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Retail banking in a digital world

Over the last couple of years, the banking industry has experienced a previously unseen period of accelerated change. 

. It can be argued that this transition period to a new banking model is far from over. Digitalisation and automation are two of the most important drivers that are in the process of disrupting the retail banking model like we used to know it. Because of--and one might say thanks to--the new opportunities brought by these drivers, banks were able to reduce costs by closing branches[1] and employing fewer people while clients have become their ‘own personal bankers’ through internet and mobile banking applications[2]. At the same time, numerous new entrants, mostly technology firms commonly called “FinTechs”, entered the financial services industry with innovative solutions, which further increase the threat to more traditional banks. About 40% of the consumers indicated a lower dependence on their bank as main provider for financial services in 2016. In a self-service banking model, where clients can now perform many tasks that used to be done by their banks, it will be crucial for these same banks to reinvent themselves and rethink their value proposition towards their clients. As a reaction to these challenges, many banks are currently in the process of switching from a product-based approach to a service driven approach more suited to the needs of today’s customers.


Customer focus: convenience & value creation

Today, most banks have their own online applications that allow clients to perform a significant amount of banking activities anywhere and anytime. Recently, some banks have also introduced budgeting features in their applications, enabling customers to gain insight into their spending and sometimes even allowing short-term forecasting. As most online applications focus on offering solely traditional banking solutions, a large part of the market is left untouched. On the other hand, digitalisation has led to the commoditisation of the banking industry since comparing costs and quality of services from different banks has never been easier, causing the need for banks to develop more advanced tools to create a real shift in customer service. Since consumers expect to be rewarded by banks for their business while also receiving personal advice on wealth-building and their spending[3], banks must make the necessary investments to address those expectations.

In the new banking landscape, merely being the provider of financial services for the consumer is just not good enough. Today, solutions like direct payments and online handling of documents (e.g. Zoomit: handling of invoices, payslips and credit notes) are more often than not provided by actors other than the banks. However, banks will be increasingly expected to provide their own solutions to maintain their relevance and not lose to FinTechs and other new market entrants.

As always, this new banking model with a strong focus on convenience and value creation for consumers, is not to be seen solely as a threat, as it also presents a great opportunity for banks. By combining existing solutions and new technology, banks could become the centre for the consumer to interact with providers of goods and services. As banks have a first-mover advantage resulting from the existing client contact and data, they can--that is, if they don’t fail to move fast-- outrun new entrants and raise entry barriers for most of (current or future) client needs. For example, traditional lock box services are costly and considered a premium product as the bank physically receives the paper invoices in a designated post box on behalf of the client and makes sure that the right actions are taken on time. Nowadays, digitalisation and new technology could reduce the cost of such services significantly, and thus allow banks to offer ‘virtual lock box services’ to all customers in return for a small fee or even for free.


At the same time, banks have access to a massive amount of consumer data, which could generate valuable insights for both banks and clients. Imagine that banks analyse this data and create relevant benchmarks for the consumer depending on his/her specific living situation (e.g. age, income, gender, household, …). This would not only allow consumers to compare their spending over time and with relevant peers, but would also allow banks to offer tailor-made advice to each customer. At this point, we believe that banks can create value for the customer in many different areas, for example:

  • Providing relevant benchmarks and advice how to save money, e.g. propose to switch electricity provider, suggest home improvements that are subsidised by the government, …
  • Assistance with administrative tasks, e.g. organise change of electricity provider for the client, manage application for subsidy/tax deduction for home improvements, …
  • Managing invoices, e.g. verify invoices, payment of invoices, arrange refunds, …
  • Managing membership of loyalty programs, e.g. store discount vouchers for daily purchases, remind for expiring miles/points of airline companies and hotel chains, …
  • Serving as an identification tool, e.g. use as registration tool at websites, use as identification tool to declare taxes online, …

Banks: new opportunities on the horizon

In the new model, the bank could position itself as some sort of ‘digital personal assistant’ to the consumer. In addition to the aforementioned benefits to consumers, banks will find themselves in a unique position to offer their clients the right products at the right moment. Instead of using a transaction-driven approach, banks and consumers should establish a continuous relationship with much more interaction between both parties. This would be beneficial for the banks as increased loyalty would result in higher profits. Typically, clients holding multiple products are much more profitable for banks compared to single product customers. To establish such a relationship-driven model, banks will need to think differently when evaluating the potential of new services. For instance, even if no direct benefit results from the offering of free virtual lock box services, it could still be an important enabler for the bank to introduce other profitable products. Hence, such a model could result in following benefits:

  • More accurate credit scores of existing clients are available in real time that allow banks to make competitive online proposals immediately (e.g. mortgages, personal loans)
  • Better understanding of its customers enables banks to prepare tailor-made proposals anticipating client needs (e.g. propose home improvement loans, tax deductible investments)
  • Improved customer segmentation helps banks to develop innovative products for specific target groups( e.g. customized pricing of products)

The use of the newest technology should not become a target on its own as it will not guarantee success. Banks will rather need to focus on how to use this technology in order to improve customer experience[4] by developing new products and services. Customers will expect an omni-channel approach, which requires banks to deliver a consistent customer experience regardless of the channel.


Innovation in payments

New technology is also expected to have a significant impact on payment systems. Given the existing technology, consumers are used to having real-time information and expect nothing less from their banks. “Instant payments[5]” have been introduced in several countries, and many more will follow suit. Instant payment systems allow banks to make and to close payments 24/7/365 regardless of the underlying payment instrument (credit, debit) almost immediately, which is expected to improve customer experience and lead to shorter cash cycles.

Furthermore, new regulation on payments like PSD2[6] opens the door for FinTech companies to enter the financial services industry. More specifically, due to PSD2, banks will no longer enjoy a monopoly over account information and are obliged to share this with Third Party Account Information Service Providers (AISP) when permission is granted by the account holder while Third Party Payment Initiation Service Providers (PISP) will be allowed to initiate payments made by the account owner. Ultimately, these changes should be considered as an opportunity for banks as transaction volumes are expected to increase while costs related to cash handling and ATMs can be reduced. Therefore, banks should carefully define their strategy with regard to these new developments and consider to collaborate with FinTechs or to set up their own Third Party Payment (TPP) services.


Trust & data protection

Finally, to establish a new relationship, it will be crucial that consumers trust banks with their personal data. Banks seem to have a significant advantage in this area compared to other firms. About 41% of the consumers indicate they trust their bank with personal data, which is significantly higher than even many established technology companies[7]. Nonetheless, consumers remain cautious with providing personal data. Only 26% of consumers indicated that they provided personal data for added services and discounts when this information is shared with a third party. 70% of consumers are likely to share this information in return for added services and discounts if the personal data is used by the firm itself. Security and data protection is another important issue that cannot be ignored by banks. Belgian Mobile ID[8], which is supported by all major Belgian banks and mobile network operators, is a promising initiative to offer secure electronic identification and digital privacy. On top of that, the General Data Protection Regulation[9] (GDPR), which aims to protect the personal data and privacy of consumers in the EU, will have a significant impact on how personal data can be used by companies going forward.


To conclude, banks have the opportunity to reinvent themselves in the digital era. It will not be sufficient to simply offer a digital version of their existing services. Rather, it is a new, dynamic model, where banks establish a close relationship with the consumer, that is needed to remain relevant. Key elements to achieve this include:

  • Banks have a great potential to offer new and innovative services focussing on convenience and value creation for the consumer, which will ultimately lead to new opportunities;
  • New technologies (like instant payments) will change customer habits and inevitably lead to higher transaction volumes, while potentially reducing some costs like costs related to physical cash management and ATMs[10].
  • Banking in the digital era requires sound data protection and security to earn the consumer’s trust to share personal data. New regulation will also address this requirement, such as to enhance comparability of solutions and impose industry standards.

Although a broad panel of new technologies offer numerous opportunities to the banking industry, technological improvement should not be considered as a goal on its own. The winning bank in the digital era will most likely be the one who uses these technologies to provide the best customer experience.


[1] Sia Partners’ article on bank branches in Belgium : http://en.finance.sia-partners.com/bank-branches-belgium

[2] Sia Partners’ article on future client expectations : http://en.finance.sia-partners.com/bank-future-client-expectations-review

[3] Source: Survey performed by CGI “Understanding Financial Consumers in the Digital Era”


[6] More information on PSD2 regulation: https://ec.europa.eu/info/law/payment-services-psd-2-directive-eu-2015-2366/law-details_en

[7] Source: Survey performed by Accenture “The everyday bank – a new vision for the digital age”

[8] More information on Belgian Mobile ID: https://www.belgianmobileid.be/nl

[9] More information on GDPR by Sia Partners : www.gdpr-2018.co.uk

[10] Sia Partners’ on cash management in Belgium: http://en.finance.sia-partners.com/towards-new-cash-cycle-model-belgium

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