Kære læser. Artiklen her er en del af det engelske magasin Copenhagen Fintech. Indholdet er udformet på engelsk, da det også henvender sig til en udenlandsk læserskare, som deltager på eventen Money2020, hvor Berlingske Media er mediapartner. Magasinet er udformet af Berlingske Medias kommercielle redaktion i samarbejde med Copenhagen Fintech. God læselyst.
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Danish banks are resting assured, while new, unexpected competitors are challenging their business. If the banks don’t act now, they will be in trouble within five years, Experian estimates.
Substantial profit is yet again normal in the bank sector after the financial crisis has come to an end. According to analytics experts at Experian, however, this might soon enough change. Not because a new recession is lurking, but because new competitors are sneaking up unnoticed.
“When the largest banks are keeping an eye on each other for their next strategic moves, they are looking in the wrong direction. Non-finance companies with a massive customer base are entering the bank industry – those are the ones to worry about. They will steal market shares, but banks have not yet realised this,” says Mads Heindorff, Commercial Strategy Director Nordics at Experian.
Forrester Research has recently conducted a survey in cooperation with Experian to find out how business leaders see the future. Their report shows that almost three out of four top executives think that traditional business models will disappear in the next five years due to the digital revolution.
“Continuing with business as usual is the biggest risk the financial sector faces today. They simply have to invest in innovation,” Heindorff says.
Airline steals market shares from banks
New competitors from other industries have already started attacking traditional banks by focusing on digital niche markets. One of these newcomers is Bank Norwegian, which offers savings products, credit cards and personal loans online.
The bank, established by low-cost airline Norwegian, has automated the process that assesses customers’ creditworthiness. The result is more than 1 million Nordic customers – managed by only 69 employees.
“In the future, more competitors like Bank Norwegian will come from other industries. Companies with huge customer bases will enter the banking business and take over parts of the banks’ business,” says Jacob Carlstedt, Sr. Global Business Consultant at Experian.
Utilizing the data gold mine
In order to survive the digital challenges and increased competition, banks must optimize customer experience by using data, according to Experian.
“Banks need to know their customers very well. A lot of banks – and businesses in general – currently don’t. Instead of optimizing customer experience and hence earnings from existing customers, they are mainly focusing on acquiring new ones,” Carlstedt says.
Today, data means so much more than just a collection of facts and figures. By using advanced analytics and automated decision-making software, banks can generate insights and decisions on how to interact with their customers. Not just to improve customer experience, but also to increase profit by upselling at the right moment.
“Many banks have a gold mine of data – but if they don’t have the right competencies in-house to harness insights, even the most advanced software is of no use,” says Carlstedt, adding: “Experian can help banks with exactly that, so they can focus on optimizing customer experience instead and automate more processes using data.”
Customer experience drives loyalty
In the good old days, managers of local banks knew everybody in their community and what they needed. Banks should give their customers the same experience today – using data.
“Traditionally, customer loyalty has been high in the financial sector, but since it has become easy to change banks, customers are more willing to switch providers to get the best experience,” Carlstedt claims.
A key step in becoming the desired provider is to look at data more broadly.
“Today, banks’ departments often work in silos, not sharing data. A client in one department can be targeted with an onboarding campaign from another department. Banks have to get a 360-degree view of their customers and use it to create additional value,” Carlstedt says.
Coming years are pivotal
The pace of the digital transformation hasn’t been particularly high yet, according to Heindorff, but it will soon accelerate violently.
“Banks are facing big challenges. If you think Bank Norwegian has reached its peak, you’re wrong – I am confident, their growth continues in the coming years. If traditional banks don’t act now, it will hurt them in the long run,” he predicts.
He also argues that with data, analytics and automation advancing so fast it’s only a matter of time before we see banks with only a handful of employees.
”If the traditional banks continue their business as usual they will start losing opportunities and customers. Some will make it, others will take cuts – and some have to really wake up, if they still want to be in business,” Heindorff concludes.
This article is part of the commercial publication 'Copenhagen Fintech'. Click here to view all articles