Can empowering consumers create better banking?
How do we empower consumers? Or, more accurately, how do we further empower consumers? In many spheres of both corporate and public life people are vastly more empowered than they were a decade ago. The range of products on our supermarket aisles has expanded hugely. Disruptive challenger brands have upended traditional ways of doing business. Neither are these trends restricted to the market. We exercise greater choice over public services than our parents could have ever imagined. If choice defined the first wave of empowerment, information can define the second and in the process create a better banking system.
Consumers today have more information at their disposal than at any point in human history—so much so that we inhabit an “information age.” For example, research by the University of Southern California shows that every day the average person produces six newspapers’ worth of information compared with just two and a half pages some 20 years ago—nearly a 200-fold increase. The Journal of Science found that there are approximately 295 exabytes of data floating around the world. To put that in context, one exabyte is roughly the equivalent to 36,000 years of HD-TV, or the equivalent to streaming the entire Netflix catalogue 3,177 times, according to Cisco.
In itself, an explosion in the amount of information is of limited use—indeed it can confound more than it can help. To realise the true potential of this change we need to be able to make use of this information. These are the conditions for real consumer empowerment and potentially better banking. So how can banks play their part in unleashing this information potential?
One potential example is the Midata initiative. This will enable current account holders to download their past 12 months’ current account transaction history for use with a price comparison website. This data can enable the price comparison website to build a sophisticated profile of how a customer used their current account over the past year. Armed with this understanding, the customer can then make an informed decision about the best account for them, without having to spend hours crunching data and making imperfect calculations.
This is just an one example of how using information intelligently can surmount barriers to consumer empowerment. The ultimate potential may prove far greater. For example, could banks help a customer switch to a better deal on their household bills based on insight on their spending? I want to end by setting out some initial thoughts on what this second wave of consumer empowerment could mean for banking.
Entrusting customers with intelligible information on how they have used a particular product can help demystify it. This can help to even out the amount of information available to the provider versus the amount available to the consumer. Crucially, it can overcome a key source of confusion by giving customers the aggregate picture of how they use a product composed of the thousands of purchases they make. Yet, as important as transparency is, it is not an end in itself. Helping customers better understand products and how they use them can give them the confidence to make better comparisons between products and remove some of the inertia which discourages people from switching their current account. In this regard it can be instrumental in greater competition.
Breaking down this cognitive barrier is also vital to improving trust in banks and engagement with their products. I know how important being simple, personal and fair—in our behaviour and products—is in cementing a trusting relationship with our customers. Harnessing the power of information not only helps people see products in a clear and simple way, it can also allow banks to give them a more personal offering. Banks are now able to build a high resolution picture of how our customers choose to bank, based on which we can offer products and services that fit their lives. For example, because we witnessed a sharp increase in mobile banking usage, 62 per cent between August 2013-2014 and a 245 per cent increase since August 2012, the industry responded by collaborating to enable customers to make near real time payments using only a mobile number.
Cumulatively, these changes could be transformative. We know that inertia and opacity are the bedfellows of sluggish and uncompetitive markets. The empowered, confident and informed consumer is the best way to make banks competitive to attract and serve customers with great products and services. In short, it is the surest route to better personal banking.
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