3. Customers in a Digital Age

Question 1

What are the two main causes of the shift to become more digital in retail banking?

Answer 1

1. Advancements in technology
2. Smartphone consumption & usage being at an all time high

Question 2

How many people have access to the internet globally?

Answer 2

4.1 Billion

Question 3

How did UK Finance change following the 2007-2008 financial crisis?

Answer 3

Before, the traditional banks had little reason to change. Majoirty banked with the same 5-6 high street banks and they didn’t tend to switch as products were all very similar.

After, venture backed digital banks began to emerge. They had VAST marketing budgets and spotted a gap in the market for digital. They are now major competitors of traditional banks

Question 4

What is an incumbent?

Answer 4

Long standing traditional bank, e.g Barclays, HSBC, Lloyds, Natwest, RBS

Question 5

What are examples of challenger banks?

Answer 5

Starling, Monzo, Revolut

Question 6

What proportion of UK have signed up to digital only banks (fraction & percentage)?

Answer 6

1/10 or 12%

Question 7

Who was Open Banking introduced by? When was it introduced?

Answer 7

The Competition and Markets Authority (CMA) - 2018

Question 8

What is Open Banking?

Answer 8

To compete with digital banks, traditional banks employed third party providers to develop digital services for them that they did not yet offer.

Question 9

What does a third party provider need to be able to receive customer data to carry out open banking (2)?

Answer 9

1. FCA approval
2. Permission from the customer to share their data

Question 10

Were incumbents quick to join open banking? Why?

Answer 10

No, they were reluctant. They thought third party providers were ‘dumb pipes’ going in one direction i.e. they are giving data away and not receiving any back

Missed that this was actually an opportunity to maximise the data held by third parties to generate revenue streams, i.e the third parties already had the attention of the custs the banks were trying to attract

Question 11

When collaborating, what can a traditional bank offer a fintech? (7)

Answer 11

1. Risk management
2. Infrastructure
3. Regulations
4. Customer trust
5. Economies of scale
6. Brand name
7. Capital

Question 12

When collaborating, what can a fintech offer a traditional bank offer? (6)

Answer 12

1. Agility
2. Innovation
3. Cost reduction
4. Consumer experience
5. New products
6. Data handling

Question 13

What affect did Covid have on online banking?

Answer 13

12 million more banking app downloads

People now used to around the clock access, this is too expensive to do in person, so banks need to offer digital

Question 14

What must banks consider about the following when going digital?
1. Product design
2. Rebranding
3. Education

Answer 14

1. Must be purpose made
2. Must seem modern. Use more distribution channels to get more customers
3. Both customers and employees need to be taught how to use the new tech safely

Question 15

What was the AI Winter? How long did it last?

Answer 15

When experts knew AI was coming but we were technically ready yet. Lasted 60 years, now over

Question 16

What were the 3 key breakthroughs that ended the AI winter?

Answer 16

1. GPUs (Graphics Processing Units) - access to cheaper, better GPUs brought about by demand for computer games.
2. Big Data - how AI learns through collecting or storing data.
3. Algorithms - neuronets of algorithms stacked into layers allows AI to learn and react more quickly

Question 17

When did branches start declining? What has happened since?

Answer 17

January 2015 - 3,588 closures since, around 55 a month

Question 18

Which area has been hit hardest by branch closures?

Answer 18

The South East

Question 19

How have customer visits to branches changed between 2012 and 2017

Answer 19

2012 - 140 visits per day
2017 - 104 visits per day

Question 20

Why are incumbents finding it difficult to retain customer trust? (3)

Answer 20

1. Financial crisis
   Made worse by:
2. The arrival of Neobanks
3. Growth of Tech Giants like Amazon and Google - these companies already have the trust and loyalty of millennials and Gen Z over other financial institutions.

Question 21

When would you have to be born to be considered Millennial or ‘Gen Y’? How would you characterise this generation?

Answer 21

1980-1995

1st Gen digital natives
Confident, curious, question authority

Question 22

When would you have to be born to be considered Gen Z? How would you characterise this generation?

Answer 22

Mid 1990s-Mid 2000s

Extremely tech savvy.
Financially focussed, competitive & entrepreneurial

Question 23

What are the four main strategies banks can use to regain trust?

Answer 23

1. Frictionless interactions/experiences
2. Transparency - nothing hidden or unexpected, e.g. fees or T&Cs
3. Excellent 24/7 customer service across all channels of communication and distribution
4. Understanding customers & communicating with them as individuals (as opposed to as group demographic)

Question 24

When was the data protection act introduced?

Answer 24

1998, but has been updated since

Question 25

What does GDPR stand for? When was it introduced? What change was brought about? What was the main challenge surrounding it?

Answer 25

General Data Protection Regulation. Introduced in May 2018 to replaced outdated EU data privacy rules from the 90s.

Consumers have control over how their data is accessed.

Was good for protecting customers but very onerous for banks who needed to replace their IT systems

Question 26

What role does the FCA play in customer data protection?

Answer 26

Collects and stores data on individuals and companies

uses the data to identify financial irregularities, alter the authorities and protect the public

Question 27

What is SCA? When was it introduced?

Answer 27

Strong Customer Authentication - a two step identity process used to reduce fraud and protect assets.

Introduced in 2019-2020 (but online shopping and ecommerce had until Sept 2021)

Question 28

What should banks consider with regards to personalisation based on AI and data analytics?

Answer 28

Banks should not become too focussed on tech that they forget about the human customer

Question 29

What should personalised banking be? (4)

Answer 29

1. Relevant
2. Transparent
3. Contextual
4. Embedded in customer interaction - achieved through notifications, alerts & offers sent in real time

Question 30

What is the most popular cloud service?

Answer 30

Amazon Web Services

Question 31

What were the initial concerns over the cloud? (4) Do they exist any more?

Answer 31

1. Speed
2. Capacity
3. Cost saving
4. Data breeches

no longer concerns, now mainstream

Question 32

What are AI and machine learning good at doing? What is it unable to do?

Answer 32

Good - making predictions about what products and services suit us best
Bad - lack emotion and reasoning

Question 33

What are 4 examples of tasks where automated processes need human backups?

Answer 33

1. To pay in a cheque - cheque images is possible on mobile phones, but only up to £500 limit
2. To vent frustration to customer services
3. To discuss investments
4. Wet signatures for things like mortgages