EXCLUSIVE: “See Me, Know Me” – Philipp Baecker, Bain & Company and Kunal Galav, Mambu in ‘The Paytech Magazine’
Consumers today want that ‘Netflix experience’. They want their products and services to know them and know what they want, before even they do, and payments are no different. The last few years have seen financial services revolutionised by mobile payments, embedded finance and, more recently, buy now, pay later (BNPL) services – a digital revolution only accelerated by the COVID-19 pandemic.
But simply providing a quick and efficient solution is no longer enough. “Now what customers are expecting is ‘how can you do something which is for me?’,” says Kunal Galav, who runs the advisory team for EMEA at Cloud banking platform Mambu.
“I don’t just want a credit card, I want a credit card that acknowledges who I am as a customer – treat me like you know me. So, what banks need is innovation around how products are offered to customers.”
Such personalisation, enabled by data, is becoming one of the key drivers for banks’ growth strategies, agrees Philipp Baecker, an expert partner in digital financial services and advanced analytics at management consultants Bain & Company. However, providers need to remain wary of putting technology ahead of the needs of the customer – and not just innovate for innovation’s sake. “I’ve spoken to many people from the industry and you get that quote that ‘we need to become technology-first, mobile-first, AI-first’. Which is all fine but, at the end of the day, it strikes me as a bit of innovation theatre,” he warns. “It’s very easy to get into a situation where you have a solution in search of a problem. But if you start with the customer, you can actually turn it around.”
So what, exactly, do customers want today? If the mile-long queues outside any Apple store at each of its latest tech launches are anything to go by, it’s the convenience of having the world in their pocket. They can surf the web, organise their affairs or see something they like and buy it, at the touch of a smartscreen – meaning banks face a competitive threat also from outside their own sector.
“I always use the analogy that, when a bank launches a credit card, there are no customers who line up on the street,” says Galav. “But when somebody launches a new iPhone, there’s always a line of customers. So, I think it’s about that connectivity, being closer to customers, and customer expectations are rapidly changing.”
Indeed, super-apps such as Alipay and WeChat are already leading the way in the payments revolution in places such as China and parts of Asia. E-wallet app Alipay also enables users to hail a taxi, get a credit card and buy insurance, while Tencent’s messaging app WeChat facilitates payments, gaming, ride-hailing, and more. In India, Paytm lets users do everything from paying bills to booking cinema tickets and investing in stocks.
Europe and the US may currently lack obvious equivalents, but are already seeing the rise of embedded finance, with major retailers such as IKEA and Amazon expanding into the payments space. Meanwhile, the BNPL market is thriving in its efforts to make achieving those hearts’ desires ever-easier through instant credit, with platforms such as Klarna and Clearpay leading the way.
Incumbents can do it, too!
Baecker would argue that banks and payments providers can address, and meet, this change in customer expectations by taking a shared legacy approach – using a combination of Cloud-native digital platforms alongside, or on top of, banks’ existing digital capabilities. They should also look beyond their own capabilities, to partnerships, in order to help them think outside the box. “It may seem obvious, but if youlook at many of the more successful technology businesses, a lot of the value creation actually comes from outside the firm,” says Baecker. “It’s about orchestrating different players and coming together, in the sense of delivering differentiated, customer-focussed products. “In banking, I think that’s the biggest mind shift. That you open yourself up to an open platform and become more agile in making those partnerships work. And they are no longer limited to financial services; it’s about branching out into other areas, too.”
Agility is vital from both a technological and customer experience point of view. Taking a shared legacy approach enables banks and other providers to use their current digital capabilities and plug in a new Cloud-native, Cloud-core platform – or digital product factory – meaning they can combine services without compromising customer experience.
Simplification is paramount when it comes to making such things work, even if it may initially seem counter-intuitive when apparently adding technology complexity to the system. In former days, the focus was largely on keeping systems lean and efficient, but that focus needs to change, says Baecker. “Nowadays, one needs to keep in mind the complexity you’re adding, or the technology you’re adding, and ask ‘does it make it easier for you to adapt to new customer needs?’. And if this is the case, you are actually simplifying – not necessarily in the sense of having a highly-efficient engine that does one thing very well, but you are building capabilities that are more valuable, because they are removing complexity around changing the system, adapting and bringing new products to market.”
Galav stresses, too, that any new changes should answer the questions that firms are trying to solve, and also not disturb the existing infrastructure.
To eliminate hurdles and ensure they don’t create new ones, he suggests organisations need to stick with current processes and have digital platforms aligned to their existing business model. Providers also need to be very specific about what kind of connectivity they need when building on legacy systems,
so that they don’t replace a monolithic backend with a monolithic middle layer, warns Baecker.
“You need to carefully think through what you actually need at this point. There are many things you can build on later, once you go to market and find out, for example, which specific customers are interested in a new product and what is critical for them,” he says. “While it’s likely they will eventually go for something that is fully integrated, that’s not necessarily what they always need on day one, when they go live with a minimum viable product (MVP). Exactly the opposite, in fact. Banks need to be very focussed when they think about integration.”
Flexible APIs that can be readily tweaked make connectivity easy, and this avoids unnecessary disruption to the customer experience. Chile’s BancoEstado, for example, is leveraging Mambu’s Cloud banking platform and a shared legacy approach to offer new and intuitive products and services to its 13 million customers. Amsterdam Trade Bank has also used Mambu’s platform to successfully pivot into digital lending to small and medium-sized businesses. After reinventing its business model under the new brand FIBR, it has also expanded into the UK and Germany. The effect on both banks of taking a shared legacy approach, explains Galav, is that they have been able to pivot their strategy and offer new products, because they are experimenting, rather than fundamentally changing their system. Echoing Baecker’s comments about innovation, he adds: “The principle to bear in mind is, it’s not a tech-for-tech problem; it’s a business problem, which is being solved in an efficient way, using technology.”
Maintaining a hybrid proposition also empowers customers to make a choice as to which channel they prefer, which is much more advantageous and scales – in some respects – a lot faster, as it’s easier to capitalise on the existing brand and create something truly customer-centric, says Baecker. While some users will greatly welcome the opportunity to pay for goods with their mobile, others still prefer the simplicity of using a debit card, for example. What’s key is it’s their choice.
Banking hasn’t changed much in the last 100 years – it’s still fundamentally about moving and borrowing money, and creating wealth. But what has changed is how customers interact with it, and the arrival of initiatives such as open banking means there is a lot more choice for consumers and a lot more data for providers to understand them. That enables better relationships to be built – something that is likely to prove vital as consumers expect an increasingly personalised, more intuitive banking service… much like the one they receive from their favourite streaming service.