptive to track activities around them, the vast data generated can be used to optimize the performance of the products and make it more customer centric. A vehicle, being repaired by a software upgrade rather than by a mechanic sounds cool right?
All this enables a closer interaction with the customer. With the entire value chain interconnected and more coordinated, it enables mass customization where every output from the assembly line is a product specifically catering to the requirement of a single customer. If you’ve customized your laptop, wherein you select a model first and then add features it suit your fancy, the end product is similar to what is being talked about here (not the process mind you). Couple all of this with predictive analytics to remodel the operational activities and target the right customer at the right time, firms can enter markets previously unimaginable and untapped.
Industry 4.0 also helps companies focus their efforts on the things that actually matter to the customer. The deeper we try to understand that, the more granular is the offering and the better experience it generates. That is the ultimate goal, right?

The next and final blog in the Industry 4.0 series will focus on the advantages gained by the early adopters, the effect of Industry 4.0 on globalization and its potential challenges and opportunities.

Aditya Kapoor

Aditya is a marketing strategist and leads the digital marketing division at SunTec Business Solutions.

Convergence of industries in the digital world- what should banks next move be? (Part-2)

In this converging world where banks are losing their traditional marketspace, what should banks do?

There are four facets of approach that a bank can do – 1) Collaborate and not Compete; 2) Grow beyond banking; 3) Provide an Experience and 4) Expand the reach

  1. Leverage the power of collaboration – As mentioned in an HBR article, “Collaboration is the new competition”. To stack up to today’s interconnected problems, banks will have to collaborate with other industries to create a larger collective impact.
  2. Think beyond operating in the current industry and operating models – The future belongs to enterprises which look beyond the borders of industry they operate in.
  3. Provide customers with “experience” and not products – As banking products become commoditized, it is important that banks create an experience. Only banks providing the best customer experience will have the highest customer retention rate.
  4. Rapidly expand the reach of the banks – While banks have to focus on creating experience, it is important that the banks also widen the reach (not just through collaboration). Scale combined with digitalization will bring down operational costs.

Leveraging the power of collaboration

Banks can collaborate with complementary as well as disruptive solution providers across industries to create a win-win situation for all stakeholders involved.

For example, banks can create joint ventures with telecom operators to reach the unbanked in areas where mobile penetration is higher than the banking reach. Banks are also open to collaborating with fin-tech companies to speed up their time to market and deliver new services to customers. The recent acquisition of Simple, a digital banking company by BBVA, a multinational Spanish banking group, is a validation of this fact. While such a collaboration with fin-tech companies might not add to the massive set of customers that a bank has, it will surely add to the plethora of services a bank offers while also offering a higher customer experience. Banks can also collaborate with technology giants such as Google (banks can leverage projects such as Google Loon to reach traditionally unreachable markets), social media companies like Facebook/LinkedIn (banks can use the data from Facebook and LinkedIn to create a credit score rather than prepare the credit information using traditional means) or with instant messaging platforms like WhatsApp/WeChat (banks can create peer to peer financial transaction and lending platforms).

The concept of “Banks as a platform” also necessitates the need for such a collaboration where banks can rapidly enhance their digital offerings using 3rd party applications and services.

Collaboration can also be with the customers. For example, Widiba, an Italian bank, asked customers to give ideas for product design which they delivered in a very short time.

Collaboration will also enable banks to focus on their core competencies while non-banking companies can focus on creating technological innovations which will bring in exponential benefits to the customers.

Think beyond operating in the current industry and conventional models

While banks collaborate to improve the experience, services and products in the current industry, banks also need to look out for opportunities in other horizontal and vertical industries.

Traditionally banks also operate in the insurance industry, mortgage industry etc. where the lines of convergence are blurred. But recent trends also indicate banks moving to hitherto uncharted areas. While we have seen several telecom companies moving towards the banking industries, with the concept of mobile virtual number operator (MVNO), banks are becoming telecom operators. An MVNO does not invest or own any radio spectrum but leases the network services from an existing telecom operator at wholesale rate. Kenya’s largest bank, Equity Bank, has launched its own telecom network Equitel. First National Banks has also launched its own mobile network. This model will help banks reach the unbanked through their own networks and leverage the power of internet to improve services like online payments while also garnering the data regarding customers.

Banks also can move towards offering other services such as a personal finance management app (ICICI bank in India offers similar services). UBank, an Australian bank, has launched an app called “PeopleLikeU, which compares the spending pattern of people with peers.

It is also important to note that while shopping and other similar services have moved online, there is still a large demand for retail shops and the experiences they provide. In line with this, banks are also experimenting with providing the best of both the worlds – retail and banking. While several banks are opening up mini branches at retail outlets, some banks are also opening up retail outlets at their branches.

Banks also have access to a large set of data from which they can gather insights. For example, Nedbank offers organizations with market insights gathered from their customer data. Banks are also creating advisory services for small and medium enterprises. Deniz Bank, Turkey is offering a platform for SMEs to gain digital reach through a suite of services like digital marketing to operations. Banks can also look towards moving into non-conventional lending models like Kickstarter, Kabbage or to non-traditional money transfer models like TransferWise.

It is important to keep in mind while convergence in the banking world is more inward focused, banks also need to focus moving towards the outside world to keep up with the pace.

Provide customers with “experience” and not products

Traditionally, banks have focused on creating a plethora of products and services. But, many banks do not focus on the all important aspect of customer experience. Opening a bank account or requesting for a credit card involves filling up of several pages of documents.

The goal for banks in this digital and converging world should be to provide customer experience and relationship that is IIP – Intelligent, Intimate and Personal

Banks will need to focus on providing the experience of banking to the customers which is simple and sufficient. The recent push by Open Banking Standard to have industry standards for customer data is one such initiative aimed at making the customer experience simpler and standard across banks.

In the digital world, where the focus is towards creation of apps and other similar technologies, banks also need to bring in the concept of positive human touch to customer experience. Banks need to use customer insights to better engage with customers and prospects at every touchpoint. A recent World Banking report mentions that “Bank’s efforts to provide enhanced services are falling short of customers’ desires and expectations leading to stagnation of Customer Experience Index (CEI) over past two years.”

Customer Experience is not limited by having the right color at the retail store or providing the most customizable product. Banks also need to focus on 1) creating the best user experience, 2) helping customers choose the next best action, 3) being able to provide seamless customer experience across multiple channels and 4) focusing on digitizing maximum processes while focusing on design thinking and keeping it simple.

To do this effectively, banks need to further leverage the power of technology – data, cognitive analytics, machine learning. For example, banks can use these technologies to forecast a life event (like buying a car or a home) in the life of a customer and provide necessary offers for the same.

To support this, banks would need IT platforms that are highly agile and can be customized to the needs of the customer and other stakeholders.

While banks need to focus on leveraging the power of technology, it is important that the best customer experience is never complete without the focus on top three customer requirements from banks (as per a report by Gartner) – safety, security and fairness. Banks will need to go the extra mile to be more transparent and fair in all their interactions with all the stakeholders. This will help banks bring in the human touch and gain the trust of its customers.

To increase the personal touch, banks are also leveraging the power of Internet of Things. While biometrics sensors are common, banks are now leveraging location data to provide information to customers. Visa Mobile Location Confirmation is an optional service offered through participating banks mobile apps. This uses mobile geo-location data in real time as an additional input into Visa’s predictive fraud analytics.  Alfa-Bank Sense is an advanced mobile application providing real time predictions of customer behavior offering the services they might need. It’s more gentle and personal than the ordinary bank app and communicates like Facebook Messenger. Idea Bank of Poland has come up with the idea of a car loan which needs to be paid as we drive.

Banks need to understand that this is the age of Uber. Every industry is searching for the “Uber for X” model – in banking context, it is to have on-demand customized banking. “One size fits all” is not the idea anymore. Rephrasing a quote by Seth Godin, it will be enterprises that win in the future will “deliver

anticipated, personal and relevant products to people who actually want to get them, not the ones that try to sell average products for average people.”

Rapidly expand the reach of the banks and the transactions

To maximize the power of digitalization, it is important that banks extend their reach further. While banks can collaborate with telecom companies to extend their reach, banks will also have to think out of the box to widen their reach.

Banking reach is different in different parts of the world. While it is low in Africa, it is very high in developed countries). Banks are using innovative approaches to attract new customers. Citibank reported an increase of 472% after implementing online instant account opening, and only needed to hire an additional 38% of new employees to handle the growth. As mentioned earlier, banks are also tying up (o acquiring startups) to increase their reach. In India, the new initiative of small banks will help banks reach rural areas. Banks are also looking at tie-ups to increase the reach of their transactions as well as simplify them. The Indian bank, Federal Bank has tied up with payment services provider Oxigen expand the bank’s e-collection facility to the latter’s nearly 2 lakh-plus retail outlets. India’s 2nd largest lender has tied up with the Indian body of trade owners to offer cash withdrawal facility in retail stores. Banks are also tying up with Banqu which aims at providing economic identities for the unbanked.

While banks move ahead on their path of creating financial inclusion for all, they will have to be aware of the converging world, especially in a digital world. In the future, banks may different from what they are now, but as Bill Gates said, Banking will always continue to exist.

Summarizing the actions

While there are much more things that a bank can do in this age of convergence, Industry convergence represents an unprecedented growth for the banks,  but it is also a threat to a bank’s core business. Only banks which focus on collaboration and simultaneous growth will succeed in this journey. Banks also need to be cognizant of the fact that there is no single action that is relevant for all the markets – the actions and plans to succeed in this age have to be localized.

From the banks’ side, it will also require tremendous planning, investment and judicious decision making while not sacrificing the appetite to take risks. Banks also have to realize that the current value chain in which they operate is unbundled and the key is to define business models which will work in this environment while leveraging the best of the technologies. By making strong, yet difficult decisions now, banks can surely be more successful in the long run.

Many banks are already on this path. What will differentiate the winners from others will be how they will leverage this explosion of information, gather insights from the same and take actions based on these insights. For banks which succeed in this age of convergence and digitalization, the long term path will look more promising.

https://hbr.org/2013/01/collaboration-is-the-new-compe

https://www.cognizant.com/whitepapers/Creating-a-Banking-Experience-that-Keeps-Customers-Coming-Back-codex1378.pdf

http://blogs.gartner.com/jake-sorofman/gartner-surveys-confirm-customer-experience-new-battlefield/

Karthik V J

Convergence of industries in the digital world- what should banks next move be? (part -1)

Convergence of industries brings a tectonic shift

When one of the major industrial convergence started its genesis, Google was not yet born. The postal industry and the information technology industry started to converge with Hotmail in 1995. This led to a tremendous shift in the way we communicate. Fast forward to 2017, and I do not remember the last time I snail mailed a letter or sent an MMS.

The key point to note is the tectonic shift such a convergence brought out. There is a definition of convergence from Merriam which stands out – the merging of distinct technologies, industries or devices into a unified whole. To this, it is important to mention that when the “unified whole” is achieved, there will be a similar tectonic shift which causes an exponential technological progress.

This convergence will go on for the foreseeable future till the point of singularity is reached. When singularity is reached (which itself gives another perspective on convergence), we will witness a whole lot of divergent industries converging and becoming more digital.

What does this mean for banks?

There is a wonderful insight in a Goldman Sachs study[1] – 33% of millennials believe that they won’t need a bank in 5 years and 14% of millennial smart business owners use non-bank alternate financing. Which industries are these millennials and Generation Z betting upon (it is important to understand that these two groups form nearly 30% of current world population)

Over the past several decades, banks have been steady against a threat from other industries like brokerage firms, automobile companies, software companies, communication majors and mobile operators (with a larger user network and reach than banks) etc. But none of them have been able to provide the convenience and the trust along with the “perceived value” to deal with customers’ hard earned money. Yes, there have been disruptions but the “rock of banking” was not swayed by the waves of disruption. But, now the wave is strong with more industries converging towards the banking sector, driven by the increase in smartphone penetration, better data connectivity, increased computing power. (That means there are more number of devices which are more powerful, closer to the customer and bring a better power than the legacy systems of banks)

All the traditional areas in which a bank operates upon are being opened up by disruptive companies – Accounts are being provided by several mobile operators; Credit Cards and Debit Cards are being replaced by wallets and other e-payment solutions such as Apple Pay, Google Pay etc.; Loans, Capital Raising and Mortgages are being replaced by crowd funding through platforms like Kabbage and KickStarter; Wealth Management Services are being more automated; Currency Exchange is being revolutionized by companies such as TransferWise; Online payments is being totally owned by companies such as Ant Financial, PayPal etc.

These companies are providing unmatched value and an unmatched experience which is making customers flock to these technology driven companies.

But what are the industries that are crossing barriers and leveraging their digital prowess to move into the banking industry?

Mobile Operators, over the years have built a vast user network (in some countries more than the reach of banks). Hence, the telecom industry are the front runners in providing the value. Telecom providers also have the advantage of a broader customer appeal and do not carry a negative image of the 2008-09 financial crisis. The success of telecom sector in providing banking has been well documented through success stories such as m-pesa. Yes, while telecom operators have wallet and peer to peer lending options, they do not offer a wider plethora of financial services.

Other contenders in this space are the technology firms. Companies like TransferWise, Kabbage, PayPal, Bitcoin etc. are taking away a significant pie of the revenue share of banks through their disruptive, cost efficient and innovative offerings. The reach of these applications has grown tremendously because they provide the necessary services at the lowest cost to the user while leveraging the power of data to make sure the right offer is given to the right person.

Social media is not far behind. The millennials and the Generation Z spend more time of Facebook, WhatsApp, Tencent and similar other social media applications than any other application. They have the largest user reach. China based Tencent has launched its own bank. Facebook messenger can be used for payments.

Retailers like Alibaba, Walmart and Amazon also have a wide reach and are closer to the customer. Millions of transactions are carried on these retail stores making them the right industry to eat away into payment and transaction pie owner by the banking industry. Alibaba backed Ant Financials control nearly half of Chinas payment market.

Other industries like automobile (through provision of branded insurances and other complementary services through their own portal and financial payment platforms), travel (through their own wallets),  insurance companies and health care provides (by using their own platforms for payments) are also converging into the traditional area of banks.

In short, banks new competitors are not banks, but companies like Alibaba, Google, Starbucks, telecom operators and other companies where millions of transactions are made on a regular basis.

The Future of Finance, Part 3: The Socialization of Finance – Goldman Sachs, March 13, 2015

Karthik V J

Taking a broad view of the ‘incumbent’ industrial revolution

Our passage in history towards Industry 4.0

From mechanization and steam engines in 1700s, to electricity and mass production at the beginning of the 20th century, to computers post WWII, industrial revolutions have defined eras in our history. It is synonymous with how people’s lives changed for the better. And now, we seem to have taken our first baby steps in a technological revolution that will radically change the way we live and work. Disrupting almost every industry around the world, this latest revolution is expanding exponentially rather than linearly

Industry 4.0, coined by Henning Kagermann, the head of the German National Academy of Science and Engineering (Acatech) in 2011, refers to culmination of various advancements in digital technology, geared towards transformation not only the energy and the manufacturing sector, but almost all industries.

These technologies include AI, Robotics, IoT, sensors, predictive analytics, 3D printing, smartphones and other digital and mobile devices. Brought together under a single platform of the interconnected global value chain, and used by many companies from various countries, Industry 4.0 helps bring together physical and virtual worlds.

Where did it all start?

Germany is regarded as the birthplace of Industry 4.0. With its tag as the leading industrial nation under threat from digitization, building ‘smart’ products and factories is steadily becoming a reality there, with sensors attached to products that are connected to the internet.

Take for example Trumpf, a family owned business near Stuttgart. It had developed an IT service provider for companies in manufacturing, called ‘Axoom’, which helps in smooth transition to Industry 4.0. It connects machines, collects data and then gives insights to customers to better organize their production.

Germany’s manufactures are upgrading rapidly, with firms like BASF, Bosch, Daimler, Klöckner & Co. just to name a few. The developed nations around the world have also jumped the bandwagon, particularly the United States, Japan, China, the Nordic countries, and the United Kingdom. Global firms like Siemens and GE have fully embraced Industry 4.0, and it is now a part of their core strategy and identity.

The technological advancement culminating to Industry 4.0

Big data and digitalization is the cornerstone of Industry 4.0, in which the design and development of products follow digital models. The machines that help build the product are themselves composed of high-end technology, and make use of AI to take calculated and precise decisions without human intervention. The ‘smart’ products, technologies and factories are merely the first steps in the Industry 4.0 journey.

On a closer look at the impact on the technological infrastructure, we see that companies around the world are slowly but surely imbibing Industry 4.0 in revolutionizing manufacturing. Firms now track every stage of production and go for mass production, while still making sure the product on offer is as customized to the liking of customer as possible. The aspect of customization is what links manufacturing to digitalization. The question that how much we can customize a product can be answered through insights into data gathered through other technologies.

Digitalization is the basis that interconnects all the technologies mentioned earlier. With billions of connected devices comes limitless access to information and technology. And, all the emerging technologies can only help increase this possibility, of unlimited access, manifold. Take for example AI. From smart homes to self-driving cars (everyone’s in on this) to virtual assistants (Mark Zuckerberg just showed off Jarvis), the integration of AI in our lives is faster than we can take notice.

Check out this video by @SunTecGroup on The Fourth Industrial Revolution, used at their recently successfully concluded annual meet, #SunTecConfluence:

“Whoever controls the platforms will rule the future” – Henning Kagermann

With the vast troves of data at our disposal, making sense of it all with the help of new advanced software and algorithms is still in the early stages of this revolution. It is all about building a platform with the harmony of data, devices and services to provide customized offerings and to seek value across the product lifecycle. Interconnected, right?

Aditya Kapoor

Aditya is a marketing strategist and leads the digital marketing division at SunTec Business Solutions. He enjoys all things marketing and can be reached at [email protected]

Vietnam Banking – Towards the forefront of Digitalization

A closer look into the Vietnamese banking sector and the challenges faced by banks in the age of rapid #DigitalTransformation

The Vietnamese economy is developing fast. At the heart of this progress is the country’s expanding banking sector. The top 10 commercials banks already account for 66% total assets and 46% charter capital of the whole banking system, while the local banks hold 90% of the market share in retail services due to their larger networks. With rising affluence and tech-savviness among the young population in Vietnam and the rapid development of consumer finance and banking infrastructure, digital banking is predicted to be the next big step towards a wholesome financial inclusion of customers from all age group.

What holds the key to the Vietnamese banking sector?

Banking is at the cusp of digitalization, and there is a huge potential in Vietnam. With only 20% of more than 90 million citizens in Vietnam holding bank accounts, there is room for greater expansion of the retail banking segment. This is the perfect platform for banks to increase activities in retail banking to grow their loans and deposits in the country and gives them the incentive to reach out to the consumers of today and the future.

Also, with a mere 3% of the population owning credit cards, banks can also look forward to tap on this opportunity to grow transaction values by cards through digitization. Using digital technology, banks can also attract new customers, while simultaneously encouraging existing customers to use more products and services on offer. With the rising popularity of e-commerce in the country, it is estimated that card transaction value will continue to rise by more than 50%. Platforms like PayPal and Facebook are also gaining in popularity as digital payment platforms.

The consumer needs go beyond convenience

87% of the Vietnam population is under the age of 54. That is a huge chunk, and a potential sure shot target to enable digitalization. According to this piece, the middle class in this country will increase to 33 million people in 2020 (approx.). With 60% of Vietnamese under the age of 35, and 58% of the population being digital natives, consumers demand more convenient and accessible financial services.

But this is not all. The correlation between millennial growth and mobile penetration is for all to see. Vietnamese millennials – 20% of the population, are the fastest growing consumer finance industry’s market segment. And, around 40 Million Vietnamese have now access to the internet which is about 44% of the population. The millennials want a credit card to enable them to satisfy their immediate buying needs. Many of them will qualify to get one within the next 5 years. Additionally, take a look at the image below and see for yourself where digital banking ranks among other activities on a smartphone.

Online activities which people do on their smartphone

Source: Moore-Vietnam-Digital-Landscape

This is not a coincidence, and banks will have to pull out all the stops to make sure 8not only for them but also for the consumers.

But Vietnamese banks have challenges or their own

It goes without saying that technological advancements need to be at the top of the ‘to-do’ list for Vietnam banks. Check out this blog, which talks about “digital bank means banks have to inherently become digital.” With most banks extending mobile banking and internet banking services, technological application is key to banks’ success. Continuous and deep digitization in every traditional banking transaction and service is the way to go in the future. It comes as no surprise that when compared to other nations in APAC on the lines of ‘Adopting omnichannel distribution strategies in retail banking’, a lack of internet penetration is possibly hampering the growth of digitization in Vietnam

Source: EY, Winning through customer experience. EY Global Consumer Banking Survey, 2014

But before this, banks need to take a closer look at the inefficiencies at hand. Banks lack a common vision for digital banking. Interfaces and systems are not integrated, infrastructures are outdated and the ability to access multi-channel is poor. Although the retail banking market keeps looking for cost-effective ways to increase financial inclusions, it needs to develop a wide-ranging suite of domestic and cross-border products or solutions for their respective target market.

In the future, retail banking in Vietnam will require more technological investment to engender new products and competitiveness. This needs to be taken care of first before banks can even think of moving ahead with digitalization.

How do Vietnamese banks meet customer expectations?

With the core problem lying in product diversity and technological advancements, banks in Vietnam need to come up with an ‘end-to-end customer-centric model’ in order to transform themselves and become truly digital. Delivering an optimal customer experience is a combination of ease of access to financial services, diverse product offering, and a digital banking platform. Making sure the customer can seamlessly transition from one channel to another and can still access all the services will help Vietnamese banks exceed expectations.

For retail banking in Vietnam, pricing and bundling of products and offers will allow the bank to innovate and to tailor solutions that fit their client base. Bundling must encompass a wider net of products – allowing for cross-selling – using attractive pricing or loyalty schemes in one product to incentivize the take-up of other, higher margin services. This will help to increase the lifetime value of the customer with relationship-based pricing and help deliver the most suitable offer with the optimal product offering.

Building a centralized platform which can help deliver business services seamlessly, working along with the current technology infrastructure is the key to such success. This centralized platform will help banks overcome the technical and business challenges of the current tech systems by breaking the system silos and keeping the end customer at the center. Such platform reduces time-to-market significantly and helps exceed customer expectations.

All this will eventually lead to the effective management of customer and offer life-cycles in an omnichannel environment. In this day and age of rapid digital transformation, Vietnamese banks can’t afford to ignore the want of customers, who want to switch to digital banking soon. The basics are in place in Vietnam. All that is needed is for the bases to be covered. Only then will there be a boom in terms of banking and only then will digital transformation truly take over. The time to act is now!

Aditya Kapoor

Aditya is a marketing strategist and leads the digital marketing division at SunTec Business Solutions. He enjoys all things marketing and can be reached at [email protected]