Cards and Payments: Delivering the Digital Opportunity · Cards and Payments: Delivering the Digital Opportunity A First Data White Paper A New Era of Competition Digital Native customers

A First Data White Paper

Cards and Payments: Delivering the Digital Opportunity How to Deliver Innovation that Customers Value

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A First Data White Paper Cards and Payments: Delivering the Digital Opportunity

IntroductionNew technology has always presented card issuers, whether they are banks or retailers, with challenges and opportunities. Fifty years ago issuers were in a unique position and could place themselves at the vanguard of innovation as credit cards and ATMs brought new products and channels into play. More recently, they were slower to respond to developments such as online banking. Issuers have generally been able to rise to the challenge and take advantage of the opportunities.

However, in the digital age things are different. Banks are under threat as never before...

The last decade has created new threats to banks and card issuers that exceed those of the past. The stars are aligning in such a way as to leave established banks and card issuers at risk of being left behind in the wake of new technology, new customers, and a new era of competition.

New Technology

This isn’t the gradual or incremental change banks have dealt with in the past. Both the pace of change and the rate of adoption and discarding of technology have accelerated greatly, driven by the ubiquity of mobile devices. Think of Facebook: it grew from zero to 1.2 billion active monthly users in just 10 years, and more than 75% of users access it via a mobile device!*

New Customers

The heavy use of mobile devices coincides with the emergence of a new breed of customer – the Digital Native. Customer needs and demands always evolve, but this time it is different. These consumers interact with many products and services in very different ways to their predecessors. Digital technology isn’t a novelty for them; it’s the de facto standard.

A Digital Convert may put up with being referred to a branch or telephony channel, or being asked to wait whilst something is sent in the post, because they’ve experienced those channels in the past. However, for the Digital Native, these channels may be completely alien.

NewThreat

NewTechnology

NewCustomers

NewCompetition

* Reference: http://www.theguardian.com/news/datablog/2014/feb/04/facebook-in-numbers-statistics



A New Era of Competition

Digital Native customers have a louder voice, more choice, and more encouragement to switch providers than ever before:

Metro Bank was the first new high street bank to launch in the UK for 100 years.*

UK Financial institutions have been forced to spin off parts of their businesses to create more competition.

The government and regulators in the UK are actively encouraging new entrants, making it easier for them to get banking licences (as of April 2014, 29 applications in process), and mandating that banks make it easier for customers to compare products and switch (for example, the Current Account Switch Service).**

Well-known retail brands such as M&S, Tesco, and Virgin have or are preparing to expand their financial services offerings.**

Start-ups such as Atom Bank are on the horizon, along with specialists companies, like TransferWise, who are taking advantage of digital opportunities to target specific customer needs with simple and highly efficient propositions.**

Following the global financial crisis, the trustworthiness of banks has been called into question as never before.

The rise of social media means that when banks get it wrong, consumers have a louder voice and conversely, when they get it right, advocacy becomes even more important.

Banks and card issuers recognise that digital is the future; Indeed billions of pounds and euros are being committed to drive digital innovation.

But banks are not recognised as places where innovation flourishes. So what can they do to be more successful at delivering innovation?

References:*http://www.theguardian.com/news/datablog/2014/feb/04/facebook-in-numbers-statistics**http://www.thisismoney.co.uk/money/saving/article-2606119/FCA-reveals-29-firms-lodged-banking-licence-applications.html



What’s Holding Banks Back?

The question that begs to be asked is whether banks and card issuers are really as customer centric as they’d like to think they are.

Annual planning rounds pin executives down to delivering “something on time” rather than “something that customers really want.” It’s a subtle difference, but one that means that banks are not truly focused on the end customer. Banks are forced to define solutions rapidly and often with little customer engagement to define the exact problem to be solved. As the organisation moves into delivery mode, the customer is left even further behind in the chase to deliver the solution on time.

The processes that surround delivery are focused on ensuring that the solution is technically robust, but time is not allowed to test whether or not it truly solves customers’ problems and will be commercially viable.

The opportunity to raise concerns about whether a solution will be taken up by enough customers to realise the benefits initial forecast becomes increasingly more difficult as the launch date nears and the often unrealisable benefits forecast get baked into plans.

Even when “customer research” is undertaken as part of the project, it is easy to fall into a trap of hearing what you want to hear or simply ignoring the obvious because it will delay the project.

It’s easy to see why this situation has arisen.

Banks are solid, secure, and conservative. Change takes place comparatively slowly and deliberately. It’s often complex involving old legacy systems that have to support a multitude of products, priorities, and stakeholders.

If a new product or service doesn’t work from a technical point of view, or adversely impacts another part of the system, millions of customers will be affected and a big brand will suffer.

On the other hand, if customers don’t take up the product or service, whilst that is commercially damaging it can often be absorbed – it’s normally a relatively small drop in the ocean.

However, in the current climate, it’s never been more important to be able to deliver innovation that is both technically robust and meets customer needs.

eStatements are a great example of banks delivering a solution that did not realise the benefits forecast, because they did not understand the customer need or problem being solved.

From a technical point of view, eStatements do exactly what was intended; they deliver a monthly statement in a durable format that meets a regulatory requirement and negates the need for expensive and environmentally damaging paper statements.

But, the reality is that most customers have not switched off paper statements, and as such, the commercial benefits have not been realised.

Why is this? Fundamentally, the issue is likely to be that customers don’t see a problem in receiving a paper statement.

The environmental benefit was not strong enough, whilst on the other hand recent research has suggested that customers are better able to manage and improve their finances when they receive paper statements.

The question banks should have asked their customers is how they can deliver on that need and fulfil their regulatory obligations through a digital solution.*

Reference:London Economics for the Keep Me Posted campaign, February 2015



A clear vision also helps to galvanise the team. It demonstrates commitment from senior leadership and empowers the team to take responsibility for delivering the vision on behalf of the organisation.

Of course, it’s no good having a vision unless you communicate it, and in the flat structure of a small technology company, that’s relatively easy.

Banks and issuers can’t reduce the complexities or scale of their large organisations to make it easier to communicate, but they can create a clear vision and then spend time and effort to communicate that vision across the organisation.

Fail Fast and Re-Focus

The ability to “fail fast” is another perceived advantage that benefits small companies. They can take “risks” and get away with delivering “beta” versions of a technology, which a large bank would not be able to do.

However, this view somewhat misses the point. It fails to acknowledge fully that the really important thing is how an organisation responds to that failure.

What Do Banks and Card Issuers Need to Do?

We must recognise and value the advantages enjoyed by the large players – strong brands; huge customer bases; understanding of the complex cards and payment ecosystem and regulations; and robust delivery processes. These strengths and assets should be cherished and nurtured.

There are some challenges that banks and issuers need to learn to live with, such as the difficulties of dealing with legacy systems and managing multiple stakeholders. But, there are elements of the way that banks and issuers operate that are not effective in light of new threats, which is why they need to seek ways to improve.

For inspiration, banks and issuers can look at how new start-ups and technology companies operate and consider whether they can apply similar thinking or learn anything from them; however, there is ‘no silver bullet.’

Vision and Communication

Small technology companies often have a very clear, almost single-minded vision.

Having a clear vision enables the organisation to have a real sense of purpose. That sense of purpose translates into focus, because everyone understands the desired outcome.

Efficient IT Systems

Clear Vision

Flat StructureFail Fast

Ability to Refocus

Benefits of Being Small

Google’s VisionGoogle, which not so long ago was itself a small, start-up, has the following vision:

“to organize the world’s information and make it

universally accessible and useful.”

> Source - Google: https://www.google.com/about/company/



The real difference is that, out of necessity, a small start-up has to respond rapidly to what it learns from both a technical and commercial point of view. Yes, they may benefit from being able to do this in a “beta” test mode that a bank would not countenance, but it’s the way they respond that is so vitally important.

Innovative companies use this data and knowledge. They listen to customer feedback. More importantly, successful innovative companies are flexible enough to be able to change direction and refocus based on what their customers are telling them. They don’t just keep pushing the same proposition.

If the solution needs to change, no one in the organisation is so wedded to the original idea that they are not prepared to change direction, sometimes quite dramatically, in order to deliver a solution that the customer wants. What’s important is delivering a solution that customers want and will buy, thus driving the commercial benefit that will sustain the business.

Consider again the difference in a large organisation where delivery of innovation is part of an extensive programme of projects focused on maintaining the business as well as delivering new capabilities. The reaction to one innovation that does not live up to expectations is often to move on to the next big thing, rather than to reflect on what can be learnt and whether there is an opportunity.

How can Banks Reap Similar Benefits?

To date, banks have responded by trying to get closer to innovative technology companies by exploring partnerships or even investments in technology incubator initiatives. Whilst this undoubtedly accelerates their ability to benefit from the work that technology companies are engaged in and the advantages that they enjoy, it doesn’t fundamentally address the challenges that banks have deep within their organisations.

As we outlined earlier in this paper, the focus moves very rapidly to solution and delivery with senior executives looking for certainty about what is going to launch and when.

The reality is that relatively little time is spent talking to the customer to understand what problem is being solved and to ask whether the solution proposed delivers in the best way. Too often, the desired “solution” is defined by the business far too early in the process, and this combines to tie the organisation down to delivery of the solution.

Ideation Technical Analysis Business Case Project to Deliver Launch

• Little time spent in ideation phase, actually talking to customers and iterating on the problem / solution • Projects move rapidly to solution and deliver

The typical development cycle for innovation within a large organization:

Deliver on time

“Successful innovative companies

are flexible enough to be able

to change direction and refocus

based on what their customers

are telling them.”



Is There an Alternative Way to Fail-fast?

Banks and issuers need to allow, and indeed should encourage, time for ideation and co-creation with the customer. This does not need to be expensive or overly time-consuming, but allowance must be made for the organisation to secure this input, to respond, and in some cases, to change direction quite significantly based upon it.

Organisations may find that the solution proposed is sub-optimal and can be improved. Or, they may discover that the problem needs to be reframed, and the challenge they believed needed to be addressed should be replaced with a different problem based on insight from the customer.

Banks and issuers may go round this process repeatedly before getting to a place where a truly desirable solution has been identified. But, this iterative loop effectively allows them to “fail fast” at low risk and cost as they explore concepts and low fidelity prototypes with customers.

New ways of approaching the problem can be considered rapidly. The problem itself can be redefined. In short, this process allows the organisation the opportunity to identify real need and deliver the best solution for that need. It obviously follows that this increases the chance of commercial success.

The process for innovation requires the organisation to change culturally to allow a degree of uncertainty at this early phase of development about just what is going to be delivered.

It could ultimately take longer to deliver a solution. But there will be much greater confidence that the solution delivered will be commercially successful, because the customer was fully engaged in both identifying the real need or problem and in the genesis of an ideal solution.

Further, banks and issuers may make up some of that time through a more efficient business case sign-off process. It should be possible to accelerate sign-off because real customer insight reduces the degree of assumption and the margin for error.

Ideation & Co-creation Technical Analysis Business Case Project to Deliver Launch

Figure 2. Getting Closer to the Customer

• Be prepared to spend more time in ideation / co-creation - phase talking to customers and iterating on the problem / solution

• Allows time for best solution to be arrived at, and for problem itself to be reframed• Delivery may take longer, but result should be both technically and commercially successful

Deliver a solution that customers’ want

The alternative is surprisingly simple but does demand significant changes in behaviour to allow “customer need” to emerge fully before committing to a solution.



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Bridging the Gap from Co-creation to Rapid Implementation

Improving engagement with customers in order to develop solutions that align with need is just one part of the challenge.

The other challenge banks face is how they can improve on speed of delivery whilst maintaining quality. In essence, having found the right bets to place, the question then becomes how do banks bring them to market more quickly?

With large customer bases and strong brands to protect, and knowing that they will be subject to lots of scrutiny, sacrificing quality for speed is not really an option.

Internally, the challenges of dealing with legacy platforms and having multiple stakeholders and competing priorities will remain. So whilst the approach outlined helps to improve banks’ ability to discover the right solutions to develop, it does not help to unlock the delivery pipeline or make it any wider.

How can banks accelerate on delivery? One answer is to work with a partner to open discrete digital servicing channels that enable bespoke innovations to be delivered alongside all the other change and maintenance that is being undertaken across the business.

By working with a partner who fully understands the complex ecosystem, the realities of delivery will be fully acknowledged and addressed, ensuring quality is maintained whilst helping the business to accelerate on essential digital Innovation.

Ideally, such a partner should be at the very heart of the payments ecosystem. From here, they will have the experience and knowledge required to deliver, whilst being solution agnostic having no vested interest in one option over another. These partners will focus on understanding and delivering the best solution that meets the customer need. In doing so, banks and their partners will create the right environment for innovation to flourish.

The Bottom Line: Ensuring Digital Innovation is an OpportunityThe digital change currently being witnessed comes at a time when banks are under pressure as never before.

Banks are committed to making investment, but must challenge themselves to do things differently in order to realise the opportunities.

The changes required are not overly complex, but they are significant:

• In the early stages executives and planners need to become comfortable with less certainty over what will be delivered and when.

• The upside for changing their position is that banks will have more certainty that what they invest in will deliver expected returns.

• New techniques must be embraced to engage with customers in the ideation phase and enable a low-cost and risk-free fail-fast approach through prototypes.

• Banks should seek to work with partners who are not just technologists but also have deep experience in the payments industry to help accelerate on delivery.

Working with partners that really understand the complexities banks face will ensure those challenges are acknowledged early on and dealt with to deliver solutions that work.

Conclusion

Documents

Cards and Payments: Delivering the Digital Opportunity · Cards and Payments: Delivering the Digital Opportunity A First Data White Paper A New Era of Competition Digital Native customers