In an Open Banking world, where we believe we have a very significant advantage because customers in that multichannel, multi-brand, approach customers interact with us 16 times a month and growing. With the massive investments we are doing in technology, Artificial Intelligence, behavioral models, risk models, we are growing customers much better and therefore, we will be able to offer them the products and services they need when they need, in transparent conditions, at fair prices.
It’s all a massive opportunity, he declares, claiming the status of “the largest digital bank in the UK”, a ranking that he says is built on three key components for digital success:
First, you obviously need to have a good digital platform to start with, as customers are exponential using digital channels more and more. So this is not for three years time. This is for today. We have the largest digital bank in the UK, we have one of the best mobile apps as rated externally, and we have a 21% market share of new business sold by digital channel, which is the same market share as we have from non-digital channel. Saying in another way, in another chance, we already sell more than 68% of what our customers require. Our customer needs more than 68% of those are already mapped digitally.
Next up is managing the customer relationship:
How often do your customers interact with you? What is the quality of your customer base? Are they really loyal customers or do they have secondary accounts with you for specific products where you pay more? That is not our strategy. We have 16 customer contacts on average and going up within the multi-channel, multi-branch strategy.
Customers are growingly interacting with us through all channels, but exponentially through the digital ones...To give you an idea [how good this is], one of the leading insurance companies just gave this number, it’s like 1 contact every three months. Of course, insurance is a different business. But we have been integrated between banking and insurance [and] we have 16 contacts a month. Our customers are high quality. They have their primary current accounts with us.
The third pillar is scoring efficiency gains:
You can have a great digital platform. You can understand your customers very well. But if you are inefficient, in the long run you will not be able to provide them decent products at fair prices... this is where our efficiency advantage plays in.
Spending on what?
Hence the upping of technology spend, says Chief Operating Officer Juan Colombás:
For our business, it is critical that we are able to deliver innovative services to customers, while also improving our efficiency and our flexibility. We are, therefore, significantly increasing our technology spend. This spend equates to around 15% of our operating cost base and for the full year, is expected to be around 20% higher than in 2017. This puts us in line with a number of top quartile global peers who are leading large transformation programs.
But what does this budget go on? It’s a combination of enhancement of legacy and innovation, says Colombás:
Importantly, over 2/3 of this expense will go towards enhancing our existing capabilities and creating new ones, consistent with our chosen approach of simplifying and modernizing our IT and data architecture progressively. We provide cost and execution risk forced by our large-scale system overhaul. We have successfully leveraged robotics across multiple areas, including mortgages, financial planning and retirement, payments and risk. Through this, we have been able to free up 115,000 colleague hours, thereby, creating additional capacity.
In addition, and in line with our strategy to adopt a hybrid approach, we have made targeted investments in both public and private cloud solutions. These investments are the foundations to providing a secure, cost-efficient and scalable infrastructure, allowing us to retain flexibility to respond to change.
Mobile services obviously play a large part. Colombás explains:
With the largest digital bank in the UK, we continue to see growth across the almost 14 million digital-active customers and around 10 million on mobile. But it is not just about scale. We also have a strong customer satisfaction with best-in-class upper score ratings and a digital new business market share, which is greater than our average market share across core products. Moreover, 55% of our mobile customers only use their smartphones to bank with us...by re-platforming our mobile app, we don’t need banking brands on the same platform. We can increase scalability and are able to react faster to opportunities, doubling the frequency of new releases to the market.
The progress is impressive and backed up by hard cash. I still wouldn’t open a Lloyds account again after finding their customer service to be appalling, but the bank does at least appear to talking-the-talk on improving its engagement by bolstering the customer experience. This remains one of the flagship digital transformation programs to monitor over the years.