Retail banking and the challenge of digitalisation
For day-to-day needs, digital services have quickly become the preferred means of interaction between customers and their banks. In 2016, 27% of them said that they no longer visit branches*, while a growing number of consumers are willing to open an account with a non-traditional player. At a time when Orange is preparing to launch Orange Bank, Jean-Bernard Mateu, VP Mobile Financial Services Europe and France, Orange and Pierre Sabatier, Chairman of the economic and financial research firm PrimeView and former market finance strategist present the challenges facing new entrants in the banking sector.
Digitalisation is redefining the landscape for many economic sectors. What is the situation in terms of the banking industry?
Pierre Sabatier: To understand how the banking world is evolving, it is essential to remember the structural challenges facing this sector: its regulatory framework is very strict – illustrated by the Basel Accords for instance – and this is not expected to become any more relaxed in the short term. The general economic environment is also affecting certain business lines, such as lending and investments, on which profitability levels are weakening. However, the levels of competition remain just as strong!
To meet these challenges, digital technologies such as mobile services or Big Data are making it possible to offer more personalised products, with a more responsive approach, while remaining competitive. However, it may take some banks a certain amount of time to acquire the technological know-how required by this.
Jean-Bernard Mateu: At the same time, the product offering is becoming more standardised: there are few differences in terms of current accounts and payment cards between the various banks. This is shifting the competitive focus to pricing, which is further reducing the room for manoeuvre available. From this perspective, fully online banks or FinTech firms are offering relevant alternatives.
Mobile banking apps also feature in the top three most widely used apps when people wake up in the morning...Jean-Bernard Mateu, VP Mobile Financial Services Europe and France, Orange
For banking customers, what changes are expected with digital technology?
JBM: Thanks to digital technology, customers are much better informed than previously about their own situations and the financial products and services available to them. Mobile banking apps also feature in the top three most widely used apps when people wake up in the morning. Faced with these changes, it is essential for the rest of the banking value chain to adapt: customers expect their bank to have a certain level of expertise and provide personalised support.
Alongside this, mobiles are making day-to-day life easier by becoming a means of payment in their own right.
PS: Digital technology represents a tool for both optimising and capitalising on customer knowledge. The information obtained represents a valuable source of differentiation for banks that have the right tools in place to translate them into product offerings. Knowing your customer means knowing their plans and being able to offer them truly personalised products that are effectively aligned with their needs. As a former portfolio manager, I have been able to see to first hand that placing your savings with a professional is all about confidence and trust, underpinned by a close customer relationship.
In your opinion, why are “non-banking” players taking an interest in this market that already has high levels of competition?
PS: From my perspective, the ultimate goal for a digital bank must be to prepare 90% of the services that it markets and allow its advisers to personalise the remaining 10% during their meetings. With this model, the relevance of the services offered will depend on the data collected relating to consumers: the real source of value is customer knowledge.
So, it is perfectly legitimate to offer banking services alongside your traditional core business: the two are compatible.
JBM: As providers of data and connectivity, telecommunications operators are particularly well-positioned to meet the challenge involved with customer knowledge. These firms have the technical capabilities to push new uses and effectively target the customers they serve. Not to mention the fact that many of them already have distribution networks and real experience interacting with customers.
Digital technologies such as mobile services or Big Data are making it possible to offer more personalised products, with a more responsive approach, while remaining competitive...Pierre Sabatier, Chairman of the economic and financial research firm PrimeView and former market finance strategist
Why has Orange decided to position itself on this market with Orange Bank?
JBM: For Orange, the first question has been: considering our knowledge of customers and their expectations, what business model are we going to adopt? The first step was to avoid becoming a simple distributor of banking products.
We opted to focus on a key area: the simplicity of our user experience. For instance, when opening a bank account, you will no longer need to provide a whole host of administrative supporting documents: your operator will already have various elements. You can simply visit a branch to open an account in just a few minutes with proof of your identity.
That is why I do not see Orange Bank as a diversification, but more an extension of our business as a service operator. This positioning will enable us to provide closer support for our customers for their various projects throughout their lives.
This initiative seems promising, because 60 % of the people we have surveyed would be interested in the idea of opening an account with Orange Bank.
*Source: French people are becoming increasingly independent from their banks, Deloitte, September 2016.