Categories: Bank Regulation

Rebundling The Unbundled Bank

Bank profits are up. Consumers are shifting, en masse, to mobile devices and home speakers as conduits used in their daily financial lives. However, as in so many other areas of life: For the traditional financial institutions, (FIs), things could be better.

That’s a bit tongue in cheek, of course, but only a bit. The fact remains that FinTech upstarts are making strides, and any number of tech juggernauts from Apple to Amazon are nibbling around the edges of financial services. Oh, and data? It’s growing exponentially and must be housed, managed and contained in ways that will keep things kosher under the watchful gaze of regulators.

In the latest Topic TBD, National FS Strategy and Transformation Leader Mitch Siegel at KPMG told Karen Webster that, by and large, too many firms have spent too much time and money on Big Data initiatives — aimed at the consumer experience and on compliance — that have not delivered results. That’s especially true on the regulatory side.

When it comes time to addressing consumers’ needs, the executive said, the roadmap is there, within the FI and from other far-flung fields.

“The companies that have created the best experiences ... that sort of becomes our expectation of everything,” he said. “And so, when we have a great community feel at a coffee shop or we have a really digital experience in our transportation, we expect our banking to be very much like that.”

The Unbundling Effect

FinTech, by dint of small, nimble firms that have specific focal points say, financial planning, peer-to-peer (P2P) transactions, or loans has been able to unbundle a little bit of the bank's value chain, so that the customers use bits and pieces of many different apps as they wend their way through their daily financial lives.

Unbundling, said Siegel, “has created a lot of friction because, as consumers, we're in so many different places using so many apps that it's gotten a little bit confusing. We [at KPMG] call that digital fragmentation — and there's a move to kind of rebundle and simplify.”

Thus, rebundling looms large for FIs. The executive noted that the banks have lagged across several areas of digital capabilities — even now, they are coming up to speed. The banks are partnering or acquiring at a heady pace and deploying technologies, like AI and cognitive, to bring those services to a brand that feels seamless. That's no easy task when as much as 60 percent of the data that is needed to deliver this seamless experience lives outside the banks’ four walls.

When one thinks about the data the banks have, that's really valuable as it's mostly transactional, said Siegel. But if they think about the way consumers are moving through their own journey, just the way they shop and spend in commerce (and online and offline), some of that data based in the transaction but some is not.

“When we look at things like how consumers spend the money, there's a whole host of data sources that don't necessarily sit within the walls of a bank and some of it is actually free,” he said.

As examples, he cited census data and even data tied to crime, where pickpockets coalesce over where people need to go and spend cash.

“The challenge for FIs is how do you bring it into the mix and combine it with the transaction data that we do have, rationalize it and generate insights that you can then use operationally?” he told Webster.

In the midst of rebundling, FIs need to be conscious of what consumers want from the journey. Getting a mortgage, for instance, is not only the actual process of buying a house. It encompasses the life journey of medical expenses, getting married or planning a vacation.

“Those types of life events become really important to solidify great experiences,” said Siegel. “We actually believe that the financial services institutions are in a really great place to be a sort of driver and facilitator for those types of goal-based planning events.”

The Four Principles

Several guiding principles are at play here. The first, he said, is “make it simple.” Consumers do not want to navigate through 12 to 14 apps and the landscape of digital fragmentation. Such splintering is just too hard to keep track of anymore.

There’s also the concept of knowing a customer (KYC) — if there’s already a relationship in place, don’t inundate the customer with flyers for things they do not need anymore, said Siegel.

Next, there is the concept of “value me,” where the firm helps them reach financial goals.

Then, there is the concept of “protect me, he said. Data security is paramount, but it is table stakes — a must-have amid the competitive landscape. The fact remains that customers really do prefer to have their financial matters handled by their banks.

Here’s Where The Consumer Fits In (They Don’t Like Creepiness)

The relationship is two-sided, of course. The consumer must contribute some information, yet the FIs must be careful to avoid a “creepiness factor” that takes shape when a consumer gives access to that same information. Of course, we live in an age where the end user must opt in to the data being used. The terms and conditions, Siegel stated, allow companies to have access to the consumer’s social media and other aspects of their lives.

As he noted, “The question becomes: When is it convenient versus when does it become an overstep? Most of us are willing to put up with a little of that creepiness factor, in that the banks know a lot about me, if it’s really helpful to us and it saves a lot of time. And that is really the fine line that a lot of [FIs] are trying to find.”

What’s holding FIs back from that fine line and competing against tech-heavy upstarts? Webster asked if it is a process issue or an infrastructure issue. Progress has been substantial over the years, he said. But where speed and agility are necessary, innovation needs to be kind of a separately funded type of initiative within the firm. Innovation is where things happen in small bits and spurts, and “it seems like they're happening gradually, but then they happen very suddenly. And so, [you’ve] really got to be able to fund those types of cycles.”

Siegel told Webster, “Right now, businesses are moving pretty fast on sort of the products side and they have a really great understanding of what the consumers desire and what those experiences need to look like … agility really needs to be end to end.”

He noted the legacy systems that are in place, but also that FIs have been able to overlay “veneers” over the far-flung systems and get digital experiences in place.

“For FIs,” said Siegel, “some of the challenges are really across the board. So, certainly, [the] process is difficult. So, one of the places where we see a breakdown in most organizations is somewhere there is a business challenge.”

This comes with acquiring or onboarding new customers. The challenge is translating data into insight, he said.

“It’s kind of in that translation or orchestration that we see banks struggling now,” he stated.

The businesses themselves are complex and often siloed. He noted that there are a lot of new roles in KPMG's client organizations that didn’t exist three or four years ago, chief transformation officer and chief digital officer among them.

Against all this, organizations need to learn to be agile, to test and operate at different speeds. Tools are needed to communicate across the silos, but there is a disparity of those tools, leading to less-than-effective communication. Firms that do think with agility will release a beta test of new products to employees, he said, by way of example.

Through it all, some advantages remain, he said: “You should be becoming more efficient as you're becoming more digital,” he said of FIs. “We see a lot of consumer trust in the system, and there's still a lot of capabilities and values that are placed in banks where we store our money.”

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