As customer experience leaders and neobank challengers continue to break boundaries with fresh, convenient and joined-up financial services, established banks and building societies risk falling behind; hampered by legacy core infrastructure and entrenched ways of working. The result could be a two-speed market in which customers are forced to choose between historical reputation and a modern digital experience.
Businesses are facing a payments dilemma - caught between the hard place of reducing the costs of payment operations and the rock of rising customer expectation.
But there is a way to close the gap. Even with the most complex internal systems and processes to work around, there are tools that established financial services providers can draw on today to deliver the new experiences customers expect.
By harnessing these capabilities, banks and building societies have a chance not only to keep pace with today’s digital leaders but also to protect and grow their income, just by making it easier for customers to do what they need to.
Ahead of the launch of our Leaders & Laggards eBook, we spoke to some select interviewees on this very subject. Here, we talk to Des Moore, CEO of Cumberland Building Society, Rakesh Lakhani, Head of Payments Transformation at Tata Consultancy Services and Giuseppe Caltabiano, co-founder and CEO of EverUp about how they are escaping this payments dilemma and fast-tracking financial technology innovation, in a legacy ecosystem.
Does the payments dilemma - the rock and a hard place of cost versus rising customer expectations – resonate with you?
Rakesh: The operational aspects of reducing these costs has driven a lot of consolidation of siloed systems, there's been a lot of discussion and drive around improving Straight Through Processing (STP) in end-to-end process, and clearly a lot of cloud adoption. That's been seen as a massive driver for cost savings, as well as finding new ways of working with organisations like Modulr.
But a lot of it has been driven by the developments we’re seeing in real time payments maturity. There’s a lot more accessibility to ‘real time’ and a lot of movement in that space. And, as well as changing customer expectations, there’s also changing customer behaviours and the rise of alternative payment methods such as buy now pay later and wallet-based solutions. They're changing the way in which customers are paying for things and how they want to interact with and move their money.
Des - as CEO of a 170-year-old building society and looking at the duality of historical reputation and a modern digital experience - which do you rely upon to get ahead?
Des: You can't trade on historical reputation on its own anymore. Today, we have fantastic people standing in front of shocking systems, and we have the happiest of customers but having all that and not being able to deliver on the simple things that people have come to expect, is clearly a big challenge for us. Part of our current strategy is to upgrade and replace legacy tech, and that’s now underway.
We're not trying to be leading edge, we're looking for exceptional customer experience and authentic northern values, underpinned by easy-to-use technology. But we’ve quite a bit of work to do. So, in answer to your question, I think customers will want it all, and having a supremely good customer experience will only get you so far. Inevitably, you will fail without closing the technology delivery gap.
Is there a trade-off between reputation versus digital experience?
Rakesh: Reputation, to me, means trust. There’s an underlying trust there with long-standing financial institutions, and an expectation of support and face to face contact, which together instil confidence that your money is safe and payments are going to be made. But that trust has now started to translate into digital and online experiences.
At the end of the day, customers expect to be able to move money very quickly. If you need to pay someone, you want to be able to do that straightaway. So, it’s a combination of confidence and trust in an organisation, but together with the digital experience that will empower your customers do things themselves and do them quickly and easily.
What market opportunity do regional building societies and specialist banks have if they were able to unlock a modern customer experience?
Des: I think the market opportunity is big, especially post COVID. People are now looking for more than a transaction provider, they're looking to align with an organisation that connects with and supports communities, for mutual dividend, higher savings rates and lower mortgage rates. So, I think there is a really strong market opportunity and the time is now.
It’s no longer enough to just show up in an old-fashioned way and expect customers to moderate their requirements to fit the lowest common denominator, we have to be, if not at the leading edge, we certainly have to be in the pack in terms of how that service and that customer experience presents itself.
Rakesh: You touched on the butterfly effect, and I think to be able to deliver that experience and live up to those expectations, you've got a few areas of focus. One of those is real time everything. You've got to look at your whole estate from a real time perspective, not just sending money, but also fraud screening and the updates that come back in. Then there’s the regulatory changes that are going to be coming in. ISO 20022 is going to have a massive impact on back-end systems, and a knock-on effect at the front. The Bank of England is going through its modernisation as well.
It’s going to be introducing a synchronisation service and that's going to necessitate changes in all banks and will require them to have that real time end-to-end infrastructure. So yes, have the trust, have specialisation but balance that high-touch with self-service so that you can really deliver the best solution. But, a fully digital end-to-end CX is only good if it works consistently. So having a backup and knowing your product and knowing your customers is still going to be a big thing for most users and teams out there.
Is there a growth opportunity for established regional financial services businesses to deliver a straight through customer experience out to the wider UK market?
Des: Yes. In the old days, you'd expand by opening more branches and finding more locations but that's simply not the way it happens anymore. So, one of the things that supports our investment case about putting our savings and mortgage capability online, which is what we're doing now, is to give us that optionality, into adjacent local markets. But that can only be done by the type of technology breakthrough that Rakesh is talking about.
If, as we’ve heard, the traditional financial services have customer loyalty and longevity on their side, how will EverUp win the customer experience race?
Giuseppe: Fintech innovation can solve the payments dilemma, defined as the challenge of reducing the costs of payment operations while coping with rising customer expectations.
Naturally when you build from the ground up like us, and don’t have legacy technology, it is much easier, as we don’t have old and inefficient backend payment processes that also impact the customer experience in the frontend.
We are Modulr’s client. We plug into its Payment-as-a-Service platform, so that we can focus on the other areas that our core to our business and our customer proposition. Literally being true to their name, Modulr offers a modular service offering, giving us the optimal flexibility to choose which products and services we want to use at any given time, and this is important to us given the product pipeline we envisage.
Leveraging this Payment-as-a-Service model, we have a viable option for offering our proposition without committing undue resources to develop in-house payments technology, which would otherwise require heavy upfront investment, long development lead times, and high execution risk. Also, running an in-house payments technology would require investing in the maintenance and continuous innovation of the payment platform. Therefore, by plugging into Modulr’s offering we have a much more flexible, agile, and cost-efficient model.
Are you a bank or building society feeling the weight of the transformation task ahead of you?
If so, the Leaders & Laggards eBook distils some invaluable recommendations to help established financial service providers evolve and innovate.
With reference to the latest digital banking best practice, first-hand insight and a 5-point plan to payments supremacy, this indispensable guide is your ticket to fast-tracking financial technology innovation in your legacy ecosystem.