European banks are focusing their innovation efforts on customer experience, a study by PwC Luxembourg has found. Though the study was conducted before the outbreak of the novel coronavirus, PwC’s Banking Industry Leader Roxane Haas believes Covid-19 will lead to a further acceleration of innovation in the field.
‘I believe the virus has positively impacted innovation initiatives, as it has accelerated a trend towards more digital solutions’, she told Investment Officer in an interview. For its study, PwC looked at all innovations the world’s top-50 universal banks and top-25 private banks in terms of assets under management announced in 2019.
Of the 244 new innovations PwC’s researchers counted in seven categories, 57 were in the area of customer experience. ‘There are two reasons we see a relatively large focus on customer experience’, says Haas. ‘Banks have been under pressure for a number of years to change the way they interact with clients. And there has been a lot of innovation in the payments industry in recent years.’ This did not stem from banks, however, but mostly from technology companies such as Google, Apple and Alibaba, she adds. ‘I think banks have now realised they need to embrace innovation to maintain proper relationships with their clients.’
Mobile app
According to Haas, banks mostly focus their innovation efforts in customer experience on two areas. ‘The first priority is having a perfect mobile app that assists clients not just for their banking services, but in many other areas too’, she says. ‘These apps should be able to function as an all-round financial assistant to serve clients on a day-to-day basis.’
The second spearpoint is the development of ‘an Alexa for banking’, as Haas calls it. ‘Banks are launching virtual assistants that for now only can answer simple questions like ‘What is an investment fund’, but I expect this to be a major focus area for the next few years.’
Asia
Contrary to Europe and the US, recent innovation initiatives of Asian banks tend to focus more on artificial intelligence. ‘This is not because Asian banks care less about customer experience, but because they are ahead of European banks in this’, clarifies Haas. ‘They don’t have similarly stringent rules on data protection as in Europe, which makes it easier for them to use customer data for innovation purposes. This gives them an edge over European banks.’
Hence Asian banks have already moved on to the next stage. ‘They are now focusing more on creating value from [customer] data.’ Most of the Asian AI initiatives are related to corporate banking, however, Haas adds. ‘Chinese banks are for example on forefront in improving transaction processing in the mutual fund industry. An example of this is the Agricultural Bank of China teaming up with JingDong Group [JD.com; a leading Chinese ecommerce platform]. The bank launched a smart custody services to achieve one-stop transaction and post-transaction services for mutual funds.’
Partnerships
This is an example of another strong trend: the rise of partnerships between banks and tech companies, start-ups and fintech boutiques to foster innovation. Some 89 of the 244 observed innovation initiatives in 2019 involved such partnerships. ‘A number of banks around the world are realising they simply do not have the required internal resources in order to keep pace with the latest tech developments,’ explains Haas.
Most of these partnerships can be found in Europe, though many involve overseas partners such as Microsoft, Google and IBM. An example of such a partnership is an early warning system for ING powered by Google to identify whether clients are exposed to risks such as money laundering.
Haas does not, however, believe a company like Apple will eventually launch a bank or acquire one as the operational environment of a bank and a tech company simply could not be more different. ‘Tech companies want to develop the most efficient technology quickly, and get it ready for the market as fast as possible. Banks, however, are regulated and it therefore takes them much more time to develop an application.’ Haas believes, therefore, that the number of partnerships between tech companies and banks will continue to grow over the coming years. But a tech-bank marriage is not a realistic prospect.