Authored by Rahul Singh.
In 1994 Bill Gates said, “Banking is necessary. Banks are not.” Perhaps he was clairvoyant. But it is more likely that he had the opportunity to take a harder look at what banks do for customers – and what they ought to do – than most of us. While banks thought they were great at securing your money and investing it safely, in truth what you also sought was getting purchase recommendations based on your income; or travel advice along with that short term loan for a holiday to Turkey’s glittering TurquioseCoast; or a better way of viewing your household debt.
In these difficult times, with plunging incomes, household debt serves as a good example to see what banks could do on the back of digital to provide more relevant services—services that would also win the confidence of their customers.
Norway’s Sbanken is showing the way. Recently, the Financial Supervisory Authority of Norway noted the worrisomely high debt in the country and the impact of rising interest rates. Sbanken, now the largest independent online bank in the Nordics, understood the anxiety this would cause for its customers. It therefore created a new service that customers could use to view their total debt – all loans, mortgages, credit card dues, etc.—in one place. The service was created using its API platform to pull in the data.
Sbanken has made considerable progress with automation and mobile services. The bank’s annual report for 2017 spoke about the progress it had made using automation: “Automatically approved consumer loans and short-term credit products are immediately made available in the customer’s account…In 2017, approximately 90 per cent of approved mortgages and approximately 85 per cent of approved car loans were automatically approved. Around 65 per cent of mortgages were completely paperless, with customers using digital signature based on their BankID.”
With these simple initiatives Sbanken demonstrated an astute modern banking strategy: Build unique value propositions and relationships with the customer at every ‘point of trust’. By doing so, banks can offer services that go well beyond traditional banking. Customers will pay for them, new revenue streams will open and loyalty will improve.
A quick look at some of the top innovations in banking amplifies the trend of building `trust before transactions’. DenizBank in Turkey set a good example for this recently. In Turkey, where 10% of GDP comes from agriculture, the farming community is a bank’s prime target group. DenizBank serves them by issuing cards that don’t charge interest on purchases between the planting and the harvesting season, these being the most difficult months from a cash flow perspective.
Last year, DenizBank launched a mobile app that allows farmers to send pictures and videos of their crop to agricultural experts and ask questions. The app also delivers information on pricing, markets, weather and acts as a platform where farm equipment can be rented out (and acquired on rent), like an Uber for the agriculture industry. The app had 100,000 users in its first year—ample evidence to demonstrate that staying relevant pays dividends.
Banks need to stay relevant to their customers because their lives and needs are changing rapidly. They can do this by offering ways to transfer money faster and cheaper, allow simpler P2P payments, enable tax management, be available where it matters most (say within a social media platform or a chat application).
The ambition of banking leaders should be to offer Banking-as-a-Service (BaaS) to partners like Google, Facebook, Apple, Amazon and WhatsApp. BaaS may become inevitable as large technology companies –and even smaller corner-store businesses and mom-and-pop stores—get to know their customers better (than banks). Many of these businesses have powerful data stores on their customers. The data can be leveraged to deliver personalized and meaningful banking services – only, these businesses don’t have the required banking expertise that goes into understanding financial markets, regulatory environments and the models that dictate profitability in financial instruments. Within the next 15 years, by 2034, technology simplification will ensure that BaaS reaches a tipping point. Fintechs like SolarisBank and Fidor have already brought core banking platforms to the market—anyone can plug in and bring a new bank to life within weeks, without any previous banking expertise.
The world has changed. To continue to succeed, banks must combine their traditional knowledge and networks with those of fintech partners and build technology platforms that democratize banking. In a digital world, they must open their systems to partners, allowing new financial services to become available to their customers. If they don’t, someone else will.