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Top Insights for Retail Banking Industry

Top Insights for Retail Banking Industry

What does the current landscape look like for Retail Banking?

Firstly, the post-pandemic retail banking industry is moving out of a climate of muted financial performance. Secondly, with common enablers of open hybrid or multi-cloud solutions, banks embrace Data & AI tech to combat security and fraud risks.

So far, breaking away from the pack signifies the next normal for the retail banking industry. And why is that? Now with most COVID protocols behind us, the urgency for retail FIs to accelerate digital transformation is driven by the sustained competition coming from Fintechs (Refer to infographic)

 

Here is a roundup of the Top Four Insights for the Retail Banking Industry

Tomorrow’s Competitive Advantage will come from Customization.

As part of their digital transformation journeys, top retail banks must invest significantly in high-tech analytics to improve Customization. Micro-segmentation of consumers through customer relationship management (CRM) data (such as socio-demographics, client strengths and product usage, and recent transactions) and digital behavior will be the integral aspects of digitally- agile sales programs.

From adopting various processes – increasing sub-segments in customer profiling, working through test-and-learn strategies, personalizing communications with each customer (altering the email subject line, tweaking the language tone, optimizing communications for the time of the day), and constructing a multichannel contact tree are mechanisms that will boost customer centricity.

Retail Banking’s next battleground is Digital Sales.

Successful FIs have figured out how to address more, and higher-value client needs digitally. Even though the global crisis slowed monthly unit sales across channels in many markets, it did accelerate the redistribution of the sales mix as channels recovered at different rates.

Leading retail banks are accomplishing top-tier digital sales by continuously developing the digital customer experience and optimizing it across the customer journey.

Here are a few optimization examples from CX journeys

  • Deploying and testing new features
  • Using customer relationship management (CRM) software to make preapproved offers
  • Shortening the application and approval process by pre-filling information
  • Employing digital signatures to speed up the fulfillment process.

To quickly digitize multiple priority customer journeys, more and more banks are establishing a digital “factory” – bringing together hundreds of staff to build new, best-in-class digital experiences and products.

Upping the ante in Retail Banking through Digital Services

Banks have helped clients feel secure using digital and telephone banking during COVID-19. They have therefore enabled the next generation of digital services. As of May 2020, people have shown great satisfaction with digital channels, and anywhere from 60% to 85% of consumers in Western Europe, including those aged 65 and up, prefer to utilize digital for everyday transactions.

Successful banking businesses have reported that increasing their mobile strategies has resulted in five times the engagement. Almost a third of all digital purchases today come from the mobile app. Several factors, including more exciting app features, frictionless user experience, and creative capabilities, are all responsible for this surge.

The infographic below traces the shifts in banking business models. The rate at which it evolves across various geographics is different and determined by regional influences.

Amping up the “human” in virtual channels.

To improve customer service through the call funnel, leading retail banks invest in cutting-edge Data & Analytics technology. Using chatbots to keep digital customers has helped reduce customer service calls. Conversational and adaptive IVRs today draw on a wealth of interaction history to deliver targeted answers to individual users’ questions while freeing up agents’ time to focus on more complex cases. When calls get through to agents, innovative tools like voice-to-text transcription create data sets that can be mined for insights using text analytics, sentiment analysis, and natural language processing.

It’s no secret that several financial institutions have dabbled in remote advice models like branch-to-hub or hub-to-home banking. Through screen sharing, remote advisory can mimic the benefits of face-to-face meetings and digital capabilities, such as identification for quick fulfillment and a more gratifying experience. Ultimately, these features link clients with the most qualified specialists for their inquiries, allowing for more productive dialogues.

Conclusion

In sum, there are two crucial questions retail banks must address before drawing up their next growth strategy:

  • How likely are banks and other FIs to see digital channels overtaking physical locations as the primary means of selling their products and services?
  • After the pandemic, do banks expect a reversion in customer behavior to pre-outbreak norms?

Answers to these two questions will prove crucial in the final analysis.

In 2022 and the following year, expect to see more retail banks reevaluating their revenue drivers, searching for new product launch prospects, and reorienting their offerings towards an advisory and insurance slant.

For retail banks, with escalating revenue and growth pressures, it is advisable to employ advanced analytics that identifies relevant growth niches so that optimized digital sales journeys and innovative marketing approaches can fuel growth.

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List of the retail banking services offered by the Financial Sector

List of the retail banking services offered by the Financial Sector

What Is Retail Banking?

Retail banking, also called consumer banking or personal banking, is a type of banking that serves individuals instead of businesses. Retail banking is a way for regular people to manage their own money, get credit, and safely put cash in the bank. In terms of services, there are checking and savings accounts, mortgages, personal loans, credit cards, and certificates of deposit services that retail banks offer (CDs).

Most people use local branch banking services, which take care of all of a retail customer’s banking needs on-site and are used by most people. Financial representatives help with customer service and give financial advice at local branch locations.

A customer might not use all these retail banking services, but the most important is putting money into a checking or savings account. This is a common and safe way for people to keep their money. Also, it lets them make money on their money by earning interest. Both checking and savings accounts come with debit cards that make it easy to get money out of the account and pay for things. 

How a Retail Bank makes money 

A retail bank keeps the cash that its retail customers deposit. It then lends the money it gets from these deposits to other clients. The banks make money by charging higher interest rates on these loans than they pay on deposits from customers.

Retail bank types

Basis their size, there are many different kinds of retail banks, from small, locally run local community banks to the retail banking services of large, global corporate banks like JPMorgan Chase and Citibank.

Small Banks. 

They work in a small area through branch banking and offer almost all the same services as the big banks. This makes them well-known among the public. But compared to them, they have smaller market shares and less money in the bank.

Large Banks. 

These big banks are based in big cities and have many branches. They also have a lot more employees than small banks. Also, many retail customers buy them because they are so popular.

Online Banks. 

As the name suggests, online banks do their business over the Internet and do not have physical offices. Also, they run through an official website that can be accessed anywhere in the world. Most people now prefer to do their banking from the comfort of their own homes.

Products and Services for Retail Banking

Saving Bank accounts.

 Also called “interest-bearing accounts,” this is an excellent example of retail banking for basic deposit accounts to keep cash safe and earn a reasonable interest rate. The banks put the money away for short-term needs and usually limit cash transfers and withdrawals.

Checking accounts. 

These deposit accounts make cash withdrawals and deposits for regular payments easy and, in most cases, unlimited. They are also called “transactional accounts” because customers can use debit cards to buy things and pay bills online. Still, they pay less interest than savings accounts.

Debit Cards. 

These payment cards are used to pay for things without cash. The money is taken directly from the savings or checking account. They also link directly to the bank account and can be used at ATMs (ATMs).

Deposit certificates (CDs). 

This savings account holds a set amount of capital for a set amount of time, and the bank that offers these accounts pays interest in exchange. When the money is cashed in, the person gets both the original amount and the interest. 

Credit Cards. 

Banks give out credit cards so customers can borrow money for digital transactions with a set line of credit. Cardholders must pay back the total amount, plus any interest, on or before the due date to avoid credit risk.

Home Loans. 

These bank loans enable customers to purchase homes. Also, second mortgages mean that customers can use the value of their home as collateral to borrow money.

Personal Loans. 

These loans involve getting money from banks, online lenders, or credit unions to pay bills. Also, monthly payments pay the multi-purpose unsecured loan back over a few months or years.

Conclusion.

Most people think of a retail bank when they think of a bank. Retail banks offer their customers a wide range of products and services. Every city has bank branches where people can get retail banking services like mortgages, credit cards, personal loans, CDs, and checking and savings accounts.

 

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Retail Banking: 6 Steps to Improving the Collections Experience

Retail Banking: 6 Steps to Improving the Collections Experience

The recent global slowdown, policy overlays, debt moratoriums, fiscal injections, and increased delinquency rates have all brought the scanner on collections experience. Today’s credit environment is different, and so are the digital-first customer support systems and the banks’ criticality to maintaining long-term customer loyalty.

As debt loads and loss rates rise across multiple markets, the leaders in the chaotic collections practice are doubling down – using the current period to ramp up staff skills and leverage advanced analytics to improve performance at a lower cost.

Undoubtedly, the next-generation collections model in retail banking must involve a nuanced understanding of the at-risk customers and the corresponding interventions. A digital-first collections strategy will shoulder the bulk of this burden. The numbers, too, bear this out. A study points out that digital customer service reduces 20% in non-performing loans (NPL), resolves 30+ past due dates (PDD) by 25%, reduces 15% in collections cost, and boosts customer engagement by 5X.

While customer-centric collections capabilities with digital at its core increase each day, the key for collection agencies lies in the following steps.

  1.    Advanced Segmentation: Today, most machine-learning approaches operate on creating micro-segments for more targeted interventions. The analytics-driven collections efforts will move away from static delinquency stages or risk scores classifications and be able to treat each borrower as a “segment of one.” Building a sophisticated risk model that estimates ‘value at risk’ will project conditional probability instead of single risk scores.
  2.   Matching Channels and Preferences: Research posits that contacting customers through preferred digital channels improves effectiveness significantly, especially in low delinquency stages. An effective multi-channel contact strategy goes beyond a one-size-fits-all. It depends on technology infrastructure, AI and Automation capabilities, and a contact strategy that addresses various segments through appropriate channels, with the right messages in the proper sequence.
  3.   New tech implants in the collections environment: From contact center interface, banking machines (with automated touchpoints), IVR, Website messaging, Messenger and chat platforms, mobile apps, virtual agents, most banks are moving to advanced algorithms to establish the best times to call, down to the hour and minute. The optimal contact sequencing across various communications (voice, text, email, IVR message, self-service) positively influences customer behavior to prioritize payments.
  4.  Customer-oriented operations with centralized systems: As smartphone and app usage increases, collection agencies are beginning to accept app-based payment to go with web-based methods. With app payments and automated phone calls, online payments inject convenience into the process. Another efficiency initiative is the centralized system – a program that allows personnel to view the same accounts on the same database. Using diallers and prompts, collectors review reports, and trigger alerts are cost-saving measures that ease workflows and decision-making issues.
  5.   Competency building for frontline staff: To assess (and treat) at-risk customers for their ‘ability to pay and willingness to pay is a valued skill in collections. Locating skilled candidates that bring this rare social (or local) mindset is not easy. Furthermore, connecting at the human level and employing an easy meticulous manner that listens and also problem solves is critical for collections. All this constitutes the complexity of selecting, onboarding, training, and motivating collections staff – a job, when done well, pays rich dividends.
  6.  Maximizing Machine Learning Models: Integrated analytics models that work on an assembly of data masses are a potent way to decide the optimal contact and treatment strategy. These methods, over time, have lowered charge-off losses and increased recovered amounts. Today’s sophisticated lending agencies use multiple variables across various systems (customer demographics, account activity, payments, risk ratings, cash flow status, collections history).

Conclusion

The future of collections will see more lending institutions investing in data analytics that better understand data gaps, identify internal and external data sources to create alerts, build intelligence for optimal micro-segments with similar risk profiles, and develops models for advanced validation.

 

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Impact of Digital Transformation in Retail Banking Market in the UK

Impact of Digital Transformation in Retail Banking Market in the UK

With a slew of hyper-personalization initiatives, the UK’s retail banking market responds to increasingly intelligent devices, rapidly evolving CX, and real-time data processing. Coming on the back of a ravaging pandemic, stung with financial hardships, retail banks, like most banking organizations, scramble to reimagine a new future.

Today’s essential question is how far do the UK banks lag and the way to leapfrog?  

A study for Western Europe projects a future in which revenues dropped anywhere from 16 to 44 percent. The phoenix-like aspirations can come true as and when UK’s retail banking market can seize three primary opportunities: First and the easiest would be to capitalize on customers’ acceptance of digital behaviors that have evolved in the pandemic years. The second will be to launch new products (especially as physical branch numbers thin out, freeing up fiscal commitments). The third lever will pursue innovative risk mitigation approaches that aim for higher accuracy using real-time transaction data.

Digital Retail Banking in the UK – the new equation. 

The starting premise is straightforward. Before investments in digital skills and new transformation capabilities and next-gen technologies to empower customers can happen, the critical difference will come from a banks’ mindset that is not only aware of the sheer width of complexity at hand but also employs human ingenuity in the service of the single biggest (and most elusive) ‘bankable’ commodity – trust.

Digital Transformation in Retail Banking – A fair or unfair comparison?

Interwoven in our daily lives, ‘software’ has changed how we operate as a society; the definition does not completely extend to retail banking. So, on hand, it isn’t easy to imagine a life without Uber, Spotify, Netflix, Amazon, Alibaba, Google, and on the other hand, as a report suggests, only 35% of small-business executives say they depend on banks for financial advice, or only, 14% of customers experienced a financially impactful event in the last 60 months and sought help from their bank.

No matter where the verdict rests, retail banking embraces innovations in ways more than slapping more software onto an archaic system.

The influx of new-age tech in Retail Banking

The case for digital transformation – regardless of a bank’s current position, future aspirations, customer focus, brand promise, regulatory challenges, and capital constraints – is unequivocally clear: Go full steam ahead. However, there is an apparent reality that UK retail banks are coming fully to terms with, namely, the Brexit displacement. After all, financial services firms operating in the UK shifted 7.500 employees and more than $1.6T of assets to the EU.

The projections appear impressive, the disruptive technologies driving digital transformations in retail banking like Cloud/SaaS, API’s microservices, DevOps, Big Data, AI/ML, and Blockchain/distributed DB. One, the core banking platforms premised on the mentioned tech. can deliver complex functionality 20X faster, and two are 10X cheaper to run.

CX Plus

Traditional banks ‘ emphasis changes en-masse by learning from Amazon and Google (and their financial forays).

Circling back to the criticality of building trust, retail UK banks are incorporating a digitally augmented customer experience into their capability models. What does that entail?

From distribution and channels aligned to Millennial and Gen Z preferences (Omni-channel, contextual user experience, mass personalization, and open banking) to infusing analytics (flexible modular product engines riding on scalable, secure Cloud and operating on agile operating models), retail banking is combating the familiar pain points (high Opex, poor CX, reduced speed to market and weak real-time insights) with renewed vigor.

The Road to Recovery for UK’s Retail Banking

Admittedly, like other industries impacted by digital transformation, the pivot points are the same for retail banking – protect and grow market share and, at the same time, create new trust-based revenue streams.

An exciting study points out that one in four retail banks and credit unions had embarked on some form of digitalization in 2019 (and 45% had yet to launch in 2021.) Less than four of 10 feel they are halfway in their journeys, and here is the rub – only 14% have embraced Cloud computing and APIs or invested in ML workflows, or even deployed chatbots.

The reality is sobering. The ‘delusion of digital’ must be dispelled soon. 

How would UK’s retail banking CEOs know their transformation trajectory is a true one? Proof of the pudding lies in the eating.

Put the customer back into the equation and test for systemic friction (including the back end). For instance, the minutes it takes to fill out an account opening form, approve loan applications, or even the time it takes to bring a digital product to the market.

The answers will point to the journey ahead!

 

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Retail Banking IT difficulties and arrangements in a hyper-associated age

Retail Banking IT difficulties and arrangements in a hyper-associated age

Retail Banking IT difficulties and arrangements in a hyper-associated age

As start-ups redraw the retail banking world map as we know it, there are estimates of $4.7T in revenue being displaced from incumbent financial services firms. The fierce competition coincides with the customers’ ease of switching providers. It appears the big-bang-banking moment is near. After all, the last 24-months demanded the execution of a virtual and untested retail banking services model. As customer restlessness runs at an unprecedented high, community banks, credit unions, and Fintech vie for the same pie. A study points out attrition rates in retail banking hovers around 11%, but the annual churn rates for new customers is close to 25% during the first year, half of which doesn’t make it to the 90-day mark.

Read that again: One in four customers will leave before the year runs out.

Compounding these churn challenges are the anachronistic siloes traditional banks cling to. When two departments in the same bank, a retail banker with transactional data and the wealth manager with a net worth or loan data, do not engage with the customer in a joint (or ‘Omni’ way), rich behavioral insights and sales opportunities are instantly sacrificed. In a world where customers are digital natives, operating out of multiple sources of truth is untenable.

Top five IT challenges and coping mechanisms for Retail Banks 

  1. Cost Reduction: A industry report highlights the top three priorities that consume the lion’s share of their budget: regulatory compliance, elevating customer service, and implementing new technologies. These draining effects and relentless cost reduction pressures leave little over for banks to innovate. How do banks resolve this challenge? IT cost investments for retail banks are best decided over a ‘skills maturity – market opportunity’ matrix. Integrated into the long-term strategy, C Suite leaders must demonstrate agility by estimating risks accurately and wiring that into their innovation growth plays.
  2. Answering pivotal questions correctly: When compared across their regional and global vision, core competencies, risk appetites, or capital constraints, no two banks are alike. As modernizing their core is a must to come good on customers’ digital expectations, retail banks face an exhausting slew of variables. Where does one begin? The front office or middle office, or back office? What are the critical use cases that should be pursued? What are key trends to be prioritized from an IT perspective – conversational banking, credit underwriting, anti-fraud, cyber security, AI-enabled biometrics, or Omnichannel banking? These questions do not come with easy answers. The way to move forward is via deep dives that assess revenue impact sizes and the ecosystem opportunities that work best for leapfrogging attempts.
  3. Addressing Open Banking: The third IT challenge that retail banks face for a year comes from Open banking. CMA (competition and market authority) and market forces have undeniably brought banks into an aggressive mode. The complex demands involved in creating open, collaborative platforms require refurbishing legacy systems, redefining banking ecosystems, building holistic business models that monetize data assets and avoid future data siloes. Understandably, open banking is relatively new, as leading retail banks vigorously prepare for it. Agile and responsive intermediary layers atop core banking are being implemented. These new systems allow for API engagement, enabling third-party providers to receive customer and transaction information. Another way banks are meeting the IT challenge is by actively collaborating with Fintechs to tap into new and unrealized revenue opportunities.
  4. Meeting the AI and ML challenges: The potential annual value of AI and analytics for global banking is tipped to cross $1T. Banks, like other industries, are thrust into an AI-powered digital age as data storage, processing costs crash, customer access, and connectivity increase each day, and the mountains of data generated by the second, call for ‘beyond-human’ decision-making abilities. What does this shift do to IT departments in traditional financial organizations? Under pressures to rapidly digitize, simplify and rebuild their processes to become more agile, IT leaders fail to precisely map how tomorrow’s winning equation will function with its AI and ML variables. The sweet spot lies in adopting a flexible and adaptive approach that presents challenges in a future-ready framework where technology meets its business potential.
  5. Enabling Innovation: In the climate of customer-centric business models, optimized distribution, leveraging data analytics, and proactively managing risks, the largest source of challenge for IT departments comes from the need to foster innovation capabilities. While banking leaders highlight the primary focal areas to innovate (customer interfaces and channels, customer need identification, products, and core platforms), banks are not exactly the hotbed for innovations. The reasons that aren’t difficult to decipher are not restricted to IT. First is the dearth of talent across data and analytics competencies and agile development capabilities (product and technology). The second block comes from limited ecosystem partnerships that hinder IT functions to create innovation crucibles for prototyping new products. The solution for this lies in changing the current mindsets, namely, leadership commitment (and innovation sponsorships) in cultivating a penalty-free culture.
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