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  • 25 March 2021 17:00

World Retail Banking Report 2021: To create new value, banks can adopt Banking-as-a-Service to embed finance in consumer lifestyles

Retail banks are facing a choice between aligning their offerings to customer expectations or running the risk of losing those customers altogether, says the World Retail Banking Report 2021 (WRBR) published today by Capgemini and Efma. As the economic fallout of COVID-19 continues, post-pandemic disruption has ignited a new era of value-based customer-centric banking, which the report refers to as Banking 4.X. To succeed in Banking 4.X, banks must embrace digital transformation and implement cloud-based Banking-as-a-Service (BaaS)[1] platform models, which utilise APIs[2] to embed banking in everyday life, making it more accessible and inclusive for banking customers.

Retail banks are facing a choice between aligning their offerings to customer expectations or running the risk of losing those customers altogether, says the World Retail Banking Report 2021 (WRBR) published today by Capgemini and Efma. As the economic fallout of COVID-19 continues, post-pandemic disruption has ignited a new era of value-based customer-centric banking, which the report refers to as Banking 4.X. To succeed in Banking 4.X, banks must embrace digital transformation and implement cloud-based Banking-as-a-Service (BaaS)[1] platform models, which utilise APIs[2] to embed banking in everyday life, making it more accessible and inclusive for banking customers.

Over the last 10 years, neo-[3] and challenger-banks have attracted more than 39 million customers. The report finds that currently, 81% of consumers said easy access and flexible banking would motivate them to switch to a new-age financial provider in lieu of their traditional bank.

Meanwhile, many traditional banks seek to retain and grow their customer base and have already embarked on their digitalisation and costs optimisation journey, as the COVID-19 pandemic forced them to substantially accelerate their efforts. In addition, retail banking customers faced with pandemic-driven realities now expect on-demand, fully digitalised experiences, hyper-personalised services, and around-the-clock assistance. However, of those surveyed, 46% of bank executives say they are unsure how to embrace open banking, orchestrate ecosystems, and become a truly data-driven organisation. These actions are essential components of the new way of doing banking, identified by Capgemini as Banking 4.X[4].

“There is an urgency for banks to transform, embrace disruption, and align priorities to focus on relevance and resilience. By overcoming legacy mindsets and adopting Banking-as-a-Service, financial institutions will move beyond their core products to create new offerings to align to consumer lifestyles and provide their customers with personalised experiences,” said Vasant Gore, Vice President & Head of FS Domain Practices, Capgemini Australia & New Zealand. “Australian customers are demanding an optimum channel experience, and banks must focus on how they can add value to their customers to retain and better engage them through platformification and by leveraging the power of data.”

Platformification defines a new era for the industry Incumbent banks can unlock new value in open ecosystems via BaaS platforms, which offer access to new data sources and monetisation opportunities. Banks need to quickly turn to experience-driven, platform-based approaches, which embed banking and other services within consumer lifestyles. On a positive note, 66% of banks claim to already use a BaaS platform, while 25% are in the process of developing one.

Incumbents have several strengths in their business they can easily monetise (e.g., reporting, knowledge of the customer, licensing, transaction processing, connectivity to global schemes, etc.). They can also tap into an array of external providers to improve their offering and best cater to consumer demand for a more integrated and personalised experience. Traditional banks have recognised that accessing the capabilities of their wider ecosystem is at the heart of their new journey, and 80% of banking executives said BaaS will help them cultivate open ecosystem synergies to innovate and create new banking products and services. This will enable banks to bridge the gap between where they sit today and meeting tomorrow’s customer expectations, which will be magnified in the Banking 4.X era. This new way of doing banking will also allow banks to become more inclusive in onboarding the unbanked and underbanked segments of the population through on-demand, digital, and easier-to-use channels.

“Banking and non-banking firms have the opportunity to come together and empower better customer service,” says John Berry, CEO of Efma. “These strategic partnerships enable new, creative offerings that reflect customers’ lifestyle, needs, wants, and even personalities. Banks should focus on improving support, reducing the costs of banking products and services, and offering sustainability initiatives. The future of banking relies on a strong digital foundation and a flexible attitude toward embracing innovation.”

Data-driven approach will prioritise hyper-personalisation and secure long-term growth As banking is entering an era where financial services are embedded into customers’ daily lives, the collaboration will be the route to success. BaaS offers unprecedented opportunities to gather data through ecosystems, with more than 86% of consumers saying they would share their data to gain a better, more personalised experience. Incumbents need to build digital capabilities to harvest these data ecosystems to create, retain, and increase value in the Banking 4.X era. Leading banks will keep customers at the heart of their transformation journey by tracking behaviours and sentiment through smart data analytics.

Banks, however, need to act quickly. Capgemini and Efma’s report found that 61% of firms lack a dedicated customer experience (CX) management team to define customer roadmaps. Banks can drastically improve their customer experience by deploying a digital CX layer and reimagining branches as experience centres, to offer consistent and secure omni-channel experience across all touchpoints.

Report Methodology

The World Retail Banking Report 2021 draws on insights from two primary sources – the Global Retail Banking Voice of the Customer Survey 2021, and the Retail Banking Executive Surveys and Interviews 2021. The report includes insights from 23 markets, over 8,500 banking customers and over 130 senior executives of leading banks and non-banking firms across regions. To view the report findings animated video, click here. For more information, please visit www.worldretailbankingreport.com.

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