With mobile phone apps offering many of the services available in person at a bank, it seems the fate of physical bank branches is sealed. Or is it? 

“The financial services sector has been undergoing digital disruption for over a decade and the use of mobile applications and digital services in banking has exploded,” says James Harvey, chief technology officer, Europe, Middle East and Africa, at Cisco AppDynamics.

“This has only increased as businesses rapidly moved vast sections of their business online, urgently having to adapt their go-to-market strategies, create and launch new digital services and applications to meet new customer demands.”

Even so, the overall move towards a digital-first approach in financial services can be best described as gradual rather than rapid. In fact, the sector has tended to lag other consumer industries as far as customer experience improvements are concerned, according to the McKinsey & Co global banking report, Rewriting the rules: Succeeding in the new retail banking landscape.

Bryn Barlow, partner at global research and advisory company ISG, believes financial services companies have had few true incentives to offer joined-up digital services.

“Across the industry I’ve seen banks and insurance companies saying fast-moving customer expectations are forcing insurers to adapt their customer experience, but I think that’s a fallacy,” he says. “I never asked for my mortgage, credit card, lending and foreign exchange services to be offered to me separately, standalone and reactively, I just had to live with it.”

Paradigm shift

All this now appears to be changing. “It seems to me that banks and insurers can do more now with the technology available to them and, as market pressures from new entrants grows, the race to personalised and coherent services is finally picking up,” says Barlow.

He adds there is a general trend towards putting customers more in control of both the services offered to them and the channels used to execute those services.

In addition, younger generations live and work differently, they are unlikely to put up with services that are delivered poorly and the financial sector needs to respond to this demand.

To some extent, the industry began to kick their transformation plans into a higher gear when the coronavirus outbreak spread around the world. As more people chose to stay at home, they turned to the online world to replace what previously would have been accessed in person. This was especially the case for financial services as people became less encouraged to visit a physical bank branch.

Indeed, a McKinsey survey conducted in April 2020 suggested the pandemic accelerated the digital shift among banks in the UK, France, Spain, Italy, Germany and Portugal by about two years. 

How soon is now?

For Prema Varadhan, chief product architect at Temenos, the pace has advanced from gradual to as immediate as possible. 

“Across many industries, we have witnessed years’ of change in a matter of weeks. The crisis has demanded higher levels of agility from banks, in particular, that have been racing to meet the changing needs of their customers,” she says. “Banks’ timelines for digital transformation have reduced to a fraction of what they once were. For most, immediate change would still not seem quick enough.”

Across many industries, we have witnessed years’ of change in a matter of weeks

While the transformation is most obvious in retail banking, it is taking place across all financial services. In wealth management, where relationships remain a strong selling point, there has been a clear move to adopt and embrace digital technology, rather than resisting it.

“We’ve seen digital technology transform the wealth client experience over the last couple of years and clients are now able to take more control and access transactional banking services on the move at a time that suits them,” says Ben Waterhouse, managing director at Barclays Wealth Management and Investments, adding tools and analytics help wealth managers understand their clients better and deliver an improved service.

After years of appearing at times only to make the digital transition on its own terms, it appears the financial services sector has finally found the motivation it needs.

In these uncertain times, providing an exceptional experience is essential to acquire and maintain customer loyalty. Central to this is personalisation, a concept long established in industries such as retail and one which consumer financial services are now starting to embrace.

Leveraging technology will be key to these efforts, with data analytics, machine-learning and third-party solutions invaluable for identifying the customer’s individual requirements. This then enables the financial provider to offer specific services and support.

“Every customer wants to feel special and like their bank understands who they are, rather than just a number,” says Hans Tesselaar, executive director at not-for-profit association BIAN (Banking Industry Architecture Network). “If banks fail to provide this type of experience, the customer will likely take their business elsewhere.”

Nevertheless, traditional banks and financial services companies have previously struggled to understand and cater to their customers 

“Historically, financial services firms designed their products and services based on segments or groups of customers who were in turn categorised around factors such as age, social demographic, earning or spending power, geographic location or combinations of such factors,” says Jibran Ahmed, head of research and development at technology and management consultancy Capco Digital Lab.

However, in line with customer expectations, Ahmed notes that now banks, insurers and credit card providers have started drawing on data gathering and tracking tools to market products and offers to customers in a far more targeted and finely calibrated fashion.

“As services such as Netflix, Spotify and Amazon demonstrate, personalisation is deeply entrenched in our day-to-day interactions with digital services and so it’s only natural clients now expect the same degree of flexibility and tailoring from their financial services providers. The emergence and ascent of fintech startups and challenger banks in recent years have shown what is possible and accelerated demand,” he says.

As services such as Netflix, Spotify and Amazon demonstrate, personalisation is deeply entrenched in our day-to-day interactions with digital services

Challengers at an advantage?

These new market entrants are at somewhat of an advantage when it comes to this new era of personalisation as they often have architectures that are cloud native, and also utilise microservices and provide application programming interface (API) access to all systems. This means accessibility of data is fast, simple and standardised.

But challenger banks tend to have smaller customer bases than legacy institutions. They manage a lower volume of transactions, so can draw on less-expansive records of past transactions and therefore can have a less-complete view of the customer.

However, Demeter Sztanko, head of data engineering at UK challenger Revolut, describes the business as data driven, having reached “incredible levels of granular personalisation”.

“A robust data analytics strategy is an essential part of any customer-retention approach as data insights can be used to understand customers better, identify business opportunities and reduce costs,” says Sztanko.

Through an Exasol in-memory analytics database, Revolut has reduced the time it takes to crunch data across large datasets, spanning several sources.

This approach demonstrates how banks are starting to connect multiple datasets, including those previously siloed within different parts of the same organisation, to obtain a more-complete understanding of an individual customer.

“Data analytics also allows organisations to actively identify customers at risk of attrition by using behavioural analytics to generate individual action plans, which they can then choose to implement, tailored to their specific needs,” says Sztanko.

As we stand at the edge of coronavirus economic fallout, the onus will fall on consumer financial services to position themselves, not as providers to their customers, but as partners.

Demand for personalisation certainly exists. A 2019 Accenture survey revealed one in two consumers wanted personalised financial advice from banks shaped by their personal circumstances, including analysis of spending habits and advice on how to manage money. Some 64 per cent are interested in insurance premiums that are tied to behaviour, such as driving safely.

While still in the early stages within the financial services sector, more firms understand the importance of personalisation to customers and are utilising the latest data analytics tools and techniques such machine-learning to enhance the bespoke nature of the experiences they offer.

There are changes within the consumer financial services industry on the horizon. What can we expect to see?

We’ve seen over the last decade a lot of investment in digital channels – building an online marketplace or developing customised apps, for example. We only expect that to accelerate. Financial services customers are looking for the real-time, personalized experiences they recieve in other areas of their lives, through digital native businesses like Netflix, Airbnb and Amazon.

There is also a changing demographic of customers, which is being driven by the younger generation’s willingness to share information and their higher expectations of customer service. Nine out of 10 people below the age of 34 will take action after a bad online customer experience, such as telling friends, stopping purchases from the company, and posting reviews on a review site or social media. Their loyalty is based on their last best digital experience, rather than on brands.

The pandemic has accelerated the move to digital channels. For example, in life insurance, 70 percent or more products are still sold through an interaction with an agent or advisor (McKinsey, 2020). Those agents can’t meet with their customers right now, they can’t sell across the desk, or the policyholder’s kitchen table. That’s only accelerated the need to have that level of interaction with customers through digital means.

The financial industry is also looking at automating certain manual processes to reduce costs, accelerate assessments or improve customer service. For example, in life insurance, your policy may require you to go to a doctor’s office and have tests. For commercial insurance, it might require a risk engineer to visit a plant floor or a construction site with a video camera or other data collection means and gather information. Now, as a result of changing expectations insurers are seeking alternatives, such as using drone footage and IoT cameras to collect data that normally would have been captured on a site visit by a person.

You mention the younger generation – can you talk about how their expectations around the customer experience are shaping these developments?

The younger generation’s expectations for the experience they receive are driven by their consumer life; the apps they use, the services they consume, the brands they interact with. Also, their consumption is through quick, short-term interactions, such as with TikTok, Instagram and Snapchat. These apps provide real time experiences that are focused on the user experience, so they are easy to consume and don’t waste time on unnecessary admin. This is the type of experience that financial firms are looking to replicate.

Frankly, many financial institutions don’t provide that same level of experience that consumer brands do. So, there’s a gap there that the financial institutions have recognised and they're addressing.

Some organisations have already made significant headway building this type of experience, such as Allianz Germany – who completely changed their car-insurance ecosystem, and now guarantees customers insurance quotes within 60 seconds.

But what are the benefits to financial firms that get it right?

With access to a much greater understanding of the customer, firms can start to build a picture of their individual needs and preferences. The interaction won’t be confined to depositing a cheque, transferring money or checking a balance; it starts to become a two-way dialogue of asking questions or advice. You also create an opportunity for your customer to more frequently interact with you through those digital channels, potentially building better relationships with customers with whom you don’t connect regularly. Going forward you’ll see smart financial firms use technologies like data analytics that can extract valuable insight from those interactions, to help build greater customer intimacy.

It’s interesting to see how companies will leverage data that exists to provide a more personalised experience for customers.

It’s an exciting opportunity. In insurance, suggesting a customer increases their coverage, or purchases another insurance product is often driven by a life milestone – having a baby, a child reaching the age where they can drive, buying a more expensive home.

The lure of digital channels, and more frequent digital interaction, means insurers can collect more information – lawfully, complying with data protection guidelines – to better anticipate customer needs. They can then tailor suggestions based on that data.

For example, a customer might use a smart speaker or log into a chat bot to ask, ‘Hey, what would my premiums go up if I decided to buy a sports car?’ Or a classic example is when someone calls the call centre to update their address – many insurance companies will simply capture that new address and update their records. But that is also the perfect life milestone to have that advisor or call centre agent suggest looking at the customer’s insurance needs.

Ultimately the insurance company can start to anticipate the customer’s needs and provide them with anticipatory and contextual offers that really display how well they know the customer.

Where does the cloud, and AWS especially, fit in? How can companies leverage technology to provide next-gen consumer experiences?

In the insurance industry, you’ll hear the phrase ‘the burden of legacy’. Those legacy systems are often inflexible. The data is hard to access, and it holds companies back. But the cloud can replace technical debt, traditional infrastructure and legacy architectures, enabling the IT organisation to move at a much faster, more agile pace.

At AWS, we talk about developing minimally lovable products, MLPs. You understand the problem you want to solve, and you take advantage of those cloud-based capabilities to rapidly develop an MLP and put it into production. If it addresses the problem, then iterate and improve upon it. If it doesn’t, the beauty of the cloud is, there’s been no capital expenditure. You can swiftly move on to developing new digital customer experiences or personalized products. You move with so much more agility than traditional software development. 

We often talk about taking the undifferentiated heavy lifting off the customer’s plate; with AWS the technology infrastructure is already in place, so you are ready to innovate immediately. This means you can have your development team focus on the business value they want to deliver for the customer.

In the future, customer expectations will be an imperative. It won’t be a digital channel strategy, it’s a digital customer experience strategy.

Insurers have been re-examining their distribution models after the coronavirus pandemic pushed clients to embrace digital channels for policy sales, renewals and customer service.

At the same time, insurers have been hit financially, accruing losses from commercial, health and life insurance claims in particular. 

In May, Allianz warned the global coronavirus outbreak would effectively wipe out more than €1 billion of profit in 2020, while Italy's largest insurance company Generali said its profits would also be hit substantially.

The combination of a change in customer behaviour and a need to improve margins since the onset of COVID-19 has forced the insurance market to “reimagine distribution in a more remote world”, according to a June 2020 McKinsey & Company report, citing research among German and US insurance agents. 

“No one can run away from technology, but the focus must always be ‘customer centric’,” says Brett Sainty, chief executive of BLW Insurance Brokers. “I see the best brokers and insurers working together in true partnership and sharing resources, experience and technology.”

The McKinsey report found online insurance aggregators and insurers’ own direct sales channels had seen steady, if not greater, volumes throughout the pandemic. But this does not appear to show that the role of the intermediary has been diminished. 

Peter Blanc, group chief executive of Aston Lark, one of the UK’s largest independent chartered insurance brokers, says intermediaries are increasingly harnessing digital distribution to drive volumes.

“Many brokers promote products via the aggregators,” he explains. “While many would have assumed that insurance companies would have successfully used the aggregators to ‘cut out the middleman’, in fact it hasn’t worked that way at all.

“The aggregators are happy to allow all types of distributors onto their platforms, all competing together to win the customers.”

Committed partners

Given this is how brokers see the future shaping up, it is perhaps unsurprising insurers are standing by their distribution arrangements with intermediaries. 

Amanda Blanc [no relation], the newly installed chief executive of Aviva, is one of the industry’s senior figures to pledge such a commitment publicly. “Know that our broker partners are absolutely critical to us on our Aviva journey,” she said in August 2020. “I hope we can rely on their continuing support.” 

So will introducers find a way to enhance their role to support insurers with new technologies? Not necessarily, according to Cathal McGloin, co-founder and chief executive of ServisBOT.

McGloin explains that to provide a consistent customer experience, technology such as quote bots, FAQ bots, onboarding bots, claims bots and renewal bots need to be provided centrally, so it would be difficult for agents to build and support their own, unless sponsored by the parent company.

BLW’s Sainty agrees. While he acknowledges that evolving technology is making it possible for insurers to move down the distribution chain and write standard risks directly online, the knowledge and skills of independent brokers are still highly valued for non-standard and complex risks, he says.

“This non-standard and bespoke area, and delivery of professional and ‘human’ services where experience has been gathered often over many years, is where the broker market must focus. I am sure it will thrive over the coming years,” Sainty adds.

Of course, this doesn’t mean insurance companies can’t harness technological advances to improve customer acquisition, according to McGloin.

“If an insurance company launched a customer service bot, agents could potentially opt into that,” he explains. “The bot could channel queries to them if customers need specialist advice, allowing consumers to speak to the broker’s agents via live chat or in person. This allows the broker to add greater value to the customer experience, while the insurer keeps operating costs down.”

Establishing a distribution strategy that is future-proof is worth substantial investment and consideration. Research by PitchBook established that global spending on insurance premiums in 2020 will equate to around 9 per cent of GDP within Organisation for Economic Co-operation and Development countries, at about $1.46 trillion.

Consumers are willing to purchase insurance not only from big techs, but also from high street retailers and service companies

And it’s not just brokers and aggregators that insurers now need to consider in this future strategy. Consumers are increasingly willing to consider insurance from non-traditional providers, according to research by Capgemini.

“Consumer trust has almost doubled, in the last three years, in non-traditional insurers,” says Dr Seth Rachlin, executive vice president and chief innovation officer, insurance, at Capgemini. “Consumers are willing to purchase insurance not only from big techs, but also from high street retailers and service companies.”