Rick Morgan, news editor at Bank Innovation

Hello, everyone, and welcome to this special preview episode of the new Bank Innovation PremiumPlus Pulse of the Industry product. I’m Rick Morgan, a news editor of Bank Innovation and your host for today’s webinar. The Bank Innovation team is proud to be able to deliver actionable information and insights through our premier events presented regularly throughout the year. But we don’t want the conversations to end at the closing of an event. In the coming months, we will roll out the full Bank Innovation PremiumPlus product which encompasses registration to all our live events, exclusive monthly webinars like this one, access to an archive of BI event recordings and a premium subscription to Bank Innovation. Each monthly webinar is designed to give you keen insights into crucial industry trends and developments and be a reference for you as you move your business forward. Stay tuned for more information and a full launch of Bank Innovation PremiumPlus service. 

It is now my pleasure to welcome our guest speaker Alyson Clarke, a principal analyst at Forrester Research, Alyson works closely with retail banking and other financial services executives to develop and execute strategy, deliver superior customer experiences and digitally accelerate their businesses. She has global expertise having worked in Sydney, London, San Francisco and out in New York. Before joining Forrester in 2014. She was with Westpac Group for almost six years. We’re here to talk about Alyson’s new report, “The future of banking is built on trust,” which was just published in July, I believe, Alyson, thanks for joining us today. Before Yeah, of course, before we get started talking about some of our questions, can you just maybe talk a little bit about your role and your work?

Alyson Clarke, principal analyst at Forrester Research

Absolutely. Although you kind of just gave it all away. So yeah, so I’m a principal analyst at Forrester, I’m based in New York despite the Aussie accent. And yeah, I work really closely with retail banking executives in North America and also around the globe. And, you know, what I really do is I try to help them understand and prepare for the future in terms of their strategy, getting closer to customers, digitally transforming their organization, improving their cultures, or even to the point of, you know, creating new business propositions that can create value for both customers and shareholders. So it’s quite a lot of things, but I spend most of my time I guess, trying to think about what’s happening in the future and how firms can set themselves up to prepare for that.

Rick Morgan 

Cool, fantastic. I want to talk about the report a little bit. You talked about how banking will become invisible, meaning that thanking will be embedded in channels that are convenient for consumers. Let’s say directly in a fridge if I want to buy milk or beer or whatever, I can just do it directly there, for example. This means less brand visibility but better customer experience. How do banks keep their brand relevant if that’s going to be the case moving forward?

Alyson Clarke

Yeah, so look, in the research, we uncovered four key themes that they’re already starting to play out now To be honest, but that are going to be far more prominent by 2025. And table stakes by 2030. In visibility, and autonomous banking is really one of those things where tomorrow’s customer is going to expect banking to be embedded at the point of need. So it’s customers that are driving this. And yes, that could mean it’s the fridge paying for your groceries or car paying for petrol and parking. But it’s this kind of new world where as one executive kind of said to us, just as when you kind of get a new phone and you set up your email provider on that phone, you’re going to program your bank into your new smart device and embed that throughout the experience, which makes it very, very different and a huge challenge for many banks. Because, you know, as you pointed out, how do you differentiate? Because in this new world, what will happen is the bank may own the service and product, but they won’t own the channel, all the interaction. And what that kind of means is that customers will have far fewer direct interactions with the bank. So that kind of goes well gee, how do I make myself different? How do I attract customers? How do I, you know, what do I do with my brand? How do I retain them when I’m increasingly invisible to that end consumer? And the short answer is that brands are going to have to shave they’re going to have to start thinking about how do I add value to that customer above and beyond just the product and the transaction and to be honest, banks are going to need to work with many partners to deliver that and they’re also We’re going to have to build out the trust that they have with consumers, not just trust to keep their money safe, but you know, do they trust them for advice? Do they trust them to do the right thing? What you know, what else do they trust them for? And so there’s a couple of different elements there. But the end endgame is you have to be looking on and looking at how do I add value to my customers above and beyond just this product and just this transaction.

Rick Morgan 

And the study, you say that banks will follow four different models, direct to consumer, as a service marketplace seller or platform owner? You know, direct to consumer is pretty intuitive. But what do you mean by the rest of those? And I guess banking as a service is also fairly well known at this point. But what are those? What do those models really mean?

Alyson Clarke

Yeah. So what the way we see things playing out in the future is that future banks will operate in either one or more modes concurrently, like typically what we will see is larger banks, operating perhaps in multiple modes and we’re already seeing Then with Goldman Sachs, which I’ll extrapolate on in a moment, but we’re seeing firms, we’ll see smaller firms either pick will be forced down one of those particular paths. So, you know, it could be direct to consumer, that one’s pretty obvious. It could be that they might selectively pivot to sell something as a service. Now, banking as a service is just one of this we call it x as a service. The reason it could be banking as a service, it could be other things. It could be underwriting as a service compliance service in many different things that could play out and this model, this is really the Goldman’s model right, you know, where they’re in two worlds, they have direct to consumer with their Marcus brand. And they’ve announced they’re going heavily into banking as a service and that’s already playing out with their Apple Car partnership. And what looks like to be an Amazon partnership with lending as well. But yeah, it could be underwriting as service Compliance as a service, it’s all the sorts of things that say a new, a new startup, a bank that doesn’t want to get a license might need, or a retailer, or even a tick taught and like Apple is going to need if they want to offer banking products and services their customer to the customer. And equally, it could even be things that are sold to other banks. So he might be a bank that absolutely excels at underwriting. And you might decide not just to use that direct with your own customers, but to sell that to others in the market that want that, be that other banks, you know, loan providers, credit card issuers, etc. And that model means you’re getting an income stream from selling that service or that technology as well.

Rick Morgan 

And the marketplace seller and platform? What does that kind of mean, touching on those same things?

Alyson Clarke

Let me start with platform first because marketplace seller kind of then comes off that. You know, if firms choose to become a platform, I’m out And I think it’s really going to be the larger firms. I think anyone’s going to try this. Not everyone’s going to succeed that there’s not enough room for everyone. So yeah, where it’s gonna get quite interesting. And this is about running a platform where you have a business model that leverages a network and build an ecosystem of participants that connect directly, they interact, they create an exchange value in the form of products and services or information. To give you a couple of examples of DBS and Singapore is one of those they’ve chosen to enter adjacent areas like travel and automotive and property by building and owning its own marketplaces that other firms like travel and automotive and property they sell their products through. And similarly, Chinese insurer Ping An they’ve created a platform which some of you may have heard of called one Connect. And so what that platform does is it uses data and customer insight that is massed to offer a marketplace that brokers a relationship across a really broad spectrum of partners from banking to lending, payments, funds, like funds management, insurance, and also health care. So it’s really about they own and operate the platform, they might have their own products and services they sell through that. But others either related to banking or even more broadly come into that space as well. And then, being a marketplace seller effectively means Okay, I’m going on the platform, although I might on one hand, but a marketplace sellers, I’m going to take something I do so my products, perhaps, and sell that through another platform. So I might want to sell my products through the Ping An platform or the DVS platform. So and it could very well be that some players will own the platform and build out a platform and sell some of their products to other marketplaces that exist. So there’s this I realize that sounds confusing, but there’s what’s going to happen is these distribution methods and the way you get your product to market, they’re going to start breaking down and, and some will go just down one path. Others will try a few fail, end up with one, some will succeed with more. You know, this is this, this is the new world that we’re going to see play out over the next five to 10 years.

Rick Morgan

Interesting. You talk in the report as well about banks monetizing interactions and not products. Can you touch on what you mean by that?

Alyson Clarke

Yeah. So you know, I think for far too long banks have really focused their technology and their operations on transactions and products. And the outcome of that, of course, is massive, massive silos which impact how you serve and extract value for customers because most of the time you’re not connected, right? And we will have variances, customers ourselves. So what we see and what is already starting to play out what we see in the future is banks will shift to focus on interactions, not transactions, and they’ll start to think about monetizing interaction because interactions means you’re actually organizing and operating around the customer. And so it makes it much easier to think about how you then add value to the customer in multiple ways. So it becomes less about monetizing the product and just selling lots and lots of products or lots of widgets, whatever you want to call it. If I start operating and thinking about customers in terms of interactions, and all of those multiple interactions and journeys that they have, it’s gonna help me shift to figure out how to monetize, those particular journeys and interactions. So, I mean, as an example, you know, let’s just take a mortgage, I could be a bank and I can monetize that mortgage. Or I can start thinking about the interaction where the customer really you know, they got to find a home, find a realtor, buy the home, and when they’ve got the home, they might want to move. Then they’re going to move in, they might want to renovate, there’s many things going on in that particular journey. And if you start to think about monetizing the interaction, and the interactions are much broader than the product, you can then start to think, alright, well, how do I either become part of other people’s ecosystems? Or how do I bring all the players in to help serve that customer beyond just the product, and it might not be me doing anything more than perhaps the mortgage, I might be curating the those other interactions, but I’ll take, probably take a clip of them along the way. And so that’s what I mean about trying to monetize the interaction, as opposed to just the product and, you know, even to the extent of advice, right, you know, you know, firms and who’s trusted to give advice is going to change and we’re starting to see this play out now, I guess, with some firms and some digital startups stand to offer financial wellness tools and services to access that and again, that’s monetizing the interaction not just the actual line product.

Rick Morgan 

Interesting. You also mentioned in the report, something called autonomous finance or the idea that money can pretty much move itself around using artificial intelligence. Can you talk about how banks can make artificial intelligence more transparent, explainable and ethical, which is something you mentioned in the report?

Alyson Clarke

Yeah, look, it’s the million dollar question. And it’s going to become even more and more important. I think this starts with culture. You know, the organizational culture needs to be more ethical and transparent and explainable. And a lot of banks might think that’s what they are. But that’s, you know, culture is what you do and how you behave. And the idea is that if you have a culture that is about being much more transparent, and so forth like this, then when you’re building these autonomous solutions, you’re going to build that in a way that’s transparent and open to because at the end of the day, you know, customers should be able to understand what’s going on and what the algorithm is doing if there’s any bias or something that they’re not comfortable with shouldn’t be this black box. So banks are going to need to learn how to explain these black boxes, even to the point of giving customers access to how it works. Now, regulators will also have to step up and play a role here. You know, I see the future being where regulators are playing a role not just in monitoring this, but monitoring in real time with their own AI, right. So you’ve kind of got the regulatory AI, operating alongside the bank AI. But you know, this is a big challenge. And I actually think that what we’re going to see in the future is kind of what we’re starting to see already now with privacy around our data that we might see banks and others kind of own it in the short term and build these blackbox algorithms. But we’ll get to a point that consumers are already getting to now with privacy. We consumers are going to want to control that algorithm and get to this place in the future. And this is like I’m talking 10 years out now. So I am really going far ahead where they want their own algorithms that are portable, and they can move across platforms and financial providers. And, you know, they’ll go to their algorithm advisor who helped them build it if they can’t build it themselves, that sort of thing. So I see a lot of shifts happening. We’re at the early stages. I think firms that get ahead of this with the transparency and explainability of it will do themselves justice in terms of what costs how customers will think of them and be attracted to their businesses, but also how regulators will view them when regulators finally get their act into gear and step in here as well.

Rick Morgan

Can you talk a little bit about what you call on the report return on consent and just a little bit about what that meant?

Alyson Clarke

Yes, look, return on consent, you know, this is really about giving consent to a bank for my data. So if I, if I give data to a bank or give information about myself, and you give them consent to use it. Consumers are increasingly expecting return on that consent. In other words, I want to see value in exchange for giving you my data. And the problem is, they’re not really seeing a lot of them haven’t seen it as yet. What’s happening is a lot of firms and a lot of banks. And I do mean this tongue in cheek, they’re using data for good or for bad for evil rather than good. And what I mean by that is, is that they’re using the data to figure out what the next product is to sell to the customer right across time, and that seat, and the customer doesn’t necessarily value in exchange for them. It’s like I’ve given you all this stuff, you know, why am I not getting experiences that are personalized to me? Why are you not listening? And what does it feel like you understand me? Why are you developing services around this, why you’re not adding value to me, above and beyond just trying to sell me a product. So think of return on consent. This is an exchange, if I’m going to give you my data, I want something in return for it. And what we’ve seen, certainly now data is to consumers, particularly younger consumers, but all consumers really are increasingly willing to hand over data, but only if they see value in exchange for that. So that’s what we talked about this, this phrase, is this kind of thing around return on consent? And how that will become increasingly important.

Rick Morgan  

I’m just kind of spitballing here, but would that be with something that would be a better return being, you know, like better personal finance management or something like that, and sort of just something transactional?

Alyson Clarke

Absolutely. I mean, look, you know, let me let me give you an example. I guess, USAA is always a great example. Some of the things that they are doing in terms of personalizing the mobile banking experience. And by the way, I’m still surprised that here we are in 2020. And I can probably name two firms that are actually personalizing mobile banking. I mean, it really should be far far more than that. And I don’t mean personalizing offers, I’m building, personalizing the experience, the interaction. And so USAA has built a whole bunch of different journeys and personalized journeys around life moments that happened to customers. You know, it could be somebody getting divorced, it could be somebody transitioning out of the military. And the idea is that they’re using data to kind of understand that but also when a customer tells them like say, customer tells them they’re leaving the military, or it could be a customer tells them that, you know, their partner has passed away, you know, loss of a loved one, then what they’re doing is they’re using that data to add value to the customer by pushing guidance and information and advice, if you like to those customers back through the mobile banking app. So what’s happening is in exchange for sharing that information, there is value coming back to the customer information and guidance and things like that. I mean, it can play a role in terms of products as well and pricing and product features. I realize it can be a little bit more difficult with banking and some of the rules and things around that. But, you know, if you think about pay as you go insurance, that’s a great example where I’m sharing data about my location and what I’m doing and perhaps how fast I’m traveling like with the telematics and an exchange, I’m getting a better price. So there is a return on sharing that data.

Rick Morgan

Interesting. The report also talks a little bit about being value driven. How can banks show that they align with consumers values?

Alyson Clarke

I think the big one here is to show it with their actions and not just the words. You know, what we see is we see banks being very good with their rhetoric. We see a lot of leaders and a lot of executives out there saying, to be honest, what sounds like the same thing. You know, we care about our customers, we care about diversity. We want to protect their privacy, we want to help them improve their financial situation, says it, but the actions don’t actually back it up and consumers feel this. It’s interesting because the report talks about trust as well. And there is an element of trust. It’s experiential trust. And that experiential trust is that you say you’re going to do something or you promise something, it could be around values. But if I then through my experience of interacting with you don’t feel that, then the trust is broken, and the actions don’t back it up. So, you know, one of the reasons why this comes about quite often organizations is that it’s not that people generally don’t want to be doing that when you talk to individuals in the organization, bank executives or other they generally want to be doing these things around, as I said, diversity, privacy, helping consumers with their financial wellness, etc. But then when it comes to actually doing the day to day job they have in front of them and the KPIs for which they’re measured. KPIs don’t align. So you might get somebody who’s got a massive kind of sales target and their KPIs, and it’s a big proportion of their KPIs. Guess what that means that every day they’re actually going to be focused on achieving those KPIs. And that means getting those sales targets. And whilst they might have the intention to do better, and kind of do more, it gets lost in the focus of those KPIs. So, you know, there is a cultural shift that needs to happen, a KPI shift that needs to help drive that. So that action starts to match up with the words that we’re hearing from executives.

Rick Morgan  

The report mentions tech giants a few times. Can you talk a little bit about how you see them impacting financial services?

Alyson Clarke

Yeah, look, I I think everyone knows the impact from the tech giants is going to be major. I mean, we’ve already seen it. We’ve seen it with I mean, let’s you know, let’s take a couple of examples. We’ve got the Apple card that launched for the very first time we saw a card that didn’t have a number on it. All the numbers were virtual, and they were created every time there was a transaction. Well, guess what, now everyone is scrambling to have those virtual card numbers on there. Everyone in the market. We improve transactions considerably. You know, we look at Google’s upcoming marketplace, right? Depending on the execution of it, I say with caution, and because Google has a habit of going in and trying things and then pulling out when they don’t work, I hope this does work. And execution is going to be a key part of that. But by doing that, it’s likely to cause a major shift in the US because this will be the first major marketplace we’ve really seen in the market in the US, US markets or these markets, we really don’t know. But you know, it’s going to require banks to start to rethink how they go to market, how they partner, how they make money, you know, are they going to be a seller in a marketplace? Are they going to launch a marketplace? How will they differentiate their brand if it becomes invisible behind the Google experience, you know, all these things that we’ve already spoken about. And you know, if Google actually launches a loyalty program on top of all of this, because they’ve got access to all these merchants, Right, yeah, of course, it’s amazing loyalty program, that’s going to cause a major disturbance in the loyalty program space as banks and others scrambled. So, you know, the real biggest issue really is that when it takes time to interest space no matter what that is, but even in banking, because you’ve got so many customers that are and they’re integrated so much into their customers lives, they actually start to move customer expectations. And that changes the game for everyone.

Rick Morgan  

Fantastic. So I’m going to ask probably an impossible question, but why not for something to sort of end this on. What’s sort of the biggest mistake a bank could make then in the next 10 years?

Alyson Clarke

Well, whenever I’m looking at the future, and I get my little crystal ball out, and I look at that, and you have to think of the past you have to think about what’s going on. And what’s really interesting is that if we look at the past, what’s the biggest mistake of the last 10 years: Not digitally transforming fast enough. And COVID has now actually caught up with those banks and credit unions who fell behind on their digital transformation and kind of thought, oh, we’ll do it later. We’ll do it later. It’s too expensive. They kind of pushed it, we’re doing okay, we’re still making money, we’ll just push it to the backburner and to COVID and all of that branch has not been open has really just, it’s caught up with those firms that weren’t moving fast enough. So if I think about the next 10 years, it’s really, the biggest mistake is not making the hard decisions kind of now and soon and kind of continuing to put it off. You know, banks need to make those hard decisions about business models and what they’re going to do sooner rather than later. And, you know, banks that certainly lack self awareness about what they’re good at or not good at, and perhaps accurately assessing their strengths and weaknesses. This is figuring out where to invest in divest, or you know, ones that take too long over these decisions they need to make. They’re the ones that are going to fail. They’re the ones that won’t exist a decade from now, because they just keep putting it off. And they keep continuing to do things the same way they always have. Whereas if we look at who’s going to kind of lead and who will be Top of the Pops in 10 years time, you know, some of those will have had to replace executives who are just not making the tough calls fast enough. So I think that’s the biggest mistake. The biggest mistake is putting it off just on digital transformation. And you can see how that’s caught up with them.

Rick Morgan

Yeah. Yeah, absolutely. It’s certainly caught a lot of people and it’s forced a lot of very rapid change. So yeah, it’s definitely something that we’ll keep an eye on. Who’s getting ahead of the curve in this respect. Excellent. Alyson, this was so much fun. Thank you for joining us today. This was great.

Alyson Clarke 

You’re welcome. Thank you for having me,

Rick Morgan  

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