Trying to predict what is going to happen in the banking industry is like trying to predict tomorrow’s weather. While you may get the forecast right, it could be more a case of luck than skill. And what you see today could quickly change tomorrow. So we asked Retail Banking Strategies Crowdsourcing Panel what are the most important trends in retail banking in 2013.
By Jim Marous
The predictions ran the gamut from what may occur in payments to how bank distribution could begin to transform. While some focused on larger megatrends, others had a narrower scope. In all cases, however, the predictions provide food for thought for bankers and industry providers. It is clear the one forecast that is guaranteed to be accurate is that the industry will be different this time next year.
Battle For Payment Supremacy Will Continue
The past few years has seen a massive amount of change in the payments world, with a reduction of interchange fees, the infiltration of retailers and non-banks like Starbucks, PayPal, Square, MCX, etc. and the beginning of a shift from plastic to smartphones as the payment device of choice. While past predictions around NFC, an Apple mobile wallet and a cash-less society have not yet come to fruition, there are still no lack of industry luminaries placing bets on how we will transact in the future.
Tom Noyes, author of the mobile, payments and advertising blog, FinVentures, states, “Retailer friendly value propositions (MCX, Square, Levelup, Fishbowl, Google, Facebook, etc.) will get traction . . . but MCX will not deliver for another 2 years.”
Ron Shevlin, senior analyst from Aite Group and publisher of the Snarketing 2.0 blog believes the most significant trend in 2013 will be the evolution of the digital wallet concept. According to Shevlin, “The digital wallet will be the new battleground – for technology companies, financial services firms, and retailers/merchants. They say that politics makes strange bedfellows – but so will digital wallets. The evolution of the concept will involve a lot of interesting partnerships and joint ventures.”
Matt Wilcox, senior vice president of Zions Bank and financial industry blogger believes we will begin to see the separation of contenders from pretenders in the payments space. “While there will still be multiple players vying for position, I believe a few companies will begin to emerge as leaders in this space.” Alex Bray, retail channel solutions director at Misys in London agrees, saying “I think we will see the market coalesce around a standard form of mobile payments – and contrary to what PayPal may say, I think this will involve NFC.”
Delivering On The Promise of ‘Big Data’
There is no doubt that ‘big data’ was overused and misunderstood as a term and underutilized as a tool in 2012. There is also little disagreement among industry leaders that banks will be aiming to use both structured and unstructured data more extensively in 2013 as the collecting, storage and processing capability becomes easier and less costly.
As David Gerbino, digital product, marketing and strategy manager at Provident Bank in New York told me, “The big trend for me every year is data. Not big data, not small data, just the right data”. He went on to say, “Once the data elements needed are identified, the challenge becomes using these components correctly to drive success.”
Rod Witmond, SVP of rewards platform provider Cardlytics, emphasized the trend of utilizing data from the consumer perspective in 2013 but warned, “Big data can be incredibly insightful but, if it isn’t leveraged in a simple way that allows the consumer to maintain their current habits – or adds enough value that the consumer is willing to change their habits – the value of the big data will be lost because consumers don’t ‘try something new or different’ if what they have already is working.”
Some of the Twitter responses I received regarding banks improving the utilization of both structured and unstructured data at their disposal included:
Finally, Nate Gardner, vice president of strategic partnerships at Provo Utah based MoneyDesktop, believes that intuitive data visualization will begin to deliver on the promise of big data for banks in 2013. According to Gardner, “Intuitive analytics will make it easier for bank executives and marketing teams to customize the user experience and deliver tailored messaging, product offers and solutions that best meet specific consumer needs and interests.”
Transformation of Delivery Channels
Consumers want a convenient, secure and familiar experience when they interact with their bank using mobile, online, phone, ATM or their branch. They also want their bank to realize that they may use multiple channels at the same time. This channel agnostic interaction has been recently referred to as an ‘omnichannel’ experience in the retail industry.
With respect to traditional branch banking, there was no hesitancy for industry leaders to provide warnings. Serief Meleis, a partner at Novantas warned, “Continued overcapacity of branch distribution resembles the airline industry of the early 80’s. Fundamental restructuring must begin sooner rather than later.” Not surprisingly, Brett King, author of the new book Bank 3.0 and founder of branchless start-up Movenbank added, “Market analysts will start to discount retail banking stocks with large branch networks as poor branch performance becomes visible.”
Andy Will, senior vice president of deposit products and card services at BMO Harris agrees that the traditional mid-sized branch has too much real estate and staff costs to be viable going forward. Discussing a trend he believes will extend beyond 2013 Will states, “I believe branches will get simultaneously bigger and smaller. There will be the addition of regional ‘Apple store’ sized branches in prime locations combined with micro branches to ‘fill in’ the rest of the markets.” Will adds, “Both the large and small branches will be highly automated with two-way video, touch terminals, etc.”
None of the experts put the trend in perspective better than Bart Narter, SVP of Celent who stated, “The branch is banking’s new alternative channel.”
In a report just released by Juniper Research entitled, ‘Mobile Banking: Handset and Tablet Strategies 2013-2017’, it was estimated that more than 1 billion mobile phone users will have used their device for banking purposes by 2017. In addition, it was projected that more banks will have multiple mobile offerings, maximizing customer penetration potential. These trends were reflected in many of the predictions for 2013.
Fred Hagerman, CMO of FirstMark Credit Union out of San Antonio, TX emphasized, “Mobile is a freight train coming down the tracks – and it’s here to stay. Banks that need proof only need to look at their web analytics from the holidays to see a significant bump in mobile device usage in the days after holiday gift-giving.”
Some believe that banks, in an effort to speed delivery to market, have created fragmented mobile apps that served limited purposes. Bradley Leimer, Vice President of Mechanics Bank and publisher of The Discerning Technologist feels that 2013 will be the year we move the mobile banking conversation beyond transactions (transfers, bill pay, a brief snapshot of transactions, maybe some financial management) to include enhanced engagement through personalization . . . and more.
According to Leimer, “We need to engage our customers with their own data, and drive new levels of personalized service to help them create their own value from their transactions. Our mobile applications will see renewed focus on engaging and simplified customer experiences, and improved contextual offer placement. We’ll see more applications leveraging voice, as well as the social graph, because individualized preferences are critical.”
Matt Wilcox, from Zions Bank agrees, “I believe we will see the proliferation of “fat apps” that allow for a convergence of multiple applications as well as enhanced personalization for an enhanced customer experience.”
Online banking will improve as well in 2013 if the industry leaders are correct. The online banking experience will be holistically reviewed this year according to Bryan Clagett, the chief marketing officer at Geezeo. “The user experience will finally take precedent, and the definition of a ‘banking website’ will be re-written. Products like PFM will help consumers make better decisions, save money and leverage the vast merchant data that lies within.”
Serge Milman, CEO and founder of Optirate sees the focus on new and enhanced delivery channels as being a requirement to stay relevant, but not an inexpensive proposition, especially for smaller institutions. “Mobile and other delivery decisions will become ‘infrastructural’ initiatives”, states Milman. “Banks will spend significantly to implement technology, but smaller organizations may find these expenditures prohibitive and will be slow to see returns.”
Marketing and Technology Converge
Significant changes in marketing have been occurring for the last couple years, allowing bank marketers to leverage new technologies to improve targeting, offers, timing and the marketing channels used to communicate. The ability to combine structured and unstructured data described above, with the digital channels available, are a powerful combination for those bank marketers able to keep pace with change.
According to Nicole Sturgill, research director at CEB TowerGroup, “The embrace of digital channels as primary to the customer experience is significant for two reasons. First, it acknowledges the fact that the branch is no longer primary in many customer’s eyes; and second, it places digital sales at the top of the technology priority list for 2013.”
Bank website design will also improve in 2013, enabling sites to become better selling tools. Tim McAlpine, president and creative director of Currency Marketing, believes that the use of HTML 5 will flourish saying, “Firms will put more weight into building websites that work on every screen size, versus the current trend of building dumbed-down mobile versions of corporate websites.”
David Gerbino, digital product, marketing and strategy manager at Provident Bank in New York agrees. As he stated in my recent post on bank marketer resolutions, “Bank need to rapidly say goodbye to the web. The web of decades past is dead. Today’s web needs to be responsive and device agnostic with one website supporting all devices.”
These changes will improve the customer experience as is mentioned by Jelmer de Jong, global head of marketing for Netherlands based Backbase and editor of the BANKNXT blog. “Banks have to focus on creating ONE unified superior customer experience, across devices, across channels. Multi-channel strategy and creating a cross channel journey will be key.”
While some banks are just beginning to utilize digital channels for their marketing efforts, some have found the power of new strategies such as search engine optimization for digital ads and retargeting for reaching people who are ready to buy.
According to Lloyd Lee, SVP, Integrated Services for direct and digital agency New Control, “The benefit of retargeting is clear – among all offline and online channels, retargeting is often the most efficient acquisition strategy on a cost-per-approved account basis.” Lee added, “In 2013, retargeting will become much more widely used by banks as it ensures that banks are capitalizing on all of the traffic being driven to a bank’s site from both offline and online acquisition efforts. It will be at the core of the most progressive bank’s digital strategies.”
The technology will also allow lifecycle and multichannel marketing efforts to merge, providing bank marketers to know who should get what offer, in which channel, in addition to WHEN they should receive the offer according to Bill Secrest, director of Datamyx. “New data solutions are emerging that can add context around when to target a consumer for marketing treatments.”
Many of the industry leaders emphasized that these new tools and strategies will be more important in 2013, as the industry moves further away from the industry meltdown of a few years ago and into a period where shifting market share will be needed to grow top line revenue.
J.P. Nicols, CEO of wealth management consultancy Clientific, was rather blunt when he said, “All of the popular buzzword talk of improving client experience, optimizing channel preference and engaging clients on social media is now being viewed through the filter of ‘how quickly can we see the impact in our results?’ In 2013, this emphasis will put additional pressure on marketers, vendors and partners to prioritize the right projects and the right products and features that will yield results quickly.”
On a more fundamental level, Mark Arnold, President of Market Strategies in Dallas, sent me the following trends which will be required as marketers implement new customer-facing technologies:
Product and Segment Opportunities
With regard to which products and services will be most important in 2013, some leaders believe there are untapped opportunities that will emerge in 2013. “Business account acquisition will be – or should be – a top priority for most FIs in 2013 since hardly any bank has been aggressive in this space or made many positive product changes in response to the repeal of Reg Q” offered Mark Zmarzly, vice president of financial services for ACTON Marketing.
Salil Ravindran, lead solutions architect for Oracle in the Netherlands agrees, “Banks will start focusing more and more on servicing the business banking segment through digital channels. The extent of services required by this segment is largely an extension of retail banking and not as complex as those required by the higher end wholesale segment, and hence banks should be able to largely leverage existing digital channel infrastructure to extend these services.”
Credit union leaders provided the following tweets regarding where financial organizations may focus in 2013:
Roger Conant, curator of the original credit union tweet tracker site out of Houston believes that focusing on the women’s segment will move beyond a niche play in 2013, while Salil Ravindran and J.P. Nicols both believe banks will focus more than ever on the mass affluent market in 2013. In referencing trends in both the EU and US, Ravindran says, “I believe more banks will start offering financial planning services over digital channels, thereby scaling the scope of digital channels from simple products and services to much more complex ones.”
New Entrants and Non-Bank Competition Increase
Competition in and beyond the payments marketplace will continue to grab headlines and customers in 2013, making it imperative for traditional banks to keep a watchful eye on both new entrants and new forms of competition. As Simple continues to grow by providing streamlined banking to a growing list of consumers standing in a virtual queuing line to open accounts, Movenbank will open their virtual doors in early 2013>
At the same time, Walmart continues to innovate, leveraging partnerships like those with American Express for Bluebird, focused initially on the middle class consumer. And there is no reason why Walmart should stop with a prepaid offer according to Emily McCormick from Bank Director Magazine. “If successful with Bluebird, I’d look at what Walmart’s next move would be, especially if they can dodge the regulatory hurdles than encumber banks.”
Of greater concern in the longer run could be those offerings that bypass traditional banking channels completely. The rise of alt-lending (p2p lending, crowdfunding) in both the consumer and small biz space could present interesting challenges according to Jim Breune, CEO and founder of the Online Banking Report and founder of The Finovate Group. “Lending Club’s $600-million-year (in loan originations) shows that US investors are buying into the concept and the British Governments recent announcement that they will lend 10 mil (GBP) through Zopa and 22 mil (GBP) through Funding Circle demonstrates that at least one government understands the economic potential of alternative forms of banking.”
Continued Focus on Compliance and Security
Viewpoints differ on whether banks have fully adjusted to the impact of increased compliance and the CFPB. On one hand, a mid-sized bank executive stated, “The CFPB will still be a factor in 2013 for retail bankers. The question is, will it help add transparency and customer choice to the market for financial services or will their actions end up stifling choice and innovation because banks will be afraid to try creative new approaches to products or processes for fear of criticism or fines?”
Steve Cocheo, executive editor of the ABA Banking Journal has a more positive perspective when offering, “I believe that bankers will get over their compliance shell-shock in 2013, understandable as it is. While the regulations they face are often overwhelming, many will figure out new ways to meet their regulatory obligations with creativity and some fresh ideas. Not every institution will follow this path, but I believe more will than some think.”
Management consultant Steven Ramirez from Beyond The Arc Consultancy sees potential for banks that embrace the context of the CFPB when he said, “Banks that expand the scope of their Voice of the Customer efforts will see an added benefit: mitigation of regulatory risk.”
The impact of regulations is not just being felt in the U.S. Of particular concern for banks in the U.K., and potentially the rest of the EU, are proposed ‘ringfencing’ proposals that are focused on separating a banks’ day-to-day retail banking arms from riskier investment bank activities. With the intention of protecting taxpayers from the potential of bailing out banks, these pending rules impact larger banks more significantly and will cause additional distractions similar to what has occurred in the U.S.
While the impact of the CFPB may be stabilizing and many banks are prepared for the impact of ringfencing, the same can’t be said for the preparation for cyber attacks. This disturbing trend, which is impacting banks worldwide, may define issues ranging from consumer trust in banks to channel usage in 2013.
Mary Beth Sullivan, managing partner of Capital Performance Group, LLC stated, “I believe the cyber security threat will continue to increase, and retail banking organizations across the country will need to adopt more sophisticated security protocols and educate customers about it much more in 2013.”
Bryan Yurcan, associate editor of Bank Systems and Technology agrees with his rather pessimistic post:
Change is Inevitable… Or Is It?
As mentioned by Bryan Clagett from Geezeo in development of this post, “Those in traditional retail banking need to realize that banking, as we know it, is evolving largely due to new disrupters in the space. I say, embrace the inevitable and look from within and outward at ways to build better, more efficient experiences.”
Jeff Marsico, banking consultant and publisher of his own industry blog, referenced a sentiment similar to Jelmer de Jong’s ‘Just Do It’ resolution for 2013 regarding the hopeful trend regarding the way bankers should look at the future:
Alternatively, maybe we could all step back and hope that Chris Skinner’s slightly cynical prediction could become a reality.