Can banks compete with Amazon and Apple?

Author: Jerry Mulle

With consumer service level expectations being influenced by major brands, is it surprising that banks’ efforts are falling short of customers’ expectations?

The World Retail Banking Report is a comprehensive annual assessment of the state of retail banking around the world. This year’s report makes for sobering reading and it arrived around the same time as significant announcements from two outsiders, Amazon and Apple, that ought to give retail bankers pause for thought.

The World Retail Banking Report

The report, based on in-depth interviews and surveys of over 16,000 customers across 32 countries, states that customer experience levels in retail banking have stagnated over the last two years.

That might not sound too bad, after all things didn’t get any worse, but the last two years has been a time when banks have put huge energy and investment in to improving their digital offerings.

The global customer experience rating is an average of retail bank performance around the world and not every region is stagnating—some are improving whilst others slip back. The region that fared least well was Western Europe:

“Eight of the ten countries with the highest increases in negative customer experience levels were in Western Europe; five of them posted negative experience increases of more than 10 percentage points.”

The report states baldly that “Bank’s efforts to provide enhanced services are falling short of customers’ desires and expectations”.

Meeting the demand for a digital customer experience

One of the problems for banks is that when it comes to customer experience they aren’t just competing with each other, they are trying make an impression on people whose expectations of customer experience are set by the technology and media industries.

As you might expect then, banks’ inability to provide a compelling customer experience is felt most keenly by the much-coveted Millennials.

“Across all regions, Gen Y customers registered lower customer experience levels than customers of other ages, reflecting the high expectations Gen Ys have of banks’ digital capabilities.”

The bottom line is that banks are failing to get customers to do things that will help them increase revenues and decrease costs. Customers indicated that they were less likely to purchase additional products, less likely to refer new customers to their bank and more likely to leave their bank within the next six months.

Meanwhile, whilst retail banking in Europe struggles to meet the digital demands of modern users to technology giants have been flexing their muscles.

ApplePay and Amazon Lending

At the end of June Amazon announced that its Amazon Lending arm would no longer be confined to the USA and Japan. Later this year it will start to offer short-term loans in a number of other markets including some major Western European economics.

The online retail giant will offer loans of up to $600,000 to specially selected vendors who will be invited to join the scheme in its UK, German, French, Italian and Spanish Amazon Marketplaces.

Amazon plans to leverage its own customer data to decide which vendors it will lend to (an arrangement that Amazon says leads to “great loan decisions”) and will deduct loan repayments directly from its sellers’ sales proceeds.

Amazon is not alone in this either; other Internet giants like eBay and Alibaba are also planning to offer credit to organisations that sell through their 3rd party marketplaces.

It’s a sure sign of things to come and shows how large technology companies can leverage their balance sheets, digital expertise and vast customer databases to create new revenue streams at the expense of traditional financial services companies.

Amazon’s announcement came hot on the heels of the arrival of ApplePay in the UK.

Contactless payment systems and the virtual wallet

ApplePay is a contactless payment system and virtual wallet that’s built in to the Apple’s various phone, tablet and watch platforms. It’s designed to make in-app and real world payments easy and secure.

Apple is partnering with a number of high street banks to ensure that the product is seen as a digital replacement for physical cards.

Banks will surely benefit, in the short term at least, from their relationship with ApplePay but Apple will benefit enormously too.

Apple are making itself part of the payment process and turning traditional banks and credit card companies in to service providers. The Apple brand will be first and foremost.

Right now ApplePay gains credibility from brands like MasterCard, Barclaycard and MBNA but how long will it be before the roles are reversed? Ultimately Apple will be able to leverage its own brand to bootstrap new products and providers into ApplePay, perhaps even its own.

A speaker at a recent conference on Bitcoin was heard to say that the crypto-currency, a currency that operates entirely outside the current banking infrastructure, will go mainstream when users no longer need to understand what a private key is. I agree – and I wouldn’t bet against Apple being the company who can pull that off.

Banks need to become technology companies

Apple and Amazon aren’t replacements for banks, and they probably aren’t planning to be either, but they have the brands, balance sheets and expertise to take profitable slices of business away from established retail banks.

As banks turn in to digital businesses they will increasingly find themselves resembling, and competing with, established technology companies. Banks that can’t protect the most profitable parts of their businesses with excellent customer experiences risk losing them to unfamiliar competitors who can.

Image © ldprod, Fotolia

03 Aug 2015

Author: Jerry Mulle

With consumer service level expectations being influenced by major brands, is it surprising that banks’ efforts are falling short of customers’ expectations?

The World Retail Banking Report is a comprehensive annual assessment of the state of retail banking around the world. This year’s report makes for sobering reading and it arrived around the same time as significant announcements from two outsiders, Amazon and Apple, that ought to give retail bankers pause for thought.

The World Retail Banking Report

The report, based on in-depth interviews and surveys of over 16,000 customers across 32 countries, states that customer experience levels in retail banking have stagnated over the last two years.

That might not sound too bad, after all things didn’t get any worse, but the last two years has been a time when banks have put huge energy and investment in to improving their digital offerings.

The global customer experience rating is an average of retail bank performance around the world and not every region is stagnating—some are improving whilst others slip back. The region that fared least well was Western Europe:

“Eight of the ten countries with the highest increases in negative customer experience levels were in Western Europe; five of them posted negative experience increases of more than 10 percentage points.”

The report states baldly that “Bank’s efforts to provide enhanced services are falling short of customers’ desires and expectations”.

Meeting the demand for a digital customer experience

One of the problems for banks is that when it comes to customer experience they aren’t just competing with each other, they are trying make an impression on people whose expectations of customer experience are set by the technology and media industries.

As you might expect then, banks’ inability to provide a compelling customer experience is felt most keenly by the much-coveted Millennials.

“Across all regions, Gen Y customers registered lower customer experience levels than customers of other ages, reflecting the high expectations Gen Ys have of banks’ digital capabilities.”

The bottom line is that banks are failing to get customers to do things that will help them increase revenues and decrease costs. Customers indicated that they were less likely to purchase additional products, less likely to refer new customers to their bank and more likely to leave their bank within the next six months.

Meanwhile, whilst retail banking in Europe struggles to meet the digital demands of modern users to technology giants have been flexing their muscles.

ApplePay and Amazon Lending

At the end of June Amazon announced that its Amazon Lending arm would no longer be confined to the USA and Japan. Later this year it will start to offer short-term loans in a number of other markets including some major Western European economics.

The online retail giant will offer loans of up to $600,000 to specially selected vendors who will be invited to join the scheme in its UK, German, French, Italian and Spanish Amazon Marketplaces.

Amazon plans to leverage its own customer data to decide which vendors it will lend to (an arrangement that Amazon says leads to “great loan decisions”) and will deduct loan repayments directly from its sellers’ sales proceeds.

Amazon is not alone in this either; other Internet giants like eBay and Alibaba are also planning to offer credit to organisations that sell through their 3rd party marketplaces.

It’s a sure sign of things to come and shows how large technology companies can leverage their balance sheets, digital expertise and vast customer databases to create new revenue streams at the expense of traditional financial services companies.

Amazon’s announcement came hot on the heels of the arrival of ApplePay in the UK.

Contactless payment systems and the virtual wallet

ApplePay is a contactless payment system and virtual wallet that’s built in to the Apple’s various phone, tablet and watch platforms. It’s designed to make in-app and real world payments easy and secure.

Apple is partnering with a number of high street banks to ensure that the product is seen as a digital replacement for physical cards.

Banks will surely benefit, in the short term at least, from their relationship with ApplePay but Apple will benefit enormously too.

Apple are making itself part of the payment process and turning traditional banks and credit card companies in to service providers. The Apple brand will be first and foremost.

Right now ApplePay gains credibility from brands like MasterCard, Barclaycard and MBNA but how long will it be before the roles are reversed? Ultimately Apple will be able to leverage its own brand to bootstrap new products and providers into ApplePay, perhaps even its own.

A speaker at a recent conference on Bitcoin was heard to say that the crypto-currency, a currency that operates entirely outside the current banking infrastructure, will go mainstream when users no longer need to understand what a private key is. I agree – and I wouldn’t bet against Apple being the company who can pull that off.

Banks need to become technology companies

Apple and Amazon aren’t replacements for banks, and they probably aren’t planning to be either, but they have the brands, balance sheets and expertise to take profitable slices of business away from established retail banks.

As banks turn in to digital businesses they will increasingly find themselves resembling, and competing with, established technology companies. Banks that can’t protect the most profitable parts of their businesses with excellent customer experiences risk losing them to unfamiliar competitors who can.

Image © ldprod, Fotolia