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Business Strategies for Retail Banking by Eugene Galligan
The financial services market is going through serious changes. New challengers have appeared and are looking for a slice of the market. In addition, customers are more demanding and more informed, expecting convenience and simplicity when it comes to financial services, particularly online and via mobile devices.
Digital services such as Netflix, Amazon and Uber are loved because they are easy to use and deliver more convenience and better customer experiences than the status quo and, therefore, are winning the market.
A critical change in thinking is needed to compete with disrupters, challenger banks and fintechs. Most differentiators are operating at the digital level. They approach the market with a goal to simplify exchanges and create experiences that many bigger banks currently cannot copy.
Currently, start-ups and fintech companies are driving innovation in the banking industry and are challenging the banks’ traditional roles, acting as aggregators( comparison sites), innovators( social investing apps) and disruptors( peer-to-peer lending) to reduce market share, at a time when banks are dealing with paradigm-shifting regulations.
The key for financial institutions is to beat the challengers at their own game, by rethinking strategy, focusing on digital expansion but with a human element. To do this requires banks to focus on four key points: customer experience, efficiency, quality and speed.
Banks can most effectively accomplish this by pursuing an omnichannel delivery model, i. e. developing a seamless, integrated customer experience across all channels. That said, the future of retail banking lies in the palm of the consumers’ hand, and banks need to prioritise mobile growth. With the majority worldwide owning a mobile device, and smartphone ownership exploding across the developing world, it’ s essential that banks regain control of driving digital change and relentlessly pursue digital simplicity to ensure a seamless and effective omnichannel experience.
In doing so, banks can develop their own‘ blue oceans’ and leverage the considerable data they hold to create personalised and, more importantly, quality products for their customers. Blue ocean strategy allows banks to focus on avoiding these challengers, and drive innovation by developing a different strategy with lower costs.
The future of retail banking lies in the palm of the consumers’ hand, and banks need to prioritise mobile growth.
Firstly, banks need a growth focus, considering customer needs while looking beyond the traditional markets and competitors to develop a multi-horizon portfolio enabling the development of growth platforms suitable for market mining. From there, banks can begin value identification, understanding customer values using a value curve. This depicts where traditional, incumbent players are placing their value. It allows banks to visualise where competition places value, where customers place value, and where there are potential opportunities to disrupt the market. Banks can determine which specific value attributes to eliminate, reduce, raise or create based on this visualisation. By creating new value attributes, banks create a‘ blue ocean’ to compete in.
It is important to remember that it is not just about developing new blue oceans to compete in. Banks need to consider offering variants and add-ons to further distance themselves from the competition and expand the size of their blue ocean, maximising market share, profit and growth.
In order to develop these blue oceans, banks face some structural challenges that need to be addressed in order to effectively address the newly discovered needs of their consumers. When Apple introduced the iPod, it did something far smarter than wrap a good technology in a great design. It wrapped good technology in a great business model. Great business models can reshape industries and drive spectacular growth.
In order to understand whether or not the business model needs to change, it is important for banks to analyse and articulate what makes their existing model successful, look for warning signs that necessitate change, and consider all costs and challenges involved in reinventing – will this change the industry or market?
Without understanding all of the above, banks will struggle to capitalise on the opportunities brought with reinventing their business model and struggle to respond effectively to a shifting basis of competition. A brilliant strategy may put you on the competitive map, but only solid execution keeps you there. Most banks, like all companies struggle with implementation because they rely on structural changes to execute strategy.
To ensure excellent execution, the most innovative companies focus their efforts on two levers far more powerful than structural change: clarifying decision rights and effective information exchange. In specifying who‘ owns’ each decision and who must provide input, responsibilities are clearly defined. Similarly, promoting managers laterally enables the development of the networks needed for the cross-unit collaboration that is critical to a new strategy. Once banks have implemented the changes to their business model, it’ s essential to continuously monitor performance and track real time results against the initial plan, resetting planning assumptions and reallocating resources as needed.
A brilliant strategy may put you on the competitive map, but only solid execution keeps you there.
Similarly, no strategy can be better than the people who must implement it. By making the selection and development of managers and key people a priority, banks develop their ability to successfully execute future strategic changes.
Eugene Galligan is an RBA faculty member with over 36 years of Retail Banking experience. With hands on experience of executive positions in Europe and the Middle East, he has been responsible for a number of major strategic change initiatives and is renowned for his creative and innovative approach. www. retailbanking-academy. org
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