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Every year the industry spends about $500bn on technology, so why are consumers only maintaining a ‘neutral’ relationship with their bank?

One of the most endemic constraints to innovation at banks is decades-old core banking infrastructure which is expensive, slow and complex to run, and difficult to replace.

The disruption caused by the pandemic, however, presented retail banking with unexpected growth opportunities in adjacent verticals compared to their core business. This, together with the big tech eager to enter the market, is pushing banks to use technology to think more like their customers.

Moving to adjacent businesses is a trend that has been blurring the verticals in many industries already

Toyota, the car manufacturer, is actively involved in robotics; telecommunication giant Verizon is taking strides into media, movies and games. This trend is known as the integrated network economy, where moving into adjacencies helps companies increase their relevance to their customers by offering compelling experiences.

Some financial institutions are also seeking to understand their customers better in order to provide them with more rewarding experiences that are not strictly related to traditional banking products and services.

OCBC Bank in Singapore launched WanderWise and offers its customers exclusive deals for hotels, experiences and flights. CaixaBank in Spain helps expatriates manage overseas properties with domestic services. Maybank in Malaysia runs a property auction service to help people buy a home and in so doing, offer customers a mortgage to help facilitate the purchase.

Social themes like social inclusion and safeguarding the environment are also a driving force for innovation as banks seek to elevate their relevance. MUFG Union Bank in North America has launched green deposit accounts where customer deposits will be used to finance ESG projects such as renewable energy, green transport and forestry. Brazilian state-owned Caixa initiated TEM - a mobile service - to electronically distribute benefits to the un(der)banked affected by the Covid-19 pandemic. It is believed to be the largest ever social inclusion initiative in modern history.

70% of purchasing decisions are made with emotional, rather than rational, considerations

Considering that 70% of purchasing decisions are made with emotional, rather than rational, considerations, it shouldn’t come as a surprise that customer-centric banks have a superior growth in their net interest income to show for it.

For most of the retail banking space, however, many changes need to be made.

For banks to understand their customers, then develop, launch new and revise existing propositions, operating mode changes are required - such as the move to agile ‘ways of working’ and value streams. Among the changes, arguably, technology is the most important enabler of becoming customer-relevant. But it’s the combination of technology with data and analytics that has helped banks hit the sweet spot and design and launch new products and services effortlessly.

Many banks across the world are tapping into human truths to develop relevant and compelling propositions. Whether successful or not, these pioneers are taking bold steps forward to deliver a stand out innovation for their markets in an otherwise conservative industry.

To learn more about customer-relevant innovation in retail banking, read our full article on how to unlock revenue growth, cost reduction and stand-out differentiation.

For social themes, revisit our study Disruption Diaries on financial accessibility, here.

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