From sending executives to Silicon Valley so that they can experience innovation, to asking customers to help with product development, Nordea Bank is on a cultural transformation as much as a digital one… and that, says Chris Crespo, will be more enduring than technological change.
Chris Crespo: My role is essentially to work with the ecosystem, scan the market and understand what’s happening in terms of latest trends, customer disruption – not only in financial services, but in all other industries. I bring all that knowledge internally and work closely with our executives to ensure that our strategies are future-proofed against how customer behaviours and expectations are changing – and also what other industries are doing in response to that. Because the biggest disruptive force we’re facing, as an industry, is our customers. They are the ones that are dealing with companies outside financial services that treat them to supreme customer experiences because they’re invested heavily in removing friction, in hyperpersonalising that experience, in integrating the online and offline experience. That expectation is spilling over into banking.
Tfm: So, do you think there are any elements of the financial services industry that other industries look at and think ‘I wish we could be like that’?
CC: I have not come across one, to be honest! I think that’s because we have been heavily regulated for a very long time, which has, in some respects, stifled our ability to up our game. For example, in the use of data. Other regions in the world are more lax when it comes to data protection. The General Data Protection Regulation (GDPR) is only an issue for companies that want to store and use EU citizens’ data, but it does not apply for non-EU citizens. In China, for example, Tencent, Baidu, Ant Financial, etc, have all been able to innovate exponentially, due, in part, to the fact they are subject to less regulation. Meanwhile, retail companies, in most cases, have less of a regulatory burden, so they have been able to experiment with data in a way that financial services industries have not.
Tfm: Is it really only regulation that has held banks back from being able to utilise data as effectively as they could?
CC: That and our legacy infrastructure. Banks have traditionally captured a lot of the data from customer transactions, but the problem is that the data is available in an unstructured way and it’s really difficult to derive any insights from it, let alone the foresights and predictive analytics. Newer companies are able to build that into their infrastructure from scratch – although what they lack is the richness of historical data that we have.
Tfm: When you are able to access that unstructured data, what opportunities does it create for you as a bank?
CC: This all is about meeting the customer where they want to be met, serving them in the way they want to be served, personalising banks’ services to their particular needs. Monzo, for instance, allows them to customise the way in which they see their app. So, if you don’t like looking at your balance because it’s always bad news, you can put it further down the page. Then, there is the use of data to anticipate what the customer might need from you – hyperpersonalising the customer experience. Nordea has a unit dedicated to initiating dialogues with customers in a completely different way to understand the things that concern them in life and then try to match our capabilities to that, and develop new services that are able to address the specific needs they have – not just from a bank, but overall in life.
Tfm: How might addressing customers’ broader – not just financial – needs create opportunities for future revenue streams for a bank?
CC: Banks make the most of their revenue through commissions, fees, interests and penalties, and that’s been almost unchanged for 600 years. But now we’re seeing less and less demand for traditional banking services, and customers are saying ‘you already know so much about me, how can you add new value to my experience?’. So I think this is not so much about what new lines of revenue we can find; it’s more about how we can serve our customer in new ways and deliver different value propositions to them. The revenue will follow. Data, of course, is one of the ways in which we can start offering new value. You have, for example, lifestyle banking – there are some banks in Asia that are doing this already. If, by using my data, the bank develops an understanding of my preferences as a consumer, that allows it to act as a concierge for me. The bank doesn’t profit from me directly, but can say: “We know you so well that we will help you by making you aware of things that you might be interested in buying, or services that you might be interested in consuming.” It then turns to the merchants and says: “I have a really fine-tuned, curated platform, with information about my customers. I will not give you the data, but I can help matchmake between you and customers that are most likely to buy your products and services. If you want to have access to that matchmaking capability, you will have to pay me.” We scale that up by developing a highly intelligent database, with a lot of AI and algorithms that are focussed on getting just one thing right: the likelihood of the consumer’s next decision being X or Y?
But this is just one example of ways in which banks can use data to deliver new value to customers. We’re also starting to see point-of-sale loans, for example, or even post-point-of-sale loans, where the bank says: “You’ve just spent €1,000 on this TV. We don’t need to take the money straight out of your account; would you like to defer payment in four instalments?”
Tfm: How does multibanking affect this new value proposition?
CC: Banks can take the aggregator approach and give customers a full overview of all a customer’s accounts in one place. But, in reality, if you put the customer at the centre, I think there are better ways of addressing the issue of how they manage multiple accounts. Because, ultimately, it’s not that the customer wants to have them all; they do it because there are different value propositions that these cards offer. So, I think the issue that we should be trying to solve is how can we meet all the needs of customers, in one place, without forcing them to go to various providers, and make the experience as frictionless and as convenient as possible? It’s a change of mindset. It’s not so much: there’s this problem, how do we solve it? It’s about understanding the customer need that is generating the problem and addressing that. It is only when banks realise that it’s not about pushing products and services, it’s more about serving a specific customer need, that we will be able to really turn the industry around and start unlocking all the possibilities that digital transformation holds.
TFM: So, what’s on Nordea’s digital horizon in 2020?
CC: Our digital transformation is happening in three steps. The first is the replacement of the core banking platform with T24, getting rid of redundant systems, slimming down infrastructure and our product portfolio, to allow us to become more responsive and agile. The next stage of our digital transformation is doing things differently. This is where we’ve taken the existing business model and thought, how can we improve the efficiency and the way in which we provide some of these services? That has led us to look into automation, robotics, artificial intelligence (AI), and start deploying some services along these lines. But, for us, technology is disposable. It will continue to change and something else will replace what we’re seeing today. So, there are a number of things that we’re doing to complete a digital transformation, beyond technology. We’re starting to engage customers to see if they really want products we’re thinking to developing. That’s a huge departure from the traditional way of developing products in banks.
We also believe that digital has to be experienced, so we expose our leaders to what we call experiential learning programmes. In some cases, we have taken them to Silicon Valley or China, to see what digital developments from leaders in other industries look like. We realise that we don’t have the monopoly on good ideas. There is fantastic innovation taking place outside the bank, and it makes very little sense for us to try to copy that when we have the option to partner with these companies.
If we come up with really innovative solutions but fail to change the mindset, it will be like planting a seed on sterile ground. We need to make sure it’s fertile for these new ways of delivering value to customers to flourish. 2020 is very much about getting that mindset shift.