Earlier in the summer, Sunny Banerjea, Global Solutions Executive for IBM, met with ABA Banking Journal Chief Editor, Bill Streeter, in the publication’s offices in New York. Banerjea’s work with some of IBM’s largest banking clients, worldwide, has given him a deep understanding of the challenges they face, but also a good sense of where the solutions lie. In some cases, ideas from overseas or from nonbank companies point the way. He cites several examples of these in the following recounting of the conversation, edited from the full transcript. Banerjea can be reached at
ABABJ: To start, how do you see the challenges banks face in the current environment?
Banerjea: Margin compression and regulatory pressures make it difficult to make money the traditional ways, whether it’s trading or fee income. So the question becomes how do banks continue to make money in a hopefully more de-commoditized environment? That’s really what they’re up against. So a big focus of front offices is how do you truly build a customer-focused enterprise and offer differentiated services based on your bank’s strategy?
ABABJ: Where will the revenue streams come from—credit? Fees?
Banerjea: That’s what banks are all struggling with. But our belief is, with a deeper understanding of their customers, banks will be able to differentiate the different segments of customers and price each segment at a different, granular level by virtue of the fact that they will gradually be able to price for services in a way that people are comfortable paying.
There are some people, for example, willing to pay for overdraft fees, while others might completely resist them. Now for the first time you’re seeing a difference where bankers are actually providing a choice or an option, but of course everybody is providing this choice—they have to. Take that one step further and say, I’m now going to try and identify opportunities based on customer personas, profiles, behaviors, different opportunities in the lending space where I’m truly going to price based on risk. We are suggesting there be a greater granularity in the pricing of loans and in the pricing of deposits.
Also, many banks are looking at bundling of prices. If a customer is bringing more of its relationship to us, how do we provide rewards for the additional deposits, lending relationship, and card processing, and do that in a much more dynamic fashion? Not always waiting for the relationship manager to come in and have that discussion, but making that very transparent so that you as the customer know that if you do this, these are the benefits that accrue to you almost automatically.
We don’t suggest that banks take the route of telephone companies. By going the complete route of bundling, telcos have really commoditized their offering and are in a price-war position. They’ve pretty much lost their differentiation and are now trying to get out of the bundling challenge that they’ve created. So we’re saying, let’s do selective bundling by doing an intelligent analysis of your customer’s elasticity and change behavior potential so that you’re not cannibalizing your existing revenue stream. Those are the models that we think banks need to invest in.
Finally, how do banks communicate the value of service so that they can have pricing levels associated with it? Should banks start treating customers differently based on the value the customers bring to them? It’s definitely a strategy to be tested—carefully. In the branch it’s very obvious if you create separate lines, and there have been instances where that hasn’t gone down well. But in the airline and hotel industries people are treated differently today. There are separate lines for platinum or diamond customers, and people have accepted that as a reason for being treated differently.
In the online space there might be some interesting things you can do, where, after authentication, when the bank knows that you are more valuable than the next person logging in, maybe the capabilities and applets and analyst reports are clearly different. With applets, the question is risk, and they have to be vetted properly. But given the appetite, why not provide a screen-set of applets based on customer value? All I’m saying is in the online space you need to start treating customers differently and examine how the customer values the service components prior to incorporating it into your customer service strategy.
ABABJ: Have you seen any examples of banks that have figured out a way to do it at the branch level where it doesn’t antagonize people the way it has in the past?
Banerjea: Well, banks in Turkey, Malaysia, and India have done it. There you either have a smart card or you have a card that you swipe when you come into a branch. If you are a much more valuable customer you are moved ahead in the queue. What that swipe does is give you a unique number based on value. In some banks you’re actually asked to choose what service you’re seeking. Is it checking, is it lending, is it deposit, is it something else? And based on that the queuing system takes care of it. If you’re a valuable customer the algorithm in that queue pushes you forward. But it is not making it very obvious.
ABABJ: Any interest in the U.S.?
Banerjea: Bankers here have expressed interest but we are not aware of any institution here that is consciously having either separate queues or a queuing system. In the U.K., banks use kiosks, and there you don’t have to use your card. It’s a touch-screen kiosk and you key in your I.D. You authenticate just as you would online and then it asks you what you want to do. If it’s bill payment or something else maybe you can do it yourself, or if you want a service agent it just queues you in.
ABABJ: What about in a private banking environment?
Banerjea: On the private bank side we have seen some more interesting examples. You have RFID [radio frequency] chips that automatically inform the relationship manager when you pull into a branch, so that by the time you have parked your car and go into the branch, the relationship manager is waiting for you.
PRIVACY VS. SHARING
ABABJ: That gets to the question of customer acceptance and whether they are willing to be identified as they walk in.
Banerjea: You raise a valid point. Upward of 70% of American consumers, however, say that they’re quite comfortable sharing information as long as they get value in return.
I think privacy is getting redefined. Different generations are looking at privacy in completely different ways. Look at customers willing to share their credit card information in their Twitter accounts, so that others can know what they’re spending. That to me is a huge sharing of very private information with their friends and peers.
All of the social networking companies that are market leaders are very focused on sharing of information, whether it’s Mint or it’s somebody else that are truly aggregating the data and sharing it with a small segment. However, all these models for the most part are permission based, as they should be. But banks are unable to create disruptive models that can truly leverage this large customer population, so at this point striking partnerships with these companies is probably the best available strategy. You have the banks in the middle but then you have value-creating companies—Couponmom.com, Restaurant.com, Zagat resources—how do you map these two together?
These are disparate companies which the customer is visiting separately and engaging in individual transactions, but they all require payments at the end of the day. So why can’t banks instead of focusing on payments in isolation get into the middle of being the value provider and charging these companies a fee for the service provided?
ABABJ: Okay, so they ought to work more closely at an earlier stage with these start ups. Which ones do they choose?
Banerjea: Well that’s going to be the trick. When Heineken promotes a concert they provide you with an RFID embedded bottle opener if you sign up on their website. It’s permission based, and when you log in you are sharing credit card information and they send an applet which resides on your mobile phone. You can use that applet to either pay for Heineken beer or take pictures of the bar code on a Heineken can which then gives you an instant reward that is captured on your personal website. When a new concert is scheduled they inform you that you have a preferred line to buy beer, for example. So the linkage is, if you share with me I’ll do something special for you.
ABABJ: I get the principle and I get that example. Maybe we just need to take it a step further and say, how would a bank get involved with that?
Banerjea: Well there are opportunities if you start pushing the localization angle. If the customer is willing to share with you and allow you to track and understand more of his spending behavior, on the bank side the personas are getting richer and the profiles are getting much more genuine and connected. Then the question becomes, are you able to again provide a credit based on the behavior pattern of the consumer? Even simple things like, if a bank is able to know in real time that you are visiting a Lexus dealership. I’m pushing this out, but I don’t think I’m pushing it too far out because these are things that can be done today. Other industries are doing it in different forms. If you are visiting a Lexus dealership you go to Edmunds.com right? And banks can track your online movement if there’s a mobile connection that feeds in—only on a permission basis, not done without telling the customer—and the bank also knows that you have had a loan with the them. How many banks actually make a proactive offer when your loan is coming to an end, with suggestions, given all that you know about your customer? Not just the suggestion of a loan, but saying these are the different cars that you can buy.
So maybe the bank strikes a partnership with the auto company. What we are saying is don’t just try to sell your products alone. Sell solutions which involve your core products but with other value-added service offerings which will make your customer’s experience better.
BE MORE TRANSPARENT
ABABJ: For some reason people’s relationship with banks does seem to be different than it is with other retailers or companies in terms of sharing personal data.
Banerjea: The trust gap is huge currently. How do you regain trust is the fundamental question, right? Transparency is a big factor—transparency, honesty, charging what should be charged and really delivering value with both parties perceiving that a value is being delivered.
Banks can do a lot even with basic services, such as a loan application. Think of the differences between the typical loan process and how other companies do things. You apply for a loan and then you wait to be told whether you are going to get the funding. It disappears into a black box. You are only contacted if you are required to provide more information.
When you go to Amazon, e-Bay, or Zappos, however, or even to Paul Fredrick, which just sells shirts, you are told every step of the way where you are right from the time your card is approved when an e-mail hits your in-box. When the shipment goes out you are told it’s just shipped from the warehouse and then when it gets closer to you, you get another email saying it’s coming. So you’re being kept informed. Now why can’t a bank break the loan process down into, say, five steps? Make it transparent on their website and say these are the five steps you are going to go through. Also the level of customization that the customer is experiencing in terms of choice and being able to see instantly the impact of the choices on the end price does put banks at a disadvantage.
Banks spend the most money in technology but they are not spending it smartly enough.
I want to digress to show why a teller station can be so much more transformational than the way it is. If you look at a McDonald’s station, the clerk has to hit three keys to order coffee. He has to select coffee, he has to select the size, and he has to select the flavor. McDonald’s want to shave five to ten seconds from the time it takes for this guy to think and hit each key as the customer is placing the order. They want to have the clerk just hit one key to make the transaction smoother. This might appear simple but not too many banks are approaching the service problem thinking as retailers or quick service restaurant companies—there is an opportunity here to learn and implement from these industries.
Now think of the teller station. We are actually working on a project to have touch screens at teller stations. Right now you have keypads, you have a mouse, and so on. When you analyze a teller transaction, 90% of the transactions are limited to about six or seven different types. So why not have a simple tablet that just has those six or seven transactions that you can just hit?
The argument I am making is as part of the journey towards regaining trust you promote transparency, you promote swiftness and fast service because the customer really doesn’t want you to spend too much time pressing those keys. They want the service to be done quickly, but they also want you to have face time with them, which is really the value.
CORE CHANGE NOT REQUIRED
ABABJ: Can the technology that enables some or all of this be implemented easily with existing legacy systems, or does it require an upgrade to the core system?
Banerjea: Our philosophy is that even with core banking renovation, the transformation will be a staged approach, as opposed to it being a big-bang, multi-year engagement. Breaking the change into understandable sections naturally helps reduce the transformation risk. And some of these change projects are going to require a lot less of an investment, but the banks will get value out of making these investments from creating a buzz in the market and ultimately impacting their customers, which will help banks regain customer trust.
It is a challenge. Some of the things that we are doing at one of the largest banking institutions here in the U.S.—which started off as a cost-reduction play and now after almost a year and a half it’s beginning to transform itself into a customer-focus play—the first part of it was how do I reduce those tremendous data redundancies, tremendous number of data repositories? We were able to bring all of that to a reasonable number of repositories given the number of acquisitions the bank had made and the legacy platforms they were running—literally from more than 50 to about eight or nine. Once you start doing that you can create virtual storage repositories that will collect the right information that is necessary for you to make a decision. We are doing all of that because they can’t wait until they change the entire back end. The two have to happen in tandem and so this is the reason we are taking the approach of gradual renovation to address some of these customer-driven needs. So it’s really being driven by the market. And unless you do that you’re not going to be able to stay ahead.