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While retail banking has been facing sharp challenges since the economic crisis of 2009, the financial market seems to level off progressively. At least for the banks pushing their digital transformation further than the average. In this article, we aim at highlighting the key challenges and opportunities retail bankers are currently facing and emphasise on the top digital priorities they should be investing in today.

Historically, retail banking secures its incomes from three types of revenues: commission, financial operations and, the primary source of income, the net interest margin.

As it turns out, the rates of interest have been continuously decreasing since the financial crisis of 2009. Analysts states that Western Europe retail banks will see their banks’ products and other fees lag behind the expected GDP growth for the 2016-2021 period.

Retail banks need to innovate and rethink their business model. Paradoxically, the regulation of the market which should ease the evolution of retail banks is aggravating the pressure on their revenue.

After the Facebook – Cambridge Analytics scandal, all the public and private organizations dealing, manipulating or stocking personal data on their customers were under scrutiny. Retail banking included. Indeed, retail banking is one of the most monitored markets. This can be explained by the nature of their business and the big potential bank failures. As autoregulation has shown its limits, public intervention is needed. Pricing, security and data were the main areas addressed by European financial regulators in 2018.

• How to restore confidence in an industry which has shown its weaknesses to all its stakeholders across the world? Implemented in 2018, the General Data Protection Regulation (GDPR) aims to protect the data and privacy of individuals in the European area.

• The European Union also came up with a legislative framework: Markets in Financial Instruments Directive (MiFID II). It aims to bring more transparency on prices before trading operations in order to regulate the European financial market and to improve the protection of investors. The 70 000 pages of rules are expected to cost more than 2 billion euros to the European financial market for compliance.

• Other regulations have also triggered an arm wrestling between regulators, banks and fintechs. The Payment Services Directive (DSP2) aims at reinforcing the security of the remote payment and grants access to service providers. The DSP2 struggle showed the core difference between the retail banks’ traditional system and the collaborative set of mind of Fintechs. It seems that those regulations are bringing back the trust of customers as 64% of French customers trust their banks. However, according to recent surveys of customers only see their bank advisor twice a year. French customers needs have changed. So, what are the new banking services expected by French customers?

The bank sector is no exception while dealing with a drastic change in customers’ habits. According to a survey, 61% of European customers want to have a 24/7 and real-time access to their account information. The majority of French customers use 2 or 3 channels depending on their needs. An interesting point is that 69% of French customers use the internet for easy operations while only 12% of customers would go to an agency. But in the case of a complex operation, 43% would reach an agency.

Customers are now expecting fast and highly personalized services which were formerly dedicated to wealthy clients of private banks. Of course at a lower cost.

The digitalization of the customer experience is expected to expand with the youngest generations, which should lead to an automatization and an over-personalisation of the customer’s relationship. This explains the outburst of Fintechs which use technology to launch intuitive, convenient and legible banking and financial services.

Aware of the risk of a loss of share of markets, the retail banks have started to set digital actions to improve their performance by triggering two levers: cost and value.

While faced with a decrease in revenue the first reaction was to reduce the costs. Retail banking had a heavy system of distribution with numerous physical agencies. As stated above, customers won’t go to an agency for easy operations. The banks saw an opportunity to reduce their structural costs and developed mobile banking apps to take in charge the casual needs of customers. Retail banking also invested in automation. Manual or less valuable tasks were automated to free up time for the workforce and create operational efficiencies.

A recent study shows that the most competitive retail banks are those harnessing their cost/revenue ratio and being the most advanced in terms of digitalization. The top-performing banks reach income ratios 19% higher than the others. Except for the access and mobility, which are now acquired services, what are the true added value brought to customers?

In view of the competition of Fintechs, the hardship regulations and the drop of rate interest, using digital for cost is not enough. Digital can and must also be used to improve customers relationship by creating a better experience.

In this time and age, retail banks cannot only rely on internal pieces of information. They need to have a global vision of the customer: What does his family look like? What is his project? What is the next project? A holistic view can help retail banks anticipate the needs of the customers and propose personalized services.

With Salesforce Customer 360 solution, banks can have quick insights into the data they need to be customer centric, transparent and accountable. Leveraging Einstein Analytics and Einstein AI on top of such solutions, banking agents are enabled to be more proactive and relevant when engaging with their customers, offering the right products, to the right person at the right time.

Retail bankings are already mastering mobile apps, websites, call centers, and physical banks. But what about the rise of new channels and services? People are now using social marketplaces to sell and make peer to peer payment. While the GAFA’s are already proposing new offers to address this need, the retail banks appear to lag behind.

As customers are asking for more services and personalized advice, retail banks can enhance their customer experience across channels by developing an omnichannel strategy and leveraging connected objects or automated personal assistants. Salesforce platform empowers banking agents to quickly address these needs, offering the ability for banks to support and engage with their customers through any channel they may prefer, at any stage of the relationship.

Retail banks used to have a siloed organization. The organization was divided into several departments keeping their information and knowledge about customers for themselves. Banks soon realised that a collaboration between department is necessary to have a holistic vision of the customer and cope with their new needs. Client Relationship Manager software (CRM) such as Salesforce are designed especially to connect systems, channels, processes and teams around the customer’s information.

It’s no secret, fintechs are constantly improving their client knowledge and purchase decision triggers. Some have thus become key players in the domain of Artificial Intelligence and Blockchains. Two innovation sectors appealing to French retail banks as 57% of them are planning to invest in this domain, while it’s only 34% on a global scale.

The market is gradually witnessing a change of mind from most banks, which now consider the fintechs as a source of potential income rather than a threat. In 2017, 1 out of 2 banks has already attempted a collaboration with a Fintech. Going further, 31% of banks would consider including Fintech services in their offer. It would be a way to externalize R&D, therefore, pursuing the retail banks’ efforts to save time and reduce costs.

The retail banks have been leading their digital revolution since a couple of years with some successes. Digitizing for cost is a must to remain financially viable, and there are still opportunities to improve in this area. Leveraging new technologies such as Blockchain can certainly help banks both minimize costs and enhance their customer experience while increasing security. Data compliancy, smart contracts, rewards and loyalty programs are good examples where Blockchain can practically enable new and better solutions. Understanding the right use cases for this emerging technology is fundamental, this is the reason why many banks have already started investing in Blockchain projects.

Yet, digitizing for value is the key for long-term success. In addition to gaining a high retention of customers, it also helps to increase the lifetime revenue potential.

Retail banks must consider new actions that truly benefit customers and helps them gather information from all their financial apps. Salesforce has been investing in delivering tailored solutions for retail banks, enabling a rapid and powerful transformation, putting the customer at the center of every interaction and offering the services and personalization customers expect. See Salesforce customers stories for more details.

Written by: Albert Dupouy

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