White Paper:

The Retail Banking

Landscape
Key Challenges within the Retail Banking Sector

November 2016

AUTHOR:
James Curzon - Head of Financial Services

www.chaucerfinancialservices.com
WHITE PAPER: THE RETAIL BANKING LANDSCAPE

Contents

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Retail Banking Environment . . . . . . . . . . . . . . . . . . . . 3

Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Multi-channel approach . . . . . . . . . . . . . . . . . . 5

Mobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Social Media . . . . . . . . . . . . . . . . . . . . . . . . . 6

Big data . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Customer-Centric Approach . . . . . . . . . . . . . . . . . . . . 7

Current market . . . . . . . . . . . . . . . . . . . . . . . 7

Analytics . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Big data . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Reorganisation . . . . . . . . . . . . . . . . . . . . . . . 8

Reputation and Regulation . . . . . . . . . . . . . . . . . . . . . 9

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Operations Landscape . . . . . . . . . . . . . . . . . . . 10

Productivity . . . . . . . . . . . . . . . . . . . . . . . . 10

Controls . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Behaviour . . . . . . . . . . . . . . . . . . . . . . . . . 11

Compensation . . . . . . . . . . . . . . . . . . . . . . . 11

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Retail Banking Environment

DUE TO THE EVOLVING ENVIRONMENTAL LANDSCAPE, BANKS ARE CURRENTLY FACING MORE
CHALLENGES THAN EVER BEFORE. WITH SUB-10% ROES AND EXTERNAL FACTORS SUCH AS
CONSISTENTLY LOW INTEREST RATES, BANKS ARE CONSTANTLY HAVING TO RETHINK THEIR BUSINESS
MODELS IN ORDER TO SURVIVE AND STAY AHEAD OF COMPETITION IN THIS PERSISTENTLY SUBDUED
ECONOMY.

One of the biggest problems facing the global retail banking market
is the inability to stand out in an increasingly commoditised and
competitive marketplace.

It is therefore vital that banks keep up with environmental changes

and trends in order to maintain a competitive edge.

Banks are beginning to realise that the large scale changes facing
the industry mean that major organisational changes will be needed
in order to adapt to the new environment.

Most banks will need to focus on launching major repositioning

strategies and in order to do this, senior management must look
towards the future and not allow themselves to be dragged down
by legacy issues.

Customer demand for banking services remains high. However,

customers now have many more options in the marketplace.
Customers are now
more likely to switch This means that banks not only have to worry about competing with
other banks, they now also have to consider non-bank competitors,
banks regularly such as Retail, Technology, and Telecommunications firms, who are
or have multiple providing corresponding banking services.

bank accounts with Following events in the banking industry over the past six years,
multiple banks. many people have lost trust in the banking industry. New regulation
has been implemented in the industry in order to enhance efficiency
and avoid repetition of these events in the future.

Banks need to undergo fundamental changes in their culture and

behaviour in order to win back the trust and loyalty of their customers
and remain consistent with industry changes.

Customers are now more likely to switch banks regularly or have

multiple bank accounts with multiple banks. Globally, nearly 10%
of customers say they are likely to switch banks in the next six
months, while more than 40% are not sure if they will stay with
their bank in the next six months.

The quality of overall service is the primary factor that drives

customers to leave their bank.

Understanding behavioural changes, banks must be attuned to their

customers needs and ensure they are providing the best service

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WHITE PAPER: THE RETAIL BANKING LANDSCAPE
...banks must focus
on trying to become
more technologically
sophisticated in
order to differentiate
themselves from
competitors
2016 Chaucer Financial Services
across all channels in order to gain customer loyalty from existing
and new customers.
With the diminishing role of the traditional branch and alternative
banking channels now being an industry norm, banks must focus
on trying to become more technologically sophisticated in order to
differentiate themselves from competitors.
Banks must ensure that they continuously respond to the changes
in the environment, whether they are technological, cultural,
behavioural, legal, and so on.
They need to accept these changes and adapt in response to them
or face the possibility that they will not be able to survive.
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Technology

Multi-channel approach
Traditionally, retail banks have relied on branches as their key banking
channel. Although they still do remain one of the main banking
channels that still command a high share of sales volume, there
has been an increase in banks taking a multi-channel approach.

Most, if not all, banks now use mobile and Internet as well as
branches, ATM and call centres to communicate with their customers.
However, with global IT spending on retail banking channels growing
rapidly in recent years, there is significant space for improvement.
Banks need to
use channels Banks need to use channels to differentiate themselves from
competitors. They need to focus on building capabilities to deliver
to differentiate the right products, through the right channels, at the right time
themselves from and to deliver a consistent multi-channel experience to customers.

competitors Although branches remain an important channel for driving overall

sales, they undoubtedly have the highest operating costs - and
despite banks having been successful in shifting day to day financial
transactions from branches to other lower cost channels such as
online, they still need to work on selling products and services
through other direct channels.

With the growing number of customers using online and mobile

banking, this is a significant area for banks to focus on driving sales.

Mobile
Banks must first focus on improving their existing channels, especially
mobile. Mobile banking has been continuously increasing in popularity
over recent years. It is convenient for customers and reduces overall
operational costs for banks. It is therefore a great area for banks
to invest in and improve on.

Customers are The growth of smartphones, technological advancements and

evaluating the quality enhanced security levels have helped with the adoption of mobile
banking services. By the end of 2016, there will be more mobile
of mobile services devices in the world than people and this increase has meant that
in their decision to mobile banking services are now more important than ever.

choose a bank or Customers are evaluating the quality of mobile services in their
leave it decision to choose a bank or leave it. Developing advanced mobility
capabilities is emerging as a strategic imperative for banks today.

Mobility in banking comprises a wide range of offerings that have

the potential to enhance the customer experience as well as drive
sales, which is vital for banks to gain competitive advantage.

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WHITE PAPER: THE RETAIL BANKING LANDSCAPE

Social Media
There are also direct channels such as social media that have recently
emerged and banks need to take full advantage of this.

Banks have been quite late in embracing these platforms as they

have had an aversion to the operational, compliance and reputational
risks previously associated with them.
Social networks
The security risks of these platforms in their infancy made banks
are a great way to and customers reluctant to use them in the past.
increase transparency
However, as technology is becoming more advanced, banks are now
and foster customer investing more and more in areas such as blogs, wikis, and social
loyalty by enhancing networks to communicate with customers, to better understand
their behaviours and expectations, to create awareness, and to
the communication expand their reach.
between banks and
Social networks are a great way to increase transparency and foster
clients customer loyalty by enhancing the communication between banks
and clients.

The ultimate goal is to attract new customers and generate loyalty

with existing customers, which will ultimately help banks increase
their revenues and profitability.

Big data
Big data refers to datasets whose size is beyond the ability of typical
database software tools to capture, store, manage, and analyse.

By implementing
analytical tools,
banks can convert big
data into actionable
Banks have started working with big data gained from their customers.
By implementing analytical tools, banks can convert this data into
actionable insights which will enable them to deliver enhanced
customer value and increase market share.
Advanced analytics can help banks by providing them with
information on customer profitability, cost, customer loyalty, time
value predictions and overall return on investment.

insights It is therefore vital that banks invest in the technologies and analytical
tools necessary to analyse this data in order to maximise their gains.

The benefits banks can achieve include: a reduction in customer

attrition, increased profitability, an increase in cross-sell opportunities
and enhanced customer value, to name just a few.

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Customer-Centric Approach
In 2015, 89% of 18-
29 year olds were
social media users.
Cross-selling the
right product to the
right customer via
the right channel
will have a positive
impact
2016 Chaucer Financial Services
Current market
Business and customer confidence in the banking system remains
weak as customers adopt a wary approach to major spending and
investing. The customer landscape displays evolving structural
dynamics and the change in customers has led to a change in
customer requirements.
Customers continue to become more multi-banked across all regions
and switching their core bank has never been more likely. Customer
loyalty has become less assured as service expectations and product
demands continue to increase.
In this uncertain market, where product and price no longer
demonstrate a competitive edge, improving customer service is
imperative to survival. There is a current demand in the market to
expend greater effort on engaging with customers and providing a
service which goes beyond traditional efforts.
As advancements in technological channels develop, customers
expectations have increased as they demand a credible presence
on service channels that transcend corporate feeds and sponsored
advertisements. To keep up with this digital revolution and not be
weakened by competitors, banks need to demonstrate an innovative
approach when engaging with customers and there is clear demand
for increased investment in customer-centric channel networks.
Such networks would enable banks to provide more personalised
customer experiences through the use of Web and social media
tools for example.
Many banks are beginning to utilise social media networks as
a marketing and customer engagement strategy to embrace
communication with their customers.
Analytics
Further investment and effective leverage of analytical tools is
required to enhance customer value and with advancements in data
mining and business intelligence, the growth of customer insight
can be supported.
These tools can enable relevant behavioural changes in consumers
to be recognised and handled effectively to maximise customer
satisfaction.
Cross-selling the right product to the right customer via the
right channel will have a positive impact on the banks branding,
profitability and customer recognition.
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WHITE PAPER: THE RETAIL BANKING LANDSCAPE

Big data
Big data goes beyond the capacity of traditional database software
tools and provides for the receipt and examination of customer
information. Banks collect a vast amount more information about
By embracing big their customers than most other organisations and should be taking
the opportunity to utilise it.
data, institutions
are able to gain By embracing big data, institutions are able to gain transformational
potential, specifically with regards to segmentation thriving off the
transformational volume, velocity and variety of data which can be obtained.
potential
The analysis of this data could prove a huge advantage to any
institution and eliminate weak competitors who do not make use
of their customer data.

Reorganisation
Banks have previously illustrated an unhealthy focus on profit at
the expense of the customers needs. One aspect institutions must
bear in mind as they restructure their sales and service models is,
whether the proposed reorganisations correspond with developing
needs of customers. Enhancing interaction with customers will be
a step towards becoming a more efficient service provider.

There are three significant elements which successful transformation

of the current banking culture would rely on;

Statement of intent, demonstrating that the bank is thinking

seriously about ceasing negative activities and prepared to
make some radical changes to its previous approaches.

Banks must re- Customer focus, proving that the customer is central to the
development and improvement of the bank.
create the strong
Entrenched conduct, which is universally understood and
relationships they accepted by those in the institution.
once had with
Banks now recognise that there is a stronger need for transparency,
customers in order simplicity and improvement in the quality of services in order to
to keep existing maintain a level of trust that is sought from customers.

customers and The bank-customer relationship has become more complex and less
attract new ones. personalised in recent years with the increase in remote banking.
The number of customer interactions have in fact increased while
the level of personal connection has decreased as a result of this
new trend.

Banks must re-create the strong relationships they once had with
customers in order to keep existing customers and attract new ones.
They need to focus on knowledge of customer needs and preferences,
as globally an average 78.8% of customers with positive experiences
said they believed their banks were attuned to their needs.

Positive experiences clearly correlate with retention rates and

maintaining a high status among customers should be imperative
for any bank.

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WHITE PAPER: THE RETAIL BANKING LANDSCAPE

Reputation and Regulation

THE CURRENT LANDSCAPE OF THE FINANCIAL SECTOR HAS ATTRACTED WIDESPREAD SCRUTINY.
POST-FINANCIAL CRISIS, THE FINANCIAL SECTOR HAS WEAKENED ITS REPUTATION FOLLOWING A
SERIES OF REVELATIONS REGARDING POOR STANDARDS AND PROFESSIONAL FAILINGS, SPECIFICALLY
CHALLENGES AROUND MIS-SELLING, LIBOR AND ANTI-MONEY LAUNDERING.

Regulators have implemented a number of precedents which

demonstrate an emphasis on the delivery of improved outcomes
for customers, as they have urged that banks become proactive,
Banks are beginning not reactive.

to review their Precise directions are required to operate risk management effectively.
business models Regulators have made clear their desire to see banks in a position
where they are able to identify potential issues and implement an
in the context of intervention programme by undertaking a root cause analysis which
reputational risk and repairs the problem.

public perception, Transformation of the banking industry is not just a regulatory-

considering new driven issue; press commentary and social sentiment highlight a
downward turn in the publics assessment of the sector.
product development
options Banks have realised they need to build a different relationship with
regulators in order to re-gain a level of trust. A determined approach
has been fostered to turn around such negative views and portray
a reliable and consistently dependable culture.

Most global banks within the UK have enforced cultural change

programmes, addressing key issues such as codes of conduct, public
commitments, reform mechanisms and training programmes.

As a result of such regulation, within product suitability, a cautious

approach has been fostered by banks.

With much blame pointing towards the banking industry, policy-

Banks have realised
they need to build a
different relationship
with regulators in
order to re-gain a
level of trust
makers are keen to promote a consumer protection agenda. Regulators
are further encouraging this trend and additional restrictions are
not an impossible ideal.
As banks begin to invest more into security, regulators and the public
should develop an increased level of confidence in the banks and in
turn their reputation should begin to restore itself.
Banks are beginning to review their business models in the context
of reputational risk and public perception, considering new product
development options.

This proactive approach will begin to address the industrys tarnished

image in society which undoubtedly will be a challenging journey.

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WHITE PAPER: THE RETAIL BANKING LANDSCAPE
Operations
A current focus is
finding the balance
of greater efficiency
while implementing
innovative business
processes
Developing a
structure to address
and effectively
manage channel
networking will
promote an efficient
service globally
2016 Chaucer Financial Services
Operations Landscape
Due to constant mergers and acquisitions the structure of many
banking institutions has evolved dramatically over time.
Operating models have inevitably developed alongside these structural
changes for many reasons, such as incompatibility with the banks
structure or old-fashioned models.
As discussions continue, it is expected that more and more institutions
will incorporate restructuring strategies to better reflect new
technologies and customer needs.
A current focus within the industry is operational efficiency and finding
the balance of greater efficiency while implementing innovative
business processes. It is often a challenge to maintain best-practice
as well as introduce legacy enhancements.
Establishing the most appropriate and productive target operating
model and driving top-line revenue is any banks ultimate goal.
Productivity
Training staff and ensuring their knowledge and advice is up-to-
date is a key factor when driving efficiency.
A clear educational structure which focuses on the training of
frontline staff across all branches, sales force and telephone banking
will oversee service expectations. Opportunities are emerging for
banks to learn from other sectors and advance their productivity
throughout the institution.
The sharing of back-office infrastructure will rise as banks aim to
utilise products and equipment fully whilst keeping costs low.
An additional operational function which has become a tactical tool
within productivity is the management of seamless multi-channel
integration.
Developing a structure to address and effectively manage channel
networking will promote an efficient service globally.
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Banks are
recognising the
need for heightened
corporate-level
compliance
The introduction of
incentive structures
would encourage
desired behaviours
Banks need to find
a balanced structure
which addresses the
concerns surrounding
pre-crisis bonuses
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Controls
Organisational controls have grown in importance in order to satisfy
regulatory requirements as well as the needs of internal and external
stakeholders.
Banks are recognising the need for heightened corporate-level
compliance.
We will begin to see more pressures coming from supervisors and
in-house management, such as an encouragement to move from
off-shore to on-shore, with the aim of improving oversight and
control.
Behaviour
In order to implement new operating models successfully, it is vital
that they are matched by a behavioural shift within the institution.
There needs to be a universal goal of ensuring that the banks new
strategy is reflected through the behaviour and conduct of its staff.
One area which often needs addressing is that of communication
and conflict.
It is important that senior management highlight the necessity to
report issues and where any differing cultures have been fostered by
different sectors of the bank, there needs to be a united approach.
The introduction of incentive structures would encourage desired
behaviours across the bank and in turn improve efficiency.
Compensation
Adopting new approaches to compensation models is unavoidable
given current levels of scrutiny.
Banks need to find a balanced structure which addresses the concerns
surrounding pre-crisis bonuses as well as affords attractive rewards
in order to retain key staff.
Adapting internal operational models and restructuring are enabling
established and emerging institutions to meet new client demands,
optimise channel networking efficiency and maintain substantial
revenue.
With numerous operating factors, harmonising an effective and
innovative approach is fundamental in this current market.
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