There’s clear evidence of how much the COVID crisis has driven online uptake in the traditional retail banking sector from the revelation by NatWest that 58% of its customers are now digital-only, up from 46% a year ago. As in-store banking business levels correspondingly decline, there are obvious agenda item priorities here, says CEO Alison Rose:
We are investing in digital transformation to create a relationship bank for a digital world. In other words, a bank where customers can interact with us in person or online at any time of the day and from any place they choose…Our ongoing digital transformation, together with initiatives…in each of the businesses, will help us acquire new customers, drive additional revenue generation and support our lending growth target.
The new customer prediliction for online and digital has been seen in many forms since the pandemic hit home. As evidence, Rose points to video banking meetings that are now running at a rate of 15,000 a week, up from less than 100 a week a year ago, or the use of the bank’s AI chatbot, Cora, which has seen a 67% growth rate during 2020, with 40% of its nine million interactions completed with no human intervention.
That latter statistic is one that is shaping future thinking within the bank, moving automation of process higher up the ‘to do’ list. Rose explains:
Customer journeys currently account for 30% of our cost base, so transforming them through greater automation will have a significant impact on our operating costs. We were able to extend over £8 billion of bounce back loans last year by creating an end-to-end digital application process within the space of a week. We also used automation to improve account opening in Commercial Banking last year, resulting in a Net Promoter score of 60, up from 16.
We are building on this experience to continue to transform other customer journeys. For example, since last September, customers have been able to renew their mortgage online in a simple straight-through process that takes as little as ten minutes compared with anywhere up to 23 days when the process was manual. Our mortgage retention levels improved to about 80% in 2020 compared to about 70% in 2019. We’re now planning to extend digital decision-making across all our channels, creating greater speed and certainty for our customers. With further automation like this, we are targeting gross savings in the region of £300 million by 2023 as part of our cost reduction target of around 4% per annum.
But creating such savings require significant upfront investment, admits Rose:
We intend to invest £3 billion over the next three years, of which more than half will support our income growth and cost reduction initiatives. Our aim is to build a technology and data-driven business supported by greater automation, Artificial Intelligence and robotics in order to improve customer experience, increase efficiency and reduce costs. In an uncertain economic environment, we continue to do everything we can to support our customers whilst advancing our strategy and accelerating our digital transformation.
Meanwhile at HSBC, Europe’s largest bank, digital banking usage is up 30% on the pre-COVID period. CEO Noel Quinn inevitably attributes the increased shift to the impact of lockdowns:
As the pandemic took hold, our customers' digital engagement increased dramatically. We were already investing heavily in digital and technology, but we responded by rapidly accelerating the digitization of our business.
This uptick in digital engagement can be seen in some key stats:
- 90% of HSBC personal banking transactions globally are now done on a digital platform.
- There were 1.28 billion log-ins to its personal banking mobile apps in 2020.
- Over 10.5 million chat conversations with personal banking customers last year took place online.
The strategy moving forward is to build on this and digitize at scale to improve services and reduce costs, says Quinn. As with NatWest, that’s going to mean investing:
We see our digital agenda as presenting opportunities for both revenue growth and cost efficiency. In the last year, we spent around $5.5 billion on digital and technology. The impact of this is coming through our digital engagement and [customer] ratings, in our revenue, in our cost base and in our ability to operate a global business in the middle of COVID. We wouldn't have achieved what we have already done without that historical investment.
But while that earlier action has paid dividends, there’s now a need to take the next steps, he adds:
We need to build skills and capabilities in areas that are different to what we've needed historically, particularly in digital, analytics and sustainability.
Investing here will enable tech to become a competitive differentiator for the bank, according to John Hinshaw, Group Chief Operating Officer, spearheaded by its Digital Services Business, previously HSBC Operations, Services and Technology and renamed to reflect the importance of the services-centric approach and a DevOps mindset:
We've spent more on technology, especially given increased customer demand due to COVID. But more important than the amount we're spending is that we're developing technology in a fundamentally different way. Our approach to building technology platforms has shifted from building bespoke local solutions to leveraging our scale. We will build once and deploy globally.
This change is complemented by a focus on automaton and digitizing end-to-end processes to eliminate manual work. To do this, boundaries between the front, middle and back offices are being knocked down so that work is processed with fewer - and ideally no - manual touch points. Hinshaw explains:
In 2020, for example, we processed 7.6 billion payments as a bank and they were worth $563 trillion. We increased our no touch rate on those transactions to 96%, but we can do even better. Our aim is to get above 99% no touch rate in the next several years. To get those last few percentage points, we're going to need to digitize the most complex payment processes. Reducing the number of people involved in manual work means they can be redeployed into revenue-generating roles and savings can be reinvested back into technology, creating a virtuous circle of digitization that unlocks customer growth.
Another goal for 2021 will be to expand the reach of Mobile X, HSBC’s flagship banking app, currently available in 20 global markets, with a further eight on track to be added this year. Over one billion dollars has gone into developing Mobile X over the past few years. It is now, says Hinshaw, “a bank in your pocket”:
It standardizes our core digital platform across all key markets, but one of the most interesting things about this new platform is the way it's driving personalized interactions. We marketed it extensively in Hong Kong last year and saw record credit card spending, as customers liked the improved experience. We've also received App Store ratings in many markets that are 4.7 or higher, which is up significantly from prior ratings..
Tech investment will also drive some workforce restructuring, Hinshaw, with a one third reduction in the finance function and back-end operational staff on the cards:
We will change the nature of the work the finance teams perform. We'll do this by migrating our analytics and reporting capability to an agile cloud platform…There's also an opportunity to materially shrink the number of manual processes, which will result in less need for the vast operations function in our bank today, which currently spans 74,000 resources. Many of these resources will be re-skilled for higher-value customer-engaged opportunities, including data and analytics skills that are in high demand.
And the tech talent internally is also set for a shake-up:
Our technology head count will be optimized to focus on agile development, and we will re-skill our colleagues with the technology skills needed for the future…Our commitment throughout HSBC is to attract and retain the best and brightest and most diverse colleagues for our journey ahead. Few, if any, other organizations in the world can offer the same breadth of opportunities that HSBC does to apply cutting-edge technology to solve real-life problems and improve people's lives.
As seen earlier in the week with Lloyds Banking Group, so-called legacy banks are turning to digital transformation to reshape themselves for an increasingly competitive market, a shift that has been given an unwanted push forward by the COVID pandemic. HSBC and NatWest have both done the spade work on digital and while their strategies might not have attracted the same profile as that of Lloyds headline-grabbing commitment to change back in 2018, the foundations are there for the next stage of banking evolution. Will it be enough to hold off the digital-only Youngbloods coming up to challenge the status quo? That will only be answered over time, but the deposits are being put down.