Are we losing the human element in banking?

A case for more human banking?

With the rise in robotics and automation and the continued reduction in branches the near term outlook is for financial institutions to move further away from “the human element” in banking. We typically want to be able to access financial solutions with ease, for our money to be safe and secure, and for our interactions to be frictionless and right first time, and technology can help to achieve these objectives but not necessarily where this also means we lose human interaction and empathy. Although different generations have a different view on how important these human interactions are, generally we want banks to demonstrate mutual commitment, dedication, trust and ideally a commitment to innovation; most importantly, we look for a bank that is transparent, fair, and gives us the benefit of the doubt while helping us make the best use of our money.

What does the human bank mean for retail banks?

Driven by regulation and customer demand, retail banks have reviewed their propositions and business models, seeking to improve the way they do business with clients. This has included:

• Simplifying pricing structures, ensuring they are clearly articulated and removing hidden charges
• Ensuring all customers, new, existing, affluent or not, are treated fairly and equally
• Ensuring their products and services are based on genuine client needs, and changing the incentives for staff to move away from a “sales push” approach

There are many examples of where retail banks have invested in innovation to personalise the technology itself to provide a more “human touch”.  BBVA, for example, launched Lola, a virtual personal assistant and others such as La Caixa, have used technology to make customer ATM interactions easier and more secure through use of biometric recognition units and a contactless card reader that can be used not only with cards, but also with mobile phones and wearable devices.

Moreover the last couple of years has seen the launch of mobile-only challenger banks in the UK, such as Atom, which offer face and voice recognition and 24/7 support via its app.  Similarly, European banks have taken the desire to improve their customers’ experiences a step further, investing in innovation and FinTechs to launch solutions which have been developed with the customer needs in mind.

What lessons could be applied to Commercial & Corporate businesses?

Commercial and corporate customers have similar needs.  Whilst the products and solutions they use are more complex, the basic principles behind their needs are similar; they want banks to understand their business, to empathise with them at a corporate and personal level and to provide an outstanding level of service.

Consistency and transparency of service and pricing is critical, but corporate clients can need this service on a global rather than a local scale. Corporates would like to see more human traits in their interactions with banks, such as mutual commitment and reciprocity, particularly with regards to understanding the financial stability of their banks. Banks manage their risks, capital, and liquidity requirements, and through their KYC and credit processes, require corporates to demonstrate their financial stability. But increasingly it’s a two way street, as corporates wish to understand their bank’s strengths – or vulnerabilities – in a number of domains: financial risk, liquidity, capital, portfolio concentration, and cyber-risk.

Just as retail customers seek the help of banks to help them make the most of their money, businesses look for the same from their strategic partners.  In a rush to easy access and the feel of customisation, and anytime, anywhere banking, are we losing touch of the value of relationships in banking? Within Transaction Banks, understanding a corporate treasurer’s needs through relationship management used to be a differentiator, but is there a chance that this is now being diluted, meaning relationships are reduced to how cheap lending is provided and who can offer the lowest possible price for a basket of services?

So how is there still a case for the human bank?

Understanding the customer (client) is as important as it has ever been, and retaining the personal and human touch is critical to this. There are a number of avenues that banks can consider in the quest to become more “human”, from short term “people”-related initiatives to more complex, longer term technology initiatives.

1. Innovate!

Embracing technology innovation should facilitate the re-emergence of the human bank by freeing up capacity, and enabling employees to spend more time in front of customers adding value, rather than focussing on administrative burdens.  It also allows the decluttering of infrastructure and improved efficiency, which in turn reduces maintenance costs and boosts the return on equity.  But there are a number of barriers, including cost, regulation, and competition, that need to be overcome to enable banks to focus greater investment on their customer propositions. Developments around Blockchain and Distributed Ledger Technology could certainly address some of these challenges, helping banks focus on what really differentiates whilst ensuring resilience of service and a manageable cost base.

2. Big data + high quality staff = better understanding of customers + personalised touch

Critical to providing the human touch is developing a real understanding of your customers and their needs.  Banks must be able to recognise the variety of needs across different customers – even within the same customer segment – and be able to act on that understanding. Building and retaining the right relationship team is critical and if you combine this with real insight through effective mining of data, you can have a strong proposition as this data, if analysed, could help to identify customer preferences, behaviours, and risk profiles and to act on them.  For example, the German bank, Fidor, uses social media to better assess its customers more holistically and to tailor its offers and Terms & Conditions appropriately. But you need both the capable personnel and effective data to make this work, there are many examples out there where having one without the other has not worked.

3. It’s all about Trust

Banks, to continue to differentiate in an increasingly competitive market, should be more than a transactional provider of products – a two-way relationship with clients is far more human and far more likely to benefit both parties. In practice this could mean:

• Proactively communicating with customers to help them understand challenges that the banking industry is facing, the likely impacts on banks, and potentially adverse impacts that the customer may face in future
• Proactively building customer intimacy to understand the challenges and shifts that their customers are facing, and identifying how the bank could help
• Encouraging customers, particularly SMEs, to reach out to the banks before they have a financial need, to enable the bank to gain an understanding of their business before an eleventh-hour funding decision is needed

Through their industry exposure and market experience, banks have a wealth of knowledge and insight that they can use to inform and influence their clients.  They need to be able to recognise key customer characteristics early on and develop their understanding of how those customers might become more sophisticated over time, and to use these characteristics to identify where additional advice and insight could be provided, over and above transactions. Similarly, they could use this knowledge to help customers think strategically, and to solicit advice from potential partners.

The idea of a “human bank” seems simple, but the past few years have proved that it is difficult to get right, especially in institutions where the infrastructure is complex, practices are well established and the costs of providing the necessary skilled staff and infrastructure prohibitive and that’s before you factor in the process and technical controls required to satisfy regulators. A compelling proposition is one that retains this personal touch, whilst reaping the benefits of Blockchain, DLT, standard API’s etc… and banks that continue to appreciate and invest in maintaining this balance – the personal and the technological – will continue to thrive in this ever more competitive landscape.