How can banks take advantage of technology?
"Information itself is not empowering, it's what you do with it"
Digital technology has transformed virtually every industry and service that touches our lives, but for many, its potential to transform our experience of banking remains at least partially untapped. How far can technology help to ensure that consumers receive banking services that properly reflect their needs and enable them to capture more benefits from the digital data that banks collect about their spending and saving behaviour?
During the Labour Party conference in Manchester, Prospect and Santander brought together a group of experts from areas including politics, consumer advocacy, retail banking and technology to examine this question and discuss the lessons that banking might learn from other industries. The government has been developing the Midata agenda since 2011, which aims to help people access their personal data. “Giving people greater access to their past buying and spending habits can help them to make better buying choices,” says the official Midata web page.
Sue Willis, Managing Director of Customer Experience & Channels at Santander, says the Midata initiative offers important opportunities for the banking industry. “Harnessing the power of this information allows banks to be more personal, allows the industry to be more competitive, and allows us to correspond and communicate with customers in a way that suits them,” she says.
As Labour MP George Howarth pointed out at the event, however, less well-off consumers frequently remain at a significant disadvantage to more affluent people in the ways they are able to access financial services, which raises the key question of how they are to become more empowered. This is particularly true for those who are less confident in understanding how financial products work and therefore how to compare them, as well as for some older consumers who are less confident users of technology.
There is also the problem, as several speakers pointed out, that the sheer volume of data that is available today can overwhelm our ability to use it to our advantage.
“Information itself is not empowering,” says Alan Mitchell, Strategy Director of the consultancy Control Shift. “It’s what you can do with it.” He points to the emergence of “personal information management services” – companies that help consumers to harness the value of their personal data to make better decisions. To succeed, he says, these companies need to do several things well. They need to give people confidence in the service; help them understand their own behaviours; lead to outcomes that are individually relevant; and they must be extremely streamlined and easy to use. He believes there are at least 400 companies now focusing on this area with one launch a week. “About $2bn has been invested in this area over the past couple of years,” he says.
A vital area that John Gibson of Nesta identified is the ability to blend a consumer’s bank information with other types of service. He pointed to the example of Kashflow, which provides accounting packages for small businesses that link their bank information with HMRC’s VAT collection system, allowing people to complete their VAT returns in a matter of minutes. “We need to think slightly more widely than just downloading data and more about how you can get banks to integrate with third parties to open up that kind of value for their customers—businesses or retail customers,” he argues.
Richard Koch, Head of Policy at the UK Cards Association, highlighted the example of comparison shopping for credit cards, where simply having access to your record of purchases is not enough to ensure you are offered the most appropriate products for your circumstances. However, he said, innovations are now available that let comparison sites use a replica of the scorecard that banks will use to decide credit card applications and by enabling a consumer to link that to their personal credit history, they can search for products that they are likely to qualify for. “Therefore the consumer can be matched appropriately to a product they’re going to get.”
The way data is presented is also vital in enabling people to make proper use of it. Pete Moorey, Head of Campaigns at Which?, highlighted an example from the energy industry where the US company Opower is giving consumers visual presentations of data to help them understand their own energy usage, as well as and providing tips and information on how they can change their consumption patterns in order to reduce costs. Services such as this enable companies to give their customers much more individually tailored information about how to save money.
The challenge of consumer behaviour, however, remains one that technology may not be able to address on its own. For example, many consumers are tempted by upfront incentives to choose products that in the longer term may not turn out to be the best for their circumstances. Behavioural factors such as these are playing a growing role in the thinking of regulators such as the Financial Conduct Authority.
Similarly, financial capability has a powerful influence on how consumers choose financial products. According to recent research by the Money Advice Service, large percentages of those who took out payday loans did not understand fundamental aspects of the product, said Richard Koch of the UK Cards Association. Technology is making access to financial products much faster, frequently without any form of professional advice, which is both increasing people’s ability to transact and increasing the risk that they may purchase a product they do not fully understand.
Some consumers, according to Adam Scorer of the Citizens Advice Bureau, will use up to six price comparison sites before making a purchase decision. Others, however, are not willing to spend more than a minimal amount of time researching their purchases and in these cases, services that harness the “wisdom of the crowd” can provide a way to reach speedy decisions based on the aggregated opinions of others. Alan Mitchell pointed to the example of Justbuythisone.com, which ranks products according to the reviews provided by thousands of other consumers.
“If you don’t want to think about it and you just want to make a decision, work on the basis that everyone else has said this one is the best, so just buy this one,” he said. “A properly consumer-empowering service has to address the decision-making style and preferences of the people you are serving.”
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