By Diederick van Thiel
The battle on the banking customer has become intense. Therefore, I researched the underlying competences that drive current and future success in banking. Since September 11th, 2020, I have written a series of 5 blogs that illuminate banks’ differentiation in cost/income strategy, customer experience strategy, innovative risk strategy and customer centric innovation strategy. To put it another way, to win in the current bizarre market and position well for the digital uncertain future, banks have to champion efficiency and effective digital customer engagement.
In my blogs, being read by more than 20.000 senior leaders & professionals, I unravel the performances of three competitive segments: commercial banks, Fintechs and Big Techs. Commercial banks are highly inefficient but nevertheless have profitable business models and large customer bases. Instead, Fintechs are highly efficient but often loss giving. They differentiate with high engaging customer experiences that offer interesting potential growth opportunities. Not to mention Big Tech, who are most efficient, profitable and engaging. However, consumer protection risks due to their big data play might limit their growth potential. Interestingly enough, also within these market segments we find fundamental differences in performance and growth potential. Looking at the strategic banking game to understand the competitors’ strategies better is what made us able to select the 2020 winner.
But before coming to the disclosure of the bank champion 2020, some remarks must be made to come to a decent understanding of the selection. In the light of the unprecedented pandemic, the G20 has come with leading principles to advance global pandemic preparedness, to jointly develop and distribute vaccines, to relief the debt burden of developing countries and to maintain income support in advance economies. However, principles alone are far from sufficient nowadays as bold, robust action is required to lead the world out of this crisis. The same complexity goes for competitors in the financial arena. They need strategically understand where to invest for future growth as well have the bravery to act on it now. Consequently, next to performance, action-oriented company culture that drives efficiency is a crucial element in the selection of the 2020 winner. Where Big Tech shows the most revenue, they most often are also most effective. Banks need to be circumspect as the impact of the financial crisis will only be seen in 2021 when government support programs will come to a hold, companies might go bankrupt and non-performing loans will accelerate.
In the context of the strategic battle between commercial banks, FinTechs and Big Techs another strategic difference can be found in customer obsessed digital competences. Digital champions will most probably win the hearts and minds of millennials and generation Z in the upcoming years. Consequently, winners are fundamentally customer obsessed. That is, they internalized digital value creation in everything. From their mission and DNA to the smallest actions. Moreover, they really master digitalization in their organizational models and are able to scale artificial intelligence and robotization across the company. On top of that, they are very ambitious in this respect and want to be world’s most customer centric company (Amazon), breath mobile interaction (Vodafone) or onboard new customers according to the 2 minutes application-1 second decisioning -0 manual labour in processes principles (Alibaba). Additionally, they drive boundary-bursting customer obsessed innovation from the very top of their companies. Comparatively, commercial banks are predominantly competitor- and product oriented and often lack an ambitious customer obsessed mission. Although they employ younger generations as well, their leaders are still most of the time old fashioned bankers that think and act in terms of information asymmetry and portfolio risk management rather than in terms of continuous customer value improvement.
Artificial intelligence, blockchain and big data form the ingredients for profitability in the next decade. As FinTechs and Big Techs fully embrace this, commercial banks often have difficulty scaling this to substantial profit drivers. C-level leaders in Fintech and Big Tech master scaling the business opportunities across their operating model in customer touchpoints, processes and risk decisioning.
Apple! Apple scales in the banking market with Apple Pay. A payment and digital wallet platform that provides Apple access to consumer payment data globally. It digitizes credit and debit card chip- or pin-transactions. Apple scales globally fast through an eco-system approach with credit card companies, banks and others. Looking at our 2020 champion benchmark, Apple also is the most efficient company in the benchmark with an overall cost/income ratio of 60% (including financial losses) on a revenue of $ 33 billion in the first half of the year, where the largest commercial banks like BNP Paribas and Credit Agricole are above 80% (including net credit losses) on a revenue of respectively € 23 billion and € 16.9 billion. Most of the larger FinTechs are still loss giving on a revenue base of a few hundred million. Moreover, Apple is customer obsessed which results in a NPS score of 47, although it doesn’t beat yet the Fintech “Lending club” with a NPS of 78. Amazon, which for a long time I considered the outsider, scores 25 on NPS and the commercial banks somewhere below 40. The Net promotor score is an important metric for customer engagement, but also for driving digital process innovation. Last, but definitely not least, Apple integrates its mission in a high action-oriented company culture. Apple’s mission is ‘to make the best products on earth, and to leave to world better than we found it’. Apple therefore now is quietly expanding its artificial intelligence eco-system with acquisition of companies that champion this. The overarching objective is to grow the iPhone sales by strengthening its services eco-system. Apple’s virtual assistant Siri is the leading entity in this and might, driven by all insights from Apple Pay and the other services, evolve in world’s leading financial assistant in a few years. I want to congratulate Apple by being elected as the 2020 Champion in banking!
This article has also been published on Finextra (30 November 2020).