Everyday Bank Blog

There’s no agile bank without agile leadership: How to win in the digital banking era

Change is non-negotiable for retail banks to thrive in the digital banking era. But meaningful change cannot happen without leaders who are willing to change too.

This is especially true for the agile bank—a disruptive retail bank that is customer focused, market driven and proactive. A 180-degree departure from the traditional full service bank, the agile bank trades an inside-out focus for an outside-in obsession. And not surprisingly, the most effective leader for this dramatic evolution is the agile leader.

New Ways to Lead

Accenture research defines three pillars of leadership. These include vision and strategy, relationships and execution. As my Accenture colleagues have discussed, the agile leader has distinct—and even surprising—traits and behaviors across each of these areas:

1. Vision and Strategy

Becoming an agile bank is an evolution for most retail banks. The evolution is most successful when it is a journey in response to a guiding vision set by an agile leader. What’s unique about the agile leader’s vision is that it acknowledges—even embraces—uncertainty. Agile leaders see uncertainty as a threat and a challenge. They understand that they cannot know everything today about what tomorrow holds. What they do know is that change is a given—maybe a dead end, or maybe a door. Either way, agile leaders factor in change to the vision without fear.

2. Relationships

The agile leader builds relationships within the organization and with partners and stakeholders. The agile leader is never a despot, and is masterful at delegation. By giving “deputies” the authority to act with real decision power and without going through the typical multi-layered approval processes, the agile leader nurtures a faster speed to market. This fast-twitch speed is critical for the bank to seize on market opportunity and consumer desires. Empowerment and fostering leadership at all levels are hallmarks of effective agile bank leaders.

3. Execution

The agile leader champions a very different way of working. Rather than spend months perfecting a new market offering, the agile bank uses iterative development methods and customer feedback loops to refine ideas in real time with real customers. The agile leader does not chase perfection before greenlighting new ideas. He or she recognizes that perfect is the enemy of the good. As such, the agile leader develops a culture and way of working where informed but fast decision making is the new normal. Delivering with scale, buy-in and accountability while developing internal staff are priorities for the agile leader.

Change Starts with an Agile Leader

These characteristics clearly suggest that the agile leader is a unique breed. And what’s more, the agile leader will play a make-it-or-break-it role in the future of the agile bank.

If you are thinking about your bank’s digital banking future, I encourage you read more about the agile bank and get more insights into leadership imperatives for the agile business.

Payments solutions top the Sibos 2015 agenda

Sibos 2015 is almost here and as Singapore beckons, Accenture is preparing for an eventful week.

Key themes we expect to dominate Sibos are real-time, or immediate payments, PSD2 for the European banks and distributed consensus ledgers, with Ripple and its cross-border payments solution making waves.

Immediate payments are a big theme in Europe and the USA, with Australia in the middle of a programme, run by SWIFT to introduce them in 2017 and Singapore now live with the FAST system for 18 months. It is becoming clear that immediate payments will become pervasive and will dominate mass retail and corporate payments everywhere; the race is on for banks to transform their IT and operations to enable immediate payments and to develop new payments and payment account propositions for their customers.

PSD2 is European regulation, with immediate implications for European banks, but its effect is likely to be felt globally. Not just because regulators around the world tend to feed off each other with new regulations, but also because it will catalyse the development of a new payments ecosystem for the digital economy. In particular, it will enable new types of payment providers, allowing third parties access to account information and the right to initiate payments, requiring banks to expose their payment systems through APIs. This has major security and liability implications that banks need to address, compounded by other PSD2 requirements to enhance the security of online payments. The PSD2 has additional requirements to improve the original PSD, as well as the interchange caps for cards transactions. With the PSD2, European banks face both a compliance challenge and an opportunity to reinvent themselves for the digital economy that will dominate their payment plans and investments for the next three years at least.

Sibos 2014 in Boston was the point when the banking community started to accept that there is more to distributed consensus ledgers than Bitcoin, and that the technology has the potential to dramatically improve the efficiency of financial markets, taking out layers of intermediaries and gatekeepers. Since then, there has been considerable investment in the technology, by both banks and VCs.  The technology remains immature, and the industry is still in a discovery phase, but expect in Singapore to hear a lot more on how it is being developed for industrial use in capital markets and in payments. In particular, we expect Ripple, an Accenture alliance partner to receive a lot of attention for its cross-border, international payments solution.

Again this year, Accenture has a booth (I38) at Sibos. We will have on hand over twenty senior executives from across our global Financial Services business to meet with you and discuss your needs, including payments-as-a-service solutions, immediate payments, PSD2, corporate payments and distributed ledgers. On Tuesday 13th October at 12.15 pm we are holding an Open Theatre presentation on “Placing real-time payments at the heart of the digital economy” and will continue the theme at our lunch time panel on Wednesday 14th October with industry experts discussing how to architect real-time payment business and technology models for business value. At the booth we will have demos of our distributed commerce platform for mobile payments, of distributed ledger solutions running on our private blockchain, and of the Ripple solution for correspondent banking together with our alliance partner, Ripple.  If you’d like to meet with me or one of my Accenture colleagues while you are here, please let me know.

See you in Singapore!

P.S.  If you are not attending Sibos but are interested in participating in our lunch panel on real-time payments, you can register to watch a live broadcast of the discussion and get involved in the conversation via Twitter using #SibosLive

Find the speed you need: How the agile bank fast tracks market responsiveness

Speed is critical for retail banks that want to master digital disruption.

In the digital banking era, change happens nearly instantaneously. New competitors enter the market quickly. Industry boundaries are redrawn in a flash. Tomorrow’s technologies emerge even before banks can implement today’s. Fast as we know it is no longer fast enough.

Big Changes Ahead

Large incumbent banks face big challenges in this fast-twitch digital banking environment. They know that quick market responsiveness is a given for them to compete.

Speed is not an option unless retail banks change how they operate. They must eliminate the headwinds created by large physical distribution networks, intricate processes, legacy core banking systems and complex governance structures.

Yet with these elements ingrained in how traditional full service banks have operated for years, this is not only a high-stakes proposition; it is also a difficult one.

Up to Speed on Speed

As my Accenture colleagues have discussed, retail banks must consider two distinct kinds of speed when developing their digital banking strategies. They need disruptive speed to drive business growth and transformational speed in the core business of banking.

Time for the Agile Bank

Retail banking is seeing a dynamic distribution and marketing model that can deliver this essential disruptive speed. The agile bank is radically different—and it can help banks get the speed they need.

The agile bank expands and contracts the distribution model in response to a granular understanding of market demand, making channel decisions quickly and frequently. Essentially, markets drive change, and it happens often and fast.

View the image.

View the image.

There are several strategic and operational elements that position the agile bank to fast forward market responsiveness:

  • Fast product development. Agile banks release a product to a high-priority market quickly, rather than after months of analysis. Dynamic market forces and customer feedback loops shape the product.
  • Data, data and more data. Agile banks start from the outside in by analyzing and tracking customer behaviors and patterns. It’s about giving customers what they want.
  • Simple governance. Agile banks move through organizational silos to make smarter decisions faster with SWOT teams—empowered execution and innovation teams with a bias for action.

Digital Banking Readiness

As the digital banking evolves—at a rapid pace, of course—winning banks will change how they operate, and ultimately, evolve to agile banks.

As you develop your bank’s digital strategy, I encourage you to read more about the agile bank and get more insight into digital strategy execution.

Where are bitcoin transaction volumes heading?

For the year-to-date at the end of August 2015, the total number of bitcoin transactions has increased by 70% over the same eight-month period in 2014.  For the month of August 2015, the average daily volume of Bitcoin transactions was 115 thousand transactions per day, a 69% increase over the number in August 2014.  Bitcoin is growing at a steady pace. This is interesting because transaction numbers are a direct indicator of usage. Bitcoin usage is rising, and has been since around mid-2012, as can be seen from the transaction chart on blockchain.info. In my experience with payment systems, it is reasonably easy to forecast future volumes based on current rates of change. For example I have observed this to be the case for the growth of SEPA credit transfer volumes, the decline in UK cheques and the growth in contactless card transactions in the UK and Europe.

At the beginning of this year, I forecast that bitcoin transactions would be somewhere between 130 – 170 thousand transactions per day by the end of 2015. Based on growth so far this year, I expect the outcome at year-end to be towards the upper end of this forecast.

The total transaction value is less easy to interpret as it is driven by both usage and type of use (micropayments, high value payments, low value payments, asset-linked transactions etc). However, the value of transactions in bitcoins is rising strongly, up 162% for the month of August 2015 compared to August 2014, but the value in USD is up only 22%, due to the decline in value of btc. Over the past 12 months, the average transaction value has been in the range 1.5 – 2.4 btc per transaction, and $380 – $812 per transaction.

It is evident that the longer bitcoin endures, the stronger it becomes – it is a self-reinforcing, self-sustaining phenomenon, but it is still too early to tell whether bitcoin will be a long term success. However, sustained transaction growth is a positive factor, and one to watch closely.

An immediate obstacle Bitcoin has to overcome is the current capacity limitation of around 300 thousand transactions per day, which is getting closer (and with peaks already occurring at over 200 thousand transactions per day, this limit could be hit this year). This issue is generating heated debate on how to increase its capacity, but no doubt, consensus will prevail. Hundreds of millions of dollars are being pumped into blockchain and crypto-technology businesses, but so far there have been no major success stories or widely adopted uses of distributed ledger technology – except that is, for Bitcoin itself, where transaction volumes continue to tick steadily upwards.

What motivates young people in digital payments?

With mobile payments propositions launching thick and fast – Apple Pay, Samsung Pay, Android Pay, Zapp to name a few, how can banks and other payment service providers (PSPs) ensure that these propositions are adopted quickly, and what can they do to increase their chances of commercial success?

In an academic behavioural research study, Accenture commissioned a group of final year students at the University of Bath to understand the key drivers and motivational factors behind 18-24 years olds’ acceptance and use of digital payments.

Using a combination of empirical evidence gathered through targeted surveys and rigorous application of academic theory, we have uncovered six insights that are particularly interesting:

1. Frequent successful usage will reduce perceptions of risk over time

Consumers will always perceive risks with new payment propositions, but these perceptions largely disappear with increased usage – therefore PSPs should have strategies to incentivise consumers to frequently use a new proposition, rather than just on growing the number of consumers who try it. However, the perception of risks does not disappear entirely – for example the loss of a smartphone or contactless card, or the interception of data, so PSPs need to demonstrate to consumers that these risks are minimised and addressed by the PSP if they occur.

2. The first impression is vital to building consumer trust

Trust is the factor with the second highest influence on young consumers’ behavioural intention to use digital payments. The level of trust increased over time in the experimental groups using PayPal and Paym (a UK mobile P2P payments system using real-time payments), while that in the control group (using only contactless payments) remained static. The research results suggest that social influence (i.e. recommendations among peers) significantly affects consumers’ initial trust in new digital payment services, especially with an embryonic service at a relatively immature stage.

3. Don’t underestimate the importance of impeccable performance

‘Performance expectancy’ is the most influential driver behind young consumers’ behavioural intention to accept and use digital payments. It is essential that products and services are useful in a given context, save time or increase productivity, and always work – if a digital payments proposition isn’t useful or does not work consistently, consumers will reject it.

4. Re-engage experienced and loyal customers

As young consumers become more accustomed and familiar with using digital payments, the novelty wears off and the fun they derive from it fades away. It is therefore important to keep these consumers engaged by regularly updating and refreshing the payment proposition, for example by adding new features and functions, or enabling new uses for it. A key message is here is that keeping existing customers engaged is as important, or perhaps even more important than finding new customers.

5. Tailor the approach to mark  eting, segmented by gender

There are clear differences between the main behavioural influencers for males and females, with males being far more affected by social influence and performance expectancy than females, and females being more influenced by trust and perceived risk than males.

6. Focus on customer self-service and self-proficiency, in preference to customer support services

In deciding to adopt and use digital payments, the young consumers in our study were far more influenced by the novelty and enjoyment of the user experience than by factors such as customer service. Their proficiency and self-sufficiency in using digital payments make customer support services less relevant to them.

We believe the findings from this study will help PSPs and banks to develop winning strategies for influencing consumers to adopt digital payment solutions.

To support this objective, we created a “digital payments acceptance and use framework” that pinpoints the key behavioural influencers supported by the research.

View the image.

View the image.

We have made this framework publicly available so existing and potential PSPs and banks can consult it when designing and developing digital payment service propositions. This framework is underpinned by academic theory and has been validated through empirical rigour from quantitative testing.

The research also highlighted the importance of social media in influencing young consumers to try out and adopt new payment propositions, and recommend them to others. And it highlighted that young consumers love digital payment propositions – there was an unambiguous increase in usage and trust and drastic reductions in perceived risk among those who were introduced to Paym and PayPal in the research.

Learn more about what drives digital payments adoption among the UK’s youth including key implications and opportunities for PSPs and banks in digital payments.

In closing, I’d like to acknowledge Kim Berg, senior manager, Accenture Payment Services, who has been leading the collaboration with the University of Bath team including Dan Keene, Euan Mackenzie, Harrison George, Lauren Faulkes, Tom Dewhurtst and Tom Simpson.

Does your bank have what it takes to be digital – inside and out?

In my recent posts, I’ve discussed key elements of the digital transformation for an Everyday Bank. You need to move at the right speed, balancing disruption and core transformation. You need the right roles to govern a successful transformation. And, through it all, you need to adopt a “being digital” mindset to help evolve the culture—both internally and externally.

To be digital on the outside, your bank must use digital to improve customer engagement and the customer experience. This is rarely about bells and whistles or single features. Moreover, it’s about embracing and exploiting developments in the digital space such as new customer journeys, omni-channel interactions, mobility, gamification and social media.

Being digital on the inside means leaving no stone unturned when it comes to using digital. How can the bank adapt its internal practices to deliver and stimulate the “being digital” agenda? Challenge all aspects of execution and employ digital approaches such as involving customers in process design and embedding analytics in all activities.

Digital doers

Read the report.

Read the report.

mBank in Poland is a strong example of “being digital.” The bank made a decision to go digital, and they made it happen in just 14 months. Now, they are a fully digital bank with more than 200 innovative features including merchant-funded deals, “30-second” quick cash loans, person-to-person Facebook payments and a financial products store.

Successful digital transformers like mBank are replacing traditional structures with more responsive and agile ones, and attracting and retaining top digital talent. Banks need a workforce that has truly adopted the “being digital” mindset and is committed to internal transformation that removes organizational inertia and functional barriers. Drawing on a digital mindset, they can unleash digital innovations that are scalable, and that improve the customer experience.

Explore the key building blocks of digital transformation in Being digital: Digital strategy execution drives a new era of banking

Tokenization: A key enabler of digital payments security

In February this year, a White House Summit on Cyber Security devoted a whole day entirely to payments.

Subsequently, the Wall Street Journal published an article highlighting actions that companies like Visa and MasterCard are taking to address cybersecurity where Visa CEO Charlie Scharf said “Removing card account numbers from the processing and storage of payments represents one of the most innovative and promising technologies we’ve seen in decades,” Soon after, the NRF (National Retail Federation) issued an “Open letter to President Obama” on defending against cyberattacks,  endorsing Tokenization and Point-to- Point Encryption.

All of this coverage of tokenization demonstrates how the subject has become of mainstream interest. But what is it all about?

The diagram below shows the key market trends, opportunities and threats that have led to companies actively seeking to deploy tokenization.

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View the image.

In short, tokenization is the process of substituting a sensitive data element with a non-sensitive equivalent, referred to as a token, which has minimal extrinsic value or exploitable meaning.

E.g. a 16 digit credit/debit card number 1234-5555-3456-7666 transformed into ar6g-7hra-h8ab-9bgd

The translation from card data to tokens is done via a ‘Vault’ in a typical vault-based solution. In an ideal implementation only the ‘Vault’ and a minimal set of payments processing applications would handle clear payment data where stringent security controls apply, the rest of the environment would use tokens. Without access to the Vault, tokens cannot be exchanged for the actual data (e.g. credit card numbers, name). There are a number of different solutions and vendors with different factors for consideration:

  • Vault vs. Vault-less
  • On-premise vs. Cloud
  • Format preserving vs. non-format preserving
  • PII tokenization capability

In Europe, a number of payment service providers (PSPs) and other specialized vendors have been providing these solutions for merchants over the last decade. In the USA, along with EMV compliance set for Oct 2015, the focus for tokenization from the payments networks will be on contactless and mobile payments.

  • VISA and MasterCard both have launched a tokenization offering
  • A number of major PSPs are providing tokenization-as-a-service

What’s the value?

Tokenization delivers business value by reducing risk through reducing the sensitivity of data in the system. This typically means that investment for protecting sensitive payment data can be focused on one vault and a minimal set of critical payment processing solution, thereby reducing the risk surface and leading to greater business efficiency.

Tokenization also brings operational benefits, especially in the analytics and data mining space. A token can be used as a unique identifier for the customer on any system across an enterprise. This is a powerful feature that can support complicated analytics processes while minimizing challenges associated with stringent local data privacy and payments security compliance.

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View the image.

Almost every actor in the payment ecosystem is endorsing the use of tokenization: Banks, mWallets, Merchants, PSPs, Payment networks.

How Accenture can help

Accenture started working on tokenization in our Security practice about five years ago when the technology was first used to reduce the scope of PCI DSS compliance for card payments, primarily in retailers by turning credit/debit card data into tokens and using tokens as substitute for real card data in their systems. With the roll-out of EMV in Europe and PCI standards, merchants were assigned greater accountability and responsibility in managing risks in the payment ecosystem. The key business driver then was PCI compliance and reduction in compliance management costs.

We have delivered numerous tokenization projects, including biometrics ones (from behavioral biometrics to multi-modal biometrics in banking) similar to those mentioned in the White House briefing article.

Some of our innovative solutions include:

  • Tokenization in the cloud
  • Tokenization & Point-to-Point Encryption for contactless payment
  • Biometrics in banking and payments
  • Multi-Tokenization engine & Payment gateway transition

Like other risk reduction technologies, tokenization is not a silver bullet and it comes with its own set of challenges. One of the major challenges that we have experienced is ensuring that the solution is appropriate and future proof i.e. the solution fits well from PED (pin entry device) to merchant acquirer and integrates easily with new partners and third parties as the business changes. Other issues include high value tokens and collisions (tokens are generated with random values but occasionally duplicates occur).

As the world moves away from just PCI compliance and focuses on wider risk management, tokenization is seen as one of the key enablers and is fast becoming one of the major payment trends in 2015.

What can banks do to compete with non-traditional players?

According to our recent Global Consumer Pulse Research, non-traditional competitors are gaining ground with banking consumers. Forty-four percent of consumers across industries globally say they would consider products and services from companies that are not generally considered part of traditional industry definitions, and 43 percent would be open to products or services not just from companies, but also from other consumers.

In banking, other Accenture research recently showed that nearly half of customers would likely bank with a company they currently do business with but that does not currently offer banking services—and that number surpasses 70 percent for those ages 18 to 34. This includes financial players such as PayPal and Square, and brands outside the financial sector like Apple, Google and Amazon. We also estimate that competition from non-banks could erode a third of traditional bank revenues in North America by 2020.

For banks it’s a critical time to retain customers. In the past six to 12 months more than 30 percent of consumers switched their bank providers for competitive pricing, high customer service quality or good value for money. And in line with last year’s findings, 27 percent of consumers are willing to shop for better deals and 31 percent find the switching hassle to be low.

When we asked customers if they thought banks are all the same in terms of offerings and services, 22 percent of customers agreed, not recognizing any differentiation between the offerings and services of different banks. We also found that fewer than one-in-six profess a high industry involvement.

Read the report.

Read the report.

On a more positive note, about a third of consumers across industries who switched from a provider said they would consider returning within two years for better pricing or a superior product. That’s good news for banks, but it means that if they want to win back customers, they need to focus on providing compelling offers that are clearly different than the offerings of other banks.

At Accenture, we think that simply being “more digital”—closing down branches and rolling out better mobile and online banking services—will not give banks the differentiation they need to capture the attention of, retain and best serve today’s customers. Instead, banks need to:

  • Create an immersive relationship with customers.
  • Increase the quality of the customer experience.
  • Develop continuous daily customer interaction through partnerships and connections with provider partners.
  • Nurture loyalty through rewards programs and discounts.
  • Optimize front- and back-office processes for speed, efficiency and scalability.

In this banking model, which we call the Everyday Bank, the bank takes on three distinct roles—advice provider, access facilitator and value aggregator. Through these roles, and by placing themselves at the center of customers’ daily lives, banks can address the real needs of customers and provide strong value for money.

Learn more about how banks can drive customer engagement and seize digital’s opportunity.

Loyalty programs: Do they really keep customers committed in the long term?

One trend to come out of our recent Global Consumer Pulse Research that banks might consider good news is the high but slowing growth in customer service expectations—a slowdown which is giving banks a chance to re-evaluate the ways they meet customer needs and catch up.

In line with last year, trustworthiness (35 percent), employee skills (33 percent), high quality of customer service (32 percent) and ease of doing business (32 percent) are the core drivers of customer satisfaction for banking, and contribute to the general pool of consumer expectations for customer service, which has increased greatly since 2007.

Unfortunately, the percentage of consumers switching providers due to poor service has decreased only slightly during that time, leading us to think that most companies are still not giving consumers the kind of service they want. Indeed, over the past few years, consumers have consistently said their biggest frustrations with providers include:

  • Failure to deliver on their promises.
  • Inefficient and slow customer service.
  • Lack of convenient interaction.
Read the report.

Read the report.

One method banks have implemented to try to stem the flow of customers switching to other providers is to offer customer loyalty programs. Research shows that the numbers of customers adopting these programs is on the rise. Across industries, the percentage of consumers saying they participate in at least one customer loyalty program has increased since 2009, as has the percentage of respondents indicating such programs persuade them to stay with a provider.

Among banking customers, one-third say that they participated in at least one loyalty program, about the same as last year. Efficiency of these programs (determined by measuring customers who stayed with their providers because of the program) remains at around 56 percent. This sounds positive, except that program adoption is primarily driven by the desire to gain access to the “best deals”—indicating a short-term loyalty that fails to keep customers committed for the long haul. Although consumers stated that their loyalty increased due to such programs, their actual behaviors demonstrate they continue to leave providers at a high rate.

What all this shows is that despite many customers being pleased with the customer service being offered by their current bank and taking advantage of loyalty programs to access the best deals, they are failing to remain committed for the long haul. Which begs the question: Are loyalty programs worth the effort to implement them?

Learn more about how banks can drive customer engagement and seize digital’s opportunity.

The power of three applies to governing your digital transformation

Most banks split the execution of any change with detailed handover between various disciplines. This traditional approach does not work for a digital strategy. Successful, scalable digital transformation requires three important roles: The technology entrepreneur, the banking entrepreneur and the digital entrepreneur.

Let’s take a closer look at each of the three:

Technology entrepreneur

This is the architect of your bank’s future capabilities. This entrepreneur introduces new concepts, such as platform-based thinking, to create a more open, scalable and flexible technology environment.

Banking entrepreneur

The entrepreneur who balances risk and business viability is essential to maintaining sustainable banking value. Quite often the CEO assumes this role as he or she understands the relationship between value and risk, and knows all the nuances of the bank—from revenue flow to cost to regulatory boundaries.

Digital entrepreneur

Read the report.

Read the report.

This role calls for a customer-centric mindset and skill in anticipating customer desires, trends and behaviors in the digital ecosystem. Using insight, this entrepreneur will shape the banking ecosystem and drive the revenue and process digitization agenda.

Where these three roles intersect is the customer experience, and that experience hinges upon these three entrepreneurs working together. With harmony and collaboration, they can set the digital vision for your bank, select services to be launched, define the strategy for digital capability development and guide a successful, long-term digital transformation.

There is great power in these three roles. Use them to your bank’s advantage to drive scalable innovation across your enterprise.

If you want to learn more about what else is key to a successful digital strategy in banking, I encourage you to read our recent report, “Digital strategy execution drives a new era of banking.”