Expectations about what banks should offer consumers is changing, but not all consumers want the same thing. As the role of banks in the community evolve, the pressure to personalise banking experiences and adapt to meet the diverse needs of consumers presents challenges for banks, but also opportunities to build stronger consumer relationships and increase competitive advantage. Success will depend on a bank’s ability to develop a flexible range of products and services, leverage diversified banking channels and continue to build and maintain trust.
Examples of what we are seeing
Globally, there are two clear trends. First, consumers continue to shift towards favouring more convenient and frictionless digital banking methods. This has seen the rapid proliferation of digital banking apps, calculators, cardless cash and online chat tools, and the establishment of digital banks more broadly. And second, consumers are increasingly looking to their banks to provide a broader banking experience, which stretches beyond traditional banking services to financial literacy and education, insurance, financial advice and even purchasing cars.
To adapt to this trend, banks are partnering with non-banking industries to provide wider and more integrated services. This trend represents a return by banks to the original traditional community banking model of acting as a trusted adviser to consumers for all their needs, albeit now with a national, global, and digitally-enabled offering. The broader the range of services banks provide to their customers, the more data banks will be able to collect on customer habits and preferences, which in turn means that banks will be more equipped to personalise their offerings.
In Australia, one major bank offers consumers the ability to purchase a car, obtain finance and access links to insurance, all from the one platform. Another major Australian bank provides cashback offers on a range of non-banking services, such as groceries, dining and travel. Late last year, the Reserve Bank of India’s Deputy Governor, Swaminathan Janakiraman, predicted that banking may cease to be a separate service, with the current form of business segmentation likely to give way to ‘customer preferences-based verticals’.
Hong Kong has also seen public-private partnerships between banks and technology incubators where banks offer customised banking services, funding and investment opportunities, training, market insights, and access to mentorship, coaching and networking to tech startups and companies that are members of the incubators. The banks also collaborate with the tech startups and companies to co-create innovative fintech solutions for adoption within their banking businesses.
While these trends are undeniable, there continues to be a demand for access to traditional in-person banking services. Human connection remains important from a trust and accessibility perspective, but also as a means of recognising and protecting against financial abuse. In Australia, members of the Australian Banking Association have partnered with Australia Post to create Bank@Post, an alternative to in-branch banking, which allows consumers to make deposits, withdrawals and balance enquiries at their local post office. Similarly, in Indonesia, banks and digital payment companies are leveraging the network of convenience stores by allowing their customers to withdraw cash at the stores’ cashier counters.
These trends have been driven by a realisation that a standardised banking experience may no longer be a competitive value proposition, particularly in a sector where consumers have increased agency and mobility and can readily switch banks and access products and services through a digital channel with minimal friction. Lower margins have also meant that it is not effective or sustainable to compete on cost alone.
The response from banks has been to deliver more holistic and personalised consumer experience.
Personalisation naturally provides an opportunity for banks to provide, or facilitate the provision of, personalised financial advice. Globally, governments have spent the last few decades introducing increasingly stringent consumer protections to regulate the provision of personalised advice. But with ongoing accessibility and cost barriers, law reform is now pivoting to deregulate and simplify advice requirements, which provides banks (and other financial institutions) greater flexibility and opportunity to deliver personalised advice to consumers. In both Australia and the UK, lawmakers are considering options to deregulate “scaled”, “simple” or “targeted” advice from the more stringent consumer protection regime that currently applies to personalised advice.
Key opportunities – Using digital advice as an example
Reforms to deregulate financial advice requirements present a key opportunity for banks to adapt to evolving consumer needs. As banks look to facilitate a broader offering beyond traditional products, there is growing recognition that recommendations made to consumers need to be personalised in order to deliver an effective consumer experience.
Changes to the regulatory regime for financial advice is one strand of the many opportunities that banks will need to draw together to produce a wider, more integrated, and personalised consumer experience. A personalised experience increasingly involves the utilisation of mobile banking technology, access to customer data and artificial intelligence (AI) to deliver tailored services.
However, banks will need to win and maintain consumer trust in new services. Research conducted by us last year, and explored in the Global Bank Review 2023: Trust Matters, indicated that only 20% of UK consumers have a high level of faith in AI systems and there is a question as to whether consumers want to receive fully digital financial advice. Trust associated with human interactions remains an integral aspect in markets globally, which has seen a lukewarm response to the introduction of digital advice tools in Europe, the UK and Australia.
Offering broader and more personalised services also requires banks to collect and use more consumer data in a broader range of circumstances, which continues to present challenges from a privacy and information security perspective – as well as from a consumer expectation perspective. This can create tension between the desire to bring new initiatives to market and consumer preferences for the disclosure and use of their data to be limited. Banks are also now a key target for cyber-attacks, with the value of consumer data and analytics continuing to increase. Moreover, the collection of more data for banks, their distribution partners and their technology suppliers to provide personalised services can increase information security exposures for the bank. This has led to greater prudential regulation globally of supply chain, operational and information security risks in the banking sector – demonstrating the dual challenge for banks as they adapt to evolving consumer demands against a backdrop of changing regulation.
While deregulation will create opportunities for personalised financial advice to be provided in less tightly controlled conditions, other constraints such as technology limitations, information security challenges, privacy restrictions and customer appetite to embrace non-traditional delivery formats will need to be addressed.
Successful implementation will require establishment of effective governance arrangements and quality control across a number of regulatory regimes, as well as frameworks to ensure clear disclosure to consumers about the nature of the service they will receive.
Banks are also recognising the need to assess the impact of technological advancement (particularly in AI) and changing consumer preferences on manpower management and reskilling. The Hong Kong Monetary Authority encourages the banking industry to proactively plan ahead and is embarking on research studies in collaboration with the industry to examine the extent of AI’s impact on job roles and assess the future talent and skill requirements of the banking industry in the context of global financial and technological trends.
To deliver on a compelling holistic and personalised banking experience, banks will need to capitalise on multiple emerging trends in the sector – touching on data, digital technology, distribution partnerships, AI and the deregulation of financial advice. This would by itself be a challenging prospect for any bank, but it also needs to be managed with the sensitivities around usage and security of consumer data, privacy and protection from scams.
How we can help you protect your interests
Prolegis LLC successfully acted for PIMD in obtaining valid service of Singapore court process through the HSC and resisting the application to set aside the service in the above proceedings. As the Formal Law Alliance partner of Herbert Smith Freehills in Singapore, Prolegis LLC is uniquely positioned to assist you in these matters with our access to a wider network of international offices, which allows us to provide comprehensive advice on cross-border litigation and disputes in the Singapore courts.
To find out more about protecting your interests and our disputes capabilities, please contact Chee Hian Kwah below or your usual Herbert Smith Freehills Prolegis contact.
Prolegis LLC and Herbert Smith Freehills LLP (www.herbertsmithfreehills.com) are members of a Formal Law Alliance in Singapore marketed as Herbert Smith Freehills Prolegis (https://www.herbertsmithfreehills.com/content/herbert-smith-freehills-prolegis).
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