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The financial services industry was already undergoing a significant period of transformation and there is no doubt that the ongoing pandemic has accelerated some of the trends that were already playing out. COVID-19 has touched every person, every industry and almost every aspect of our daily lives and we have all experienced - and continue to experience - something that most of us could never have predicted or planned for.
Financial services providers have shown incredible flexibility during these difficult times and have worked hard to pivot their organisations in order to maintain access to services for their customers. But what’s next for the industry and how do we ensure that consumers remain at the heart of future transformation – providing choice, flexibility and crucially inclusive banking services for all?
Conserving cash and digesting digital
Today’s consumers have more choice than ever when it comes to how they bank and what payment methods they use. I’m personally an advocate of an increasingly digital financial services space and am excited to see how technology is shaping ongoing transformations. I use digital banking and digital payment methods on a regular basis, but for me - and millions of others – there will always be a need for physical banking services and access to physical payment methods such as cash.
Cash has been widely debated over the past few years but we are seeing that in many cases it remains the currency of the people and still rules in many countries - even where there are high levels of digital adoption. Many people use cash on a daily basis for a variety of reasons, for example for convenience, to control and budget their spending, they prefer the security of physical notes, or simply because they want the choice of different payment methods at different times.
The importance of maintaining a cash distribution ecosystem in every country is vital to support this choice, but also to support financial inclusion - ensuring each and every person has access to payment options, including those who cannot use or do not want to use digital services.
In many countries we are seeing the government step in to ensure that banking and cash remains accessible to all, both now and for the future. For example, in the UK the Access to Cash Review was introduced to protect cash services for consumers. In Egypt we have seen an initiative from the Central Bank of Egypt to install thousands of additional ATMs to ensure convenient, local banking services and support financial inclusion. Even in cash light countries like Sweden, cash is seeing a renaissance with new legislation mandating larger banks to provide adequate levels of cash services.
Could a shared banking network help?
Whilst maintaining access to services and driving financial inclusion should be two cornerstones of any bank’s future strategy, we are also seeing the impact of another element – cost reduction. There is increasing pressure for banks across the globe to update legacy platforms, drive costs out of the business and reach new levels of operational efficiency.
This cost focused pressure is adding additional complexity to transformation plans and is often at loggerheads with an equally important strategic priority - customer experience. With this in mind, financial service providers are considering new ways of working and an openness to completely new banking approaches. An example of this is shared banking networks – whether that is shared cash networks, shared branches or shared self-service networks through ‘utility models’.
Across Europe, and indeed further afield, many branch networks are being rationalised, closed or re-formatted as banks look to optimise their physical points of presence. Where branches are being closed, effective ‘leave behind’ strategies are being considered by both banks and government bodies in order to maintain the commitment to consumers for access to services for all. This is where we are seeing some shared utility models come into play.
In some Northern European countries, utility companies are being used to operate and manage self-service networks. In some cases, these utility companies are owned or funded by the banks and in other cases, by independent companies. They of course must be financially viable to stand alone, but they play an essential role in maintaining physical banking services for the public in convenient locations. For example, some of the Nordic operating models are often referenced as a ‘future blueprint’ for retail banking.
Many countries and organisations are also looking at end-to-end models which include cash management and distribution. In these scenarios the operating utility could offer the physical location agreement, self-service equipment and associated services, cash supply and deposit services, as well as the integration with digital services. With today’s technology consumers can (and already do) have access to a full range of services through the self-service channel in this way, from opening a bank account or instantly printing a card, to speaking with an advisor via an interactive video.
Supporting the balance between customer experience and efficiency, such shared utility setups can re-model the cost of the self-service channel for banks, whilst allowing control over choice of locations, points of presence and individual customer propositions. Banks achieve ‘bank ubiquity’ by means of their own on-screen branding facilitated by software, which appears when their customers use the self-service devices. The bank is able to retain its competitive differentiators and continue to offer services in the way it wants to for both existing customers and new customers - but overall operating costs are reduced.
So what’s next?
All banks must continue to adapt and change to remain relevant and to survive. Consumer demand shows us that offering both digital and physical services, in an integrated way, is vital to success. As competition intensifies and operational efficiency rises up the list of strategic priorities, a new way of thinking is coming to the fore, and new banking models are supporting the leaps in industry progression. Innovation and collaboration is happening at every touchpoint - taking the concept of banking to new levels. Let’s watch this exciting space.
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