Why are we asking the question of new revenue and service models for retail banking today?
Jean-Marc Breitwiller
Many factors explain the continued decline in retail banking’s net banking income over the past several years. First, economic and societal factors directly affect banking revenues through lower interest rates and regulations on banking fees. Furthermore, digitalization, with the development of customer self-care, and competition from fee-free online banks contributed to the commoditization of banking services and the questioning of how they are billed.
In a highly banked market like France, anere market shares between players are very stable, preserving revenues translates into two challenges for banks: on the one hand, restoring value to product universes affected by commoditization through the development of useful services for customers; on the other hand, continuing diversification into new universes by relying on their legitimate role with customers, as the pivot of the financial and daily relationship.
How to develop customer value?
Guillaume Teboul
Today, there’s a gap between the value perceived by the customer and what the bank charges. Customers feel they’re paying for basic, low-value-added products (account maintenance fees, intervention commissions, cards, etc.), while the bank ultimately places relatively little value on its value-added services (advice, expertise, trusted third parties, etc.).
Tomorrow, we must therefore seek to identify what is of value to the customer in their relationship with the bank to generate additional GNP. This work thus makes it possible to identify pillars of value linked to use (e.g.: security, proximity, simplicity, etc.) or to a more emotional value (coaching and well-being, freedom, flexibility),, or even to a more aspirational value (belonging to a territory, societal commitment, etc.). These pillars of value are embodied in a very concrete way in a more forward-looking vision of banking products & services to be reinvented in connection with the new uses of customers and what matters to them, thus making it possible to put “price out of the game.”
For example, for the general public, we will be able to:
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Product level:
Focus on the 3 growth drivers of NBI such as property and casualty insurance, consumer credit and savings to saturate the offer and adapt to new uses (e.g.: on consumer credit, anticipate and facilitate the use of credit in all payment situations for greater simplicity, seek out customers who are resistant to consumer credit by developing hybrid savings credit offers for greater flexibility, or capture the development of the usage economy with LOA on increasingly broad universes of needs)
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Customer level:
Enrich products with new services and relationship methods by major For example, in everyday banking, develop a set of services around financial coaching (financial well-being) and new boundaries between the use of money in the short and medium term, credit and savings (helping the customer to anticipate their expenses, flexibility in the use of their savings, credit, management of hard times, help in optimizing their subscriptions and bills, etc.)
Each player can thus position itself according to its DNA and its business on key pillars and embody them in “star” products and services to generate more value.
We are therefore convinced that developing customer value requires innovation in terms of offers and services, starting first with banking to identify new pockets of value and then gradually expanding into non-banking (and in line with the major universes of customer needs in which the bank is legitimate). This reflection is also often an opportunity to simplify and rationalize a range of offers that are costly to maintain…
What role for agency networks and advisors?
JM. B
The relational model of banks, based on branches, has been enriched by remote and digital channels, and the role of local advisors in branches or remotely remains essential both in current organizations and in the eyes of customers. On the other hand, this specificity of network banks compared to digital banks is very little shared and valued with respect to customers. This emphasis on advice and its explicit billing would allow us to restore transparency and explain the commitments and services provided by advisors. It is not a question of developing a new billing line, but rather of bringing consistency to the billing of advisory and expert services that provide real perceived value, replacing that of products and transactions that are now digitized, trivialized, and challenged by the new standards of digital banks.
Furthermore, this assumes the position of an advisor capable of intervening in all moments of the client’s life and of providing a wide range of services takes on its full meaning in a perspective of continuing the diversification of the offers proposed by banks.
What avenues are currently being explored to increase revenues? Will banks give in to the temptation of diversification to sustain their business model?
GT
Diversification is in the DNA of banks, with real successes: insurance, real estate, and new construction sales; and more timid achievements: telephony, security, etc. Diversification was often difficult to implement: ensuring the production and distribution of new services with a service quality risk that weighs on the bank (partner to integrate, etc.). However, paradigms are changing thanks to the platform economy. Thanks to digital marketplaces, banks can more easily enrich their offering beyond financial services by offering several partners of the customer’s choice, or even by connecting customers (on the Amazon model).
Several players in Asia (DBS, etc.) and Europe (Belfius, etc.) have embarked on this diversification to offer a “hub” of services via a digital platform. Today, the success of this diversification will lie in the ability to offer banking and non-banking services at coherent moments in life or across areas of need (housing, health, mobility, etc.) and to reconcile a digital platform with a local presence to embody the offering locally.
Banks have two key assets to successfully achieve this diversification: customer knowledge and data to drive and personalize the offer (CRM) and the key role of branches and advisors to embody the value proposition at key moments.
What lessons can be learned from neobanks in terms of income generation?
GT: We can learn two main lessons from neobanks (which, let’s remember, currently have a per-customer NBI of around €50 at most): the opening up to new pricing modelssuch as “freemium” from video games (first level of services free then moving upmarket), usage-based billing, the ability to subscribe/unsubscribe to services; and the key role of digital marketingin driving customer relations and maintaining a continuous link between the brand and the customer, particularly via mobile and by capitalizing as much as possible on natural traffic. This frequency of qualified contacts is key to capturing customer needs in real-time on multi-point purchasing journeys and generating sales (via the agency, the call center, the middle office, etc.)
Shouldn’t we go further with disruption?
JM. B
To go even further in the search for levers for reinvention and generating NBI, it is interesting to follow the proliferation of Fintech initiatives, which seek to address emerging needs that are misunderstood by banks or neglected markets. On this point, there is no surefire solution, and it is rather a question of organizing a real R&D center in the medium term for the bank around priority themes, with a VC-inspired approach for selection and pragmatic financing based on the demonstrated maturity of the portfolio of initiatives.