Digital Summit

Helping customers recover after a financial crisis

The COVID-19 crisis is transforming what banks need to be in the future to support customers and advance business results. Until now, they have been seen as a place to borrow money or make a financial transaction. But with this crisis they must evolve their DNA from a financial institution to a foundational catalyst for improved well-being, reviving the economy, and building lifelong trusting relationships with their customers. Pivotal to doing this successfully is technology, which has become imperative as banks strive to become a destination for helping individuals live a better life. Join Flybits Founder & CEO, Hossein Rahnama, along with Accenture’s Global Banking Lead, Alan McIntyre, and hear their perspectives on what banks need to do to act now before it’s too late.

Speakers

Alan McIntyre Profile Photo

Alan McIntyre

Global Banking Lead

Accenture

Hossein Rahnama Photo

Hossein Rahnama

Founder & CEO

Flybits

Webinar Transcription

Jannine Krish:
Thank you everyone for joining in our first ever digital summit series: Helping Customers Recover After a Financial Crisis. Today, I just want to introduce myself. To start off with, I will be your moderator. I’m Jannine Krish and I’m the Marketing Director at Flybits.

Jannine Krish:
The COVID-19 pandemic has really been one of the most serious threats to the financial services industry in the last 100 years. While it’s really devastated people on an individual personal basis as well as economies around the world and businesses, and while we don’t know what’s necessarily coming next, we do know that things are likely never going to go to what they were pre-COVID. So this creates a unique opportunity for the industry, an opportunity to reset, to reinvent your business and to truly rewrite the playbook.

Jannine Krish:
The businesses that are going to come out stronger will be the ones that are truly able to become a gateway of trust with customers and take a purpose-driven approach to banking. Today’s guests include Flybits CEO and founder, Hossein Rahnama and Accenture’s Global Banking lead, Alan McIntyre.

Jannine Krish:
So the way this is going to work is they’re each going to speak for about 15 minutes, followed by a few questions, and then we’re going to turn it over to the audience and you can ask your own questions, so feel free to use the Q&A box at the bottom of the screen. So allow me introduce Hossein to start off with. Hossein looks at unique paradox between academia and entrepreneurialism. He in his spare time is a visiting prof at MIT’s Media Lab as well as Ryerson University in Toronto where he happened to co-found the biggest university incubator in the world, the DMZ.

Jannine Krish:
At 35, he was named one of the top 35 innovators under 35 by MIT Technology Review, and 2012 he was named one of Canada’s top 40 under 40. So that should give you enough information to calculate his age. Hossein is also serving as a board member at Capital Group and Canada Science Publishing. His passion is to empower young entrepreneurs. On a lighter note, he plays the clarinet and the piano. He loves the blues. He is also a lover of aviation, is a proud father of two and is a strong and fearless leader at Flybits. So without further ado, I’d like to pass it over to Hossein. Oops, let me give you control, Hossein. All right.

Hossein Rahnama:
Thank you very much, Jannine, and thanks everyone for joining our webinar. I’m hoping everyone is healthy and well during this pandemic period. What we’d like to talk about today with my friend Alan is to really share our views on how the dynamics of COVID-19 is changing banks and the opportunities that it creates for them to play a way more important role in the well-being of our society and also rebooting the economy when the pandemic is over.

Hossein Rahnama:
You may have all seen the news that the physics of this virus is such that it mutates, and we’re trying to figure out what it does, of course, to our well-being and to our health, but also we think it has a mutational impact on the organization of the bank. What we will be talking about today is how this new dynamic changes the organizational aspects of a bank, the technological stack and the elements of a bank and also how it creates opportunities for banks to think about new business models.

Hossein Rahnama:
One of the key things we will spend some time on today is the acceleration of digital transformation of banks. You may all heard about this notion of digital transformation strategies that banks to bring data from inside the bank, outside the bank, understand their customers better, provide better automation within the bank. And usually, these have been multi-year initiatives, and one thing that we have observed so far is that banks are trying to deliver these strategies within months rather than years. We will talk about the importance of personalization and what our view is about personalization and its importance, and we’ll talk about the organizational changes that we are seeing in financial institutions.

Hossein Rahnama:
When it comes to the dynamics that are surrounding banks, you may all have seen that branch networks are becoming more and more ineffective. There is this lack of interpersonal communications between financial advisors and people. This situational understanding that branches were known for is no longer there. So the key question for leaders is, well, how do I bring that context, that intuition now into my digital channels? How do I show that I still understand my customers and leverage the digital channel as my new branch?

Hossein Rahnama:
We’re also seeing that banks are becoming a conduit and a proxy between people and the government, and I think this is an opportunity for banks to play a more important role in the well-being and the health of their customers. And banks are also going through some key changes in terms of their internal working dynamics. A lot of people have to work from home, call centers need to operate remotely. Of course, it’s terrible what’s happening in the world, but it’s also a catalyst of change for banks to transform themselves faster than what they originally intended.

Hossein Rahnama:
The other thing that is happening in the industry, as I’m sure you know, is big tech firms are also becoming banks, from Google, to Facebook, to Amazon. So the key questions for banks is, well, how do I stay relevant? I still have a lot of data about people’s income and transactions. And if big tech have access to those data sets, then my business model will become more prone to risks. So this is also where we see as an opportunity in which banks can form alliances not just among themselves but with complementary businesses to introduce new business models to prevent that disruption but also create new business models based on the notion of trust to be able to deliver better services to their customers.

Hossein Rahnama:
In terms of what we’re seeing in digital transformation, before COVID-19, when we talked to a lot of our customers, they had a lot of moving pieces as part of their digital strategy, from data security, to distributed ledgers, to edge computing, to moving to cloud. And these really follow a siloed way of progressing. What we are seeing in banks now is that they’re now solidifying under one unified umbrella, and then there’s a lot of speed in banks to bring them in the market as one transaction media. And as you know, data and digital is becoming more like a must-have rather than a nice-to-have considering what’s happening to the world.

Hossein Rahnama:
The other area that we’re observing is the emergence of we call it confidential computing. Now that banks are playing a key role for supporting people with their financial health, with loan deferrals and many other things, keeping their data secure and doing data processing in a privacy preserving way is becoming more and more important. So one area of focus for us at Flybits and with a lot of our partners is to do data processing and personalization while the privacy of the customer is protected, so there will be a lot of things that is going to happen in the market around confidential computing.

Hossein Rahnama:
As I’m sure many of you have observed, over the past five years, there were lots of discussions around AI, and AI meant different things to different people. A lot of people relied on AI as a decision-maker engine to make decisions for the business. And then there was another school of thought that AI can actually be used as a decision support mechanism and then the end decision can be made by humans. Within Flybits, our view is that because of COVID-19, AI will become more prominent in a lot of the strategies, but it will act as a decision support tool.

Hossein Rahnama:
And not in pejorative way, but we have all seen companies small and large that they talked about AI and they could not differentiate what a basic linear statistical model is versus a true AI. So I think a lot of those will disappear and AI will truly find its position in financial sectors as a strong decision support tool.

Hossein Rahnama:
The organizational changes that we are seeing is usually when you look at the anatomy of a bank, it has an IT group, a digital group, recently a data science and an AI group, and before COVID-19, we saw that there was lots of disconnects between these entities and sometimes even competitions. Now I think what’s going to happen because senior leaders and executives are understanding more and more the importance of digital, they’re unifying these teams together, so there are stronger collaboration between these teams, and digital and IT are acting as a horizontal function in banks rather than just a silo. And we are actually writing a paper about this that how the two-dimensional org chart of a bank will transform into more like a circular view and a circular paradigm of collaboration.

Hossein Rahnama:
The other thing that we are observing is banks are starting to look more and more for interdisciplinary skillsets. When I finished grad school and my background of research was in machine learning, it was very difficult to imagine that a bank would go and hire AI experts and later on designers and UX experts. One thing that we think will happen is that don’t be surprised if banks start to hire a lot of statistical biologists or pandemic experts to add to their teams because they require a better understanding of these physics and dynamics to make better decisions, so I think that is also a key change that we are observing in the market.

Hossein Rahnama:
When we look at the business model changes, if you look at the current core functions of a bank, they look after your money, they help you to pay for things, they provide loans. And in general, as a bank, they are being assessed based on their assets under management. I think the bank of the future, of course, is doing a lot of the things that the current bank does, but they also play a role in helping their customers to live a better life. They can predict their needs. They can act as their trust hub so that instead of just the customer depositing their financial assets with them, they can also deposit their data assets and the data will play a role to help the well-being and the health of the customer.

Hossein Rahnama:
Some of them we know. Remember the WIR Bank from Switzerland on how during the ’30s and the depression and the financial crisis. The Swiss government created this notion of WIR Bank, especially for SMEs to contribute to the growth of the economy. And we think the same thing will happen again in different parts of the world, but the unit economic of these banks will be data and how they share data to create network effects and create value for the community. So there will be a huge emergence of community banking and SME-driven banking based on the prices that we are seeing.

Hossein Rahnama:
Now, to dig a little bit deeper in the three areas that I talked about, around digital transformation we see some very unique things happening in the market. One, of course, is the importance of personalization and personalization not just based on financial data or transactional data, but the ability of correlating internal financial assets with external contextual data and come up with better decisions, and that’s why we call it multi-dimensional personalization because a lot of the vendors and banks that we see in the market they are very good for processing passive transaction data, whereas we think in the absence of branch networks, the dimensions of data that you need to do through personalization goes way beyond that.

Hossein Rahnama:
We will see a huge emergence around tokenization of data because of privacy, because of sharing of the data and, of course, the emergence and the acceleration of cloud deployments. Not that banks will put everything in the cloud, but they are going to come up with ways to keep some of their sensitive data in their premises but use cloud for processing in a secure and privacy preserving manner. We are actually working with some of the largest banks in the world to help them to form alliances, so for example, partnering with medical centers, partnering with airlines, partnering with utility companies, and through that alliance deliver better services to the customer while the privacy of the customer is protected.

Hossein Rahnama:
And in order to do that, a very important element in digital transformation is the availability of edge computing, that the data won’t be stored in a centralized repository, but let’s say it can be calculated on your personal phone similar to how you hold your photos and music on your local device. And of course, the emergence of AI as a decision support system, emergence of confidential computing similar to what companies like Microsoft with Azure and Intel with SGX are doing. I think those are going to be the emerging trends that we will be seeing in the market.

Hossein Rahnama:
In terms of the digital customer engagement, which is going to be a key priority for banks all the way to CEOs and boards, the question becomes, well, what type of digital engagement do we need? And in the market there’s a whole spectrum available from very generic engagement, let’s say, as emails all the way to AI-driven contextual engagement. And there are lots of capabilities and vendors available that are providing different aspects of this spectrum, but what is missing in the market is the lack of context. Banks need to understand how, when and through what mechanism and medium they can communicate with their customer.

Hossein Rahnama:
If I’m reviewing my emails at night, perhaps that’s a good way to engage me. Whereas if I’m going for a walk and I’m busy, perhaps I need another way of engagement. And one thing that Flybits does very well is that it understands which context of engagement is needed and then it will use the right channel and the right context to communicate with that user. So we are working with a lot of our customers to help them to put these spectrum of engagement in place and then understand the context of the customer to communicate with them more effectively.

Hossein Rahnama:
When it comes to … Let me just go to the next slide. Let’s see. One of the things that we are also seeing, as part of the organizational changes, is in order to do impactful and privacy preserving personalization, the dimensions of the data are, of course, important, but the organization and the structure of the organization also matters. And we are working with a number of our customers and other entities to help banks to figure out what the new dynamic of collaboration is going to look like. So like what you’re seeing on the right-hand side, instead of having levels and levels and levels of hierarchy, we are helping banks to create this notion of agile interdisciplinary teams to collaborate at leveraging the data.

Hossein Rahnama:
And what you see in the middle a lot of the personalization activities and vendors that we see in the market are doing that based on just one dimension of the data, let’s say, primarily transaction data or income level or very, very passive transactional information. I think in order to do personalization right, you need to think beyond that. You need to bring health data, movement pattern data, agentification of the data, sensory data. And I’ll show you an example at the end of this presentation about how we are helping one bank to actually help their customers with contact tracing and managing the COVID-19 crisis. So in order to do personalization, you need way more than just transactional data as most PFM companies do in the market.

Hossein Rahnama:
The other thing that we see in the market is the formation of alliances between banks. If you think about the relationship of a bank with their corporate customers, it’s very much bi-lateral, so a bank working with a telco, a bank working with a retailer, a telco working with a retailer. And one thing we are seeing based on the physics of data and what also COVID-19 is doing to the industry is that a lot of the classical industry verticals will disappear. You are already seeing in the market that, let’s say, a retailer is going into the hotel business because they understand the retail pattern of their customer and they create a hospitality experience for them. And with two of our customers in the US, we’re actually helping them to position them as a hub of connecting a lot of these complementary businesses together from a utility company, to a supermarket, to even an academic institution, and through an opt-in process the customer will share their data on an aggregated basis, and they will receive way better information through their banking channel to live a more effective and a healthier life.

Hossein Rahnama:
The last few things I mention is that through this partnership that we are helping banks to form, we are observing this new physics of data that when they bring one or two partners around the bank and they correlate the data and use that to engage their customer better. During the early days, we are not seeing a lot of value, but as they have three, four, five, six partners, the impact of personalization will start to grow exponentially because the more we correlate data sets that in the past could not come together, we are seeing that we can find patterns that even we could not think of before, and that is helping the financial institution to make better decisions. And these data sets can come from a realtor. We are working with a lot of real estate players on the internet to bring, let’s say, open-house data. We are working with telecom operators to bring movement data on an aggregated basis.

Hossein Rahnama:
We also partner with energy companies to understand energy consumption, and we are helping the bank not just as a financial vault but as a data hub to understand these data patterns and with the permission of the user, engage with them on recommendation and predictions, and we are seeing a lot value in that not in terms of what we can do as a technology company but also what the bank can do to transform their business models.

Hossein Rahnama:
So my last few thoughts is we are seeing that there are two thoughts in the market. One is banks will get rid of their branches completely. The other thought that we are currently hypothesizing and building is that actually we think branch networks will stay, but they will be get repurposed to become this hyper-local trust hubs for community, so based on some sort of a token economy, they contribute to the health of that community in terms of helping SMEs, allowing that community to invest in their local businesses, measuring the health of that SME and really making people participating in the health of their community. So there’s some very interesting things that we think branch networks will evolve to.

Hossein Rahnama:
And we talked about the formation of data alliances in the bank, which are some of the new business model changes that we see in the industry. The last thing I mention just kind of wearing a bit of selfish hat on Flybits. We are working with about 25 very large banks around the world, and we help them to put our recommendation engine on their digital channel that while we are getting a lot of data for them, we make sure that they are privacy preserved and then resurface these information and recommendation for them on the channel.

Hossein Rahnama:
And one of the unique things that we proud ourselves on at Flybits is that we walk the talk, and this is a very quick demo that I wanted to show you that it shows how in real-time a bank can bring data from inside and outside the bank, leverage semantics and ontologies to make sure the data taxonomy is being built properly. And in this particular case, let’s say, manage a machine learning risk model to target customers who are low risk, let’s say, on defaulting on their loan, combine that with some of their recent transaction data and also go and tie it back to some external data asset, let’s say, partnership with an airline to figure out if a customer has been at a high risk airport, such as the LaGuardia, if they have been in contact with someone who has tested positive. We got that data from the health authorities in our country and also some contact tracing information using an initiative that we are building at IMT and bring all of that information together to deliver some very unique useful information to the customer.

Hossein Rahnama:
As you can see here, it’s not just about telling someone that you spend too much on coffee or your bills are due, but it’s really using transactional data to turn the digital channel of the bank to a true recommendation engine. And with that, I’ll wrap up my presentation and pass it on to Jannine, but these were some of the highlights I wanted to share with you that we think banks in the future will be assessing on their data network. There are lots of talks about AI, but we actually think a data strategy is way more important than an AI strategy because AI without data really doesn’t mean anything. We think COVID-19 is, of course, terrible, but it’s the strongest transformation agent for financial institutions to change. And we actually think the new executives that we see at banks are coming from very different backgrounds, let’s say, physics, data science. And those are some of the new trends that we are seeing.

Hossein Rahnama:
So with that, thank you very much for joining us and I’m looking forward to the rest of the discussion and, of course, hearing from my good friend Alan and what some of the great things that they are doing at Accenture.

Jannine Krish:
Thank you very much, Hossein. That was a very insightful presentation. We only went seven minutes over, so it was such a big topic. You know what, I think what we’re going to do is hold questions for the end and do more of a panel style discussion. So now let me introduce Alan McIntyre who heads up Accenture’s global banking practice, which covers all aspects of their work in retail and commercial banking payments and consumer lending. He has spent more than 30 years helping financial service organizations adopt new strategies, technologies, processes and skillsets to improve and grow their businesses. But his interests extend far beyond bank alone.

Jannine Krish:
He has a passion for classical music and is chairman of the Stanford Symphony Orchestra in his home country of Scotland. He’s a Patron at the Institute of Contemporary Scotland and has been inducted into the Global Scot Business Hall of Fame. In the pre-COVID past, Alan was also an enthusiastic and tireless traveler and is well-known in the Accenture world as the flying Scotsman. So without further ado, I will pass it over to Alan. Give me a moment while I set up his presentation. All right. Let me give you access, Alan. You should have access any moment, and let’s present. Okay, there we go. Over to you, Alan.

Alan McIntyre:
Thank you, Jannine, and thank you, Hossein, for allowing Accenture to be part of this event today. So let me talk a little bit about what we’re calling purpose-driven banking. This is going to pick up and amplify some of the points that Hossein has already made. But if I look at the last eight weeks, one of the things that I think characterizes a lot of the conversations that I have had with executives in the banking industry … Jannine, have you given me control? There we go.

Alan McIntyre:
One of the things that has characterized a lot of the conversations that I’ve had with C-suites in the banking industry has been regret. There’s been regret that in what you would think of as more normal times, even just a few months ago, that financial institutions did not grow quicker in the transformation efforts, regret that with the benefit of what is now 2020 hindsight that they weren’t more digital and data-driven. That they hadn’t moved more to the cloud. That the core structure wasn’t truly variable.

Alan McIntyre:
When you look at maturity of sales on digital platforms, they were not end-to-end. That there was still too many people involved in key processes and that with hindsight they find themselves still buried under legacy IT debt. So I think that there has been a recognition and a realization that maybe there should have been more changes when there was both the time and the financial resources to transform a little bit quicker. But regret isn’t going to help us going forward. So I think when we look at what comes next, there are certain things which I’m doing.

Alan McIntyre:
What we know and picking up on what Hossein said is there aren’t going to be future bank branches. There were already fewer bank branches. If you look over the last five years or so globally, while there were still markets, let’s say, India where the number of branches were increasing, locally, we were looking at 3% to 4% growth per year in a number of branches. So it was certainly far quicker in some markets than in others. I think what we’re going to see is we’re going to see an acceleration.

Alan McIntyre:
I spoke to a CEO of a leading bank in the Middle East a couple of weeks ago who had essentially closed all the branches, and we spoke about maybe only reopening 20% of them. We’re certainly going to see more digital interactions. The clients I speak to have seen their digital mobile interactions go up 50% to 100% over the last few weeks. Partly that’s because maybe branch networks haven’t been available. Partly it’s because some of the situations have a three hour wait time in order to access call centers just because of the deluge of people wanting to talk to the financial institutions.

Alan McIntyre:
So we’ve certainly have seen that there’s going to be habitual digital interaction. Psychologists will tell us it takes 60 to 70 days for consumers to form a new habit. We’re going to be at that 60 to 70 day point relatively quickly. And once people have educated themselves and got used to doing things online and through digital, many of them will never go back. But certainly, we’re looking at an environment going forward where there’s going to be significantly more financial stress. We are at the end of what’s been a decade-long expansion, and whether the recession that we’re looking at lasts two quarters, three quarters, four quarters, there’s certainly going to be a very different change to the interactions that consumers and small businesses are going to be having with their banks. There are going to be tougher times ahead.

Alan McIntyre:
But I think if you draw the comparison here with ’08 and ’09, this crisis is an opportunity for financial institutions to be heroes rather than villains, to be part of the solution rather than the problem and to mitigate and rather amplify the financial stress that a lot of bank customers are going to be feeling. And I think that there’s going to be a real onus on banks to help their customers navigate through what are very uncertain times. And there are many things that are unknown. One is, is this a one-off, or is this a recurring public health crisis? And how does that then flow through into the shape of the economic crisis that is generating?

Alan McIntyre:
You can play the alphabet game here in terms of what the shape of the recession is going to be, but I think one of the key things is that the balance between public sector and private sector. I was looking at some micro-economic analysis from Goldman Sachs over the last couple of days, suggesting that at least in the US for the next couple of quarters what is coming from the public sector is going to offset what is coming from the private sector in terms of income and whether there will be a recession as output falls. The spending patterns coming out of it may not be impacted that much, but the question is if we are in a three, four, five quarter economic recession, at what point does the public sector money run out and the private sector in the bank balance sheets have to pick that up?

Alan McIntyre:
And that will help determine whether we’re looking here at a speed bump or whether we’re looking at solvency crisis for financial institutions. So I think that there is a lot of things which will change and we are confident will change going forward, but a lot of things which we are unknown and which will help shape the nature of how banks are interacting with their customers.

Alan McIntyre:
I wanted to make a point here about the good old days, the good old days being 2019. I think that there will be a lot of tendency to review that as a golden period where a lot of banks had good profitability, things were relatively stable, the economy was doing well. But let’s not kid ourselves. Even in that period, many consumers struggled to manage their money. I’m not going to read the statistics here, but these came from research that we did just pre-COVID. Nearly half of consumers claiming that they struggled to manage their money and they didn’t understand the complexity. Only a quarter having the cash to cover six months of expenses. Only a third having sufficient savings for longer-term financial goals. And less than a third being net savers.

Alan McIntyre:
So as the financial stress increases in the post-COVID world, these numbers are only going to get worse. So there is going to be a critical role for banks and financial institutions to play to help the consumers and small business customers navigate their way through this crisis. But I think that one of the challenges that financial institutions face is that they haven’t been the institutions that consumers and small businesses have turned to for advice in the past. So this is a question from that recent research. Did you seek help as a consumer in dealing with the financial implications of a major life event, and if so, whom did you talk to?

Alan McIntyre:
What you can see is about half of consumers did seek help, but of those consumers, over half of them turned to friends and family. Only 28% of them turned to a bank for advice. So you can do the math here. If you think about this more holistically, only 14% of consumers turn to their bank for advice in a period of financial stress, and why did they not think of their bank as an advisor? And I think there’s a difference between transactional and advisory trust that is important. Consumers obviously still trust banks from a transactional standpoint. They trust them to look after their money, to keep score, to process payments. And there is clearly still a meaningful gap between that level of transactional trust in financial institutions and everyone else in the economy. And that’s why even with the emergence of big tech, the banks still have the high ground in many respects.

Alan McIntyre:
But if you then consumers, “Do you trust that your financial institution will always act in your best interest in every situation?” That’s when you get down into the single digit numbers or the low teens. And that is what really correlates with that 14% number. That in times of stress when you’re looking for assistance, do you trust that the bank is going to be there in a way that is going to actually be helpful to you rather than to them?

Alan McIntyre:
We try to quantify, I think, some of the dangers in that trust deficit. This is recent analysis that shows across markets. We think about 5% of bank revenue is at risk if they don’t address the trust deficit. And it’s at risk in two different forms. One here is the small or gray box on top, which is one form of bad revenue. The revenue comes from customers making bad decisions about how to allocate financial resources and the products to use. So think of this is a customer who keeps too much money in their checking account and doesn’t sweep it into savings account. Think of this is a customer who borrows on a credit card when they could be borrowing in a home equity line, so making poor decisions where a better advice may have shaped a different outcome.

Alan McIntyre:
But the far larger bar here is the purple bar, and that is the purple bar that is related to things like overdrafts, service fees, things where customers and small businesses making poor decisions about how they manage their financial resources trigger some sort of revenue generation on the part of the bank. And we think that these revenues are clearly at risk. They are at risk both from regulators and they’re at risk from competitor activity.

Alan McIntyre:
If you look at the magnitude of the revenue risk, 5% as the average across these markets, it’s really not surprising if you’ve been following the Australian financial services industry and the findings of the Royal Commission that Australia is the top here with 7% to 9% of that revenue at risk and much of it coming from the regulatory and competitive pressure. Again, not surprising that the UK is next. It has been at ground zero for the challenger banks surge that we’ve seen with over 20 million customers in the UK choosing to open challenger bank accounts. And part of the reason was the belief that they weren’t getting particularly good service or advice from their existing financial institutions.

Alan McIntyre:
Now, there are counter examples. You look at Japan where the bad revenue level is relatively low, suggesting that Japanese consumers are significantly happier with the service that they’re getting. So the challenge here is how to address this, and we think addressing it comes into forms. One is what we call pillar one here, which is really doing the right thing for customers, rebuilding the trust, not letting them go into overdraft, not letting them get hit with service fees if there’s a way to avoid it. And actually, the irony is that COVID-19 is driving a lot of that type of behavior at the moment from financial institutions, short-term payment holidays, the extension out for 90 days of credit card or mortgage payments, interest-free overdrafts if they’re pre-arranged in advance.

Alan McIntyre:
So we think a lot of the things which four, five months ago we were thinking were going to be key to pillar one are already being put in place by financial institutions, and I think what’s going to happen is those things are going to stick. Consumers and small businesses are going to have a behavioral change that says, “I expect my bank to help me in periods of financial stress.” And I don’t think we’re going to go back from that. I think the expectation level has risen.

Alan McIntyre:
Pillar two here is what comes when you build on that. It’s really addressing the 14% problem. It’s really saying what the new trust base revenue streams that can expand the scope of financial advice so that consumers and small business naturally look to the financial institution and to the bank for unmet needs. How can you help those customers build wealth? How can you help manage what may be a bit of a challenging credit situation? And as you do that, how do you build that trust? That you’re there to provide advice on an ongoing basis, and it’s a prize that’s worth having.

Alan McIntyre:
So what we’ve done is we’ve looked at the flip side of some of that bad revenue at risk to say, “What is the revenue uplift if you can effectively build that pillar one and pillar two type trust proposition?” And as you can see, a gain for the financial services industry. Again, you can see a lot of skews by market here with the UK, Spain, Germany being at the upper-end of the range. Canada, France and Sweden being at the lower-end. We’ve also included here what we call a trust-kicker effect, which is we know from looking at other industries. If you’ve become recognized as a trust based institution, as somebody who has partners who does the right things for your customer, then it drives net new customer acquisition.

Alan McIntyre:
Once that recognition is there, you get an uplift from it, and you see that in a lot of what the challenger banks have done. A lot of the vital marketing that has revenue customer acquisitions has come from customers themselves sharing that these institutions are easier to deal with, that they have your best interest at heart, that they’re there to provide advice. So we think that there is an uplift, but we think the challenge here is really not taking the 2020 hindsight, not looking backwards, but instead, thinking of this as 2025 hindsight. If you put yourself five years out from now, what would financial institutions say in terms of what they wish they had done during this period of the COVID-19 crisis and the immediate aftermath?

Alan McIntyre:
So I think these would be some of my predictions for 2025 that many banks will wish that they had put long-term relationships before short-term profitability. Profit is going to be challenged. We think that profitability in the banking sector by market will be 20% to 100% down over the next 12 months. So there’s opportunity I think to do the right thing, but the mindset has to change from the gotcha mindset of we’re going to layer on fees to a win-win mindset. And I’ll give you an example. A US mortgage servicer complied with the guidance and has provided 90-day payment holidays, but then sent a notification to its customers saying that on day 91 the balloon payment will come due of everything not paid over the last three months, completely destroying any sense of a win-win proposition that that servicer could have had, whereas other services have said, “We will amortize until the end of the loan. We will extend the life of the loan, and we’ll help you manage through this crisis.”

Alan McIntyre:
I think there’s going to be an onus on financial institution to get creative about building financial bridges. How do you use the assets that you have? How do you use equity in your home? If you’re a small business, maybe how do you think about assets that you can borrow against to help you navigate through this crisis, preventing workout and foreclosure and recovery. To go back to some of the things that Hossein said, how do you take this opportunity to truly personalize interactions and really engage in those little conversations rather than broadcasting?
Alan McIntyre:
I’m not sure, but I’m getting a little sick of these messages from CEOs, which are blanket messages, saying we’re here, we’re standing with you, we’re here to help with no level of specificity and no sense of recognition of the nature of the customer that might be at that organization. So how do we get down from those feel good messages to messages that are fact-based that provide options, that guide towards action? And that’s where I think the regret is going to still be there. The financial institutions are not using innovative technologies like Flybits to personalize banking. Consumers are not going to feel as if they’ve truly been engaged. They’re not going to feel as if the advice has truly been personalized. And therefore, those types of trust gaps that I highlighted earlier are not going to be closed.

Alan McIntyre:
And I think just the same way as people remember back to the ’08, ’09 crisis and they remember how the financial institutions treated them when, say, they fell behind in the mortgage, this is going to be a period where the consumers and the small business customers of banks are going to remember how they’re going to be treated in the next 12 to 18 months, and that’s why I think despite the public health aspect of this, which is clearly tragic, I agree with Hossein. This truly is an opportunity for banks to be heroes rather than villains to step in and to personalize their advice and help their customers through what is truly going to be a challenging set of financial circumstances over the next 12 to 18 months. So with that, Jannine, I think I’ll hand it back to you.

Jannine Krish:
Thank you very much, Alan. That was a very compelling talk with some very helpful actionable takeaways for our audience. What I’m going to do right now is just maybe ask you one question, and then what we’re going to do is go over to the audience because we’ve received several, several questions. So Alan, do you have any examples that you could share today of banks that are actually taking this purpose-driven banking approach? Are you seeing it?

Alan McIntyre:
Yes. I mean, actually, I think we were seeing it previous to the crisis. If I look at, say, the success of some of the challenger banks, let’s say, Monzo or Starling in the UK, one of the things that they had was a tone of voice that was very much we’re in this together, so to say, “How is it that we can help you achieve your goals?” Whether that be segregated savings spots, whether that be the way of tracking your expenditure and helping you navigate that. I think that that tone of voice around this is win-win for us. If you do well, you will bring more business to us. You will get into a better financial situation over time, and that will help us. So I think we saw that pre-COVID.

Alan McIntyre:
I think what I’m really beginning to see now is moving away from what was primarily a payment and savings set of messages towards a set of credit messages, so beginning to see differentiation in terms of how major providers of credit are reaching out to their customers. So I would take the example of, say, Kabbage in the US as a relatively new small business lender has been proactive around the small business administration PPP program in the US, the payroll protection, reaching out to the customers trying to help them understand did they qualify, did they not qualify.

Alan McIntyre:
Kabbage isn’t a huge player in the market when you look at total overall credit for small businesses, yet it was the number six lender over the last six weeks, so I would take that as an example of really trying to reach out and engage with customers and use that as an opportunity to build new relationships and say we understand the stress that you’re going to be under. Let’s help you navigate what has been a complex and difficult borrowing process and then help you trough this. So I think it’s a bit the specificity but it’s also a bit tone of voice and it’s also being explicitly on the customer side of the table as they navigate some of these challenges.

Jannine Krish:
Thank you. That makes a lot of sense. We have another really great question. This could go to either you, Hossein or Alan. How would you rate the Canadian banks to USA and European banks? Who exactly has the competitive edge on a global comparison?

Alan McIntyre:
I’ve spent quite a lot of time in Canada, and I have a lot of long-standing relationships. I think Canada goes into this crisis in far better shape than many other banking markets around the world. The profitability has been good. There is a capability to invest. Also, Canada has been less disrupted, I would say, from players coming from the outside. When you look at, say, the UK, about 15%, 16% of the revenue in retail and consumer financial services has already flowed out to new entrants. In Canada that number is less than 2%. And one of the reasons is that there’s still a reasonable amount of trust I think in the Canadian banking sector. It’s not been undermined, say, the way that it has been in Australia with the Royal Commission findings.

Alan McIntyre:
So I think what you find is a lot of the innovation in Canadian banking still comes from within the incumbent institutions. So I think that the ability of the Canadian banks to help the consumers navigate here is amplified, one, by the financial resources to invest, which they have over the last few years, and two, by the level of trust that there still is so that the consumers I think will naturally look to the Canadian banks to help them through this crisis rather than look into alternatives. So I think that those are reasons why I think Canada will probably with hindsight have a good crisis here with respect to how the banks perform and engage the customers. So I don’t know, Hossein, given your Canadian connections whether you have a different view point or not.

Hossein Rahnama:
Being a proud Canadian company, I make sure that there’s no bias in my answer, but some of my observations are there’s a lot of similarity between what’s happening in Canada and the UK. I mean, the structure is that there is this kind of oligopoly between banks and telcos, so when they want to form these partnerships, it’s much easier for them to demonstrate impact. Whereas if you think about the large players in the US, they will have more challenges to really surround themselves with complementary businesses and also get the trust by the government and people.

Hossein Rahnama:
There is also another thing that in Canada banks are much closer to the government. Especially these days, they’re acting as a very strong proxy between people, citizens, residents and the government programs. So I think there are unique opportunities in places like in Canada to really demonstrate how banks can really become that hub that I talked about. The counterparts in the US are super regional banks because if you think about the community banks and the super regionals in the US, they also have that community feeling. So if I want to compare what’s going to happen in places like Canada and the UK that we have very few large banks and very key players on the industry like telcos and energy companies, it’s much easier to prove the hypothesis that I shared. In the US, super regional banks like USAA, like PNC, like others they are in a very strong position to demonstrate that shift.

Jannine Krish:
Thank you. We’ve got another interesting question here for Hossein. What kind of opportunities, if any, do you see for life and health insurers to build similar ecosystems and engagement opportunities as you described for banks?

Hossein Rahnama:
Sure. We’re actually working with a number of very large insurance companies, and we are seeing some interesting examples there from areas of group benefits that the insurance company actually plays a role in the well-being of the employees. When as a company I go and get a group benefit from a particular insurers, the data that the insurers have will actually drive healthier behavior for employees of that business, which also correlate to the well-being of the SME or the company.

Hossein Rahnama:
One of my favorite examples that we are currently working on is in the wealth space. A bank came to us and said, “A lot of my wealth business is based on service fees, and millennials are my next gen customers, and we are not very comfortable with that. How do I really transform my business model?” So one thing we are working with them is that we are connecting their upcoming segments, which are the millennials or the entrepreneurs and the affluent who we think they are going to be affluent in the future with the baby boomers who already made their money. And then we create a mentor-mentee relationship between them and the bank is the hub for making those connections.

Hossein Rahnama:
Now, you can imagine that this network is so strong surrounded by a bank known for its trust that is now helping young entrepreneurs with their career through mentorship. These are business models that we are seeing that are coming as augmentation layer around core business models, let’s say, in the wealth business or I’ve also shared an example with you in the insurance business that are very interesting for us.

Jannine Krish:
Thank you. One more question. I think we’re getting close to time, but here’s another interesting one that came in via email. How do banks continuously demonstrate empathy for what their customers are experiencing not just now but 10 years from now, and then how do they do this from this personalized level at scale? Is that even possible?

Alan McIntyre:
Let me take that. I think one of the things that’s going to be key is transparency and transparency in terms of being able to demonstrate more of a fiduciary mindset. I think we begin to see some of that I would say in the PNC insurance sector, so if you look at the progressive advertising in the US, let us show you our price and let us show you everyone else’s price as well. We may not be the best carrier for you, but help us figure out if you have something that we can serve.

Alan McIntyre:
I think you see that happening in financial services, but you see it mostly in banking but mostly through intermediation. So you see in the US people Nerdwallet trying to intermediate and trying to say, “Okay, we can help you get the best deal.” I think to try and get real empathy and engagement and to demonstrate that you’re working in the client’s interest I think ultimately there’s going to have to be a transparency with customers that sometimes that bank is the best option, and sometimes the bank is not the best option for you.

Alan McIntyre:
And I think there’s a fear of cannibalization of revenue that comes from that, but I think ultimately the KPIs and the mindset has to shift from quarterly short-term customer profitability to longer-term customer value metrics where not only the duration of the customer relationship but the share-of-wallet increase over time. There’s a justification for not always making a sale and really taking the position of being an advisor, and sometimes the advisor will have the product and sometimes the advisor will not have the product. And I think the true personalization and understanding will not be there unless there’s that level of transparency because we clearly see from our research that most customers still believe that when the bank says, “Here is the product for you to buy,” that the bank is working in their interest, not in your interest. And every time we have a mis-selling scandal, every time we have some sort of PPI scandal, and that the UK reinforces that sense that bank is working in their interest, not yours.

Alan McIntyre:
So I think we’re not going to get to that empathetic relationship until there is demonstration of win-win economics.

Jannine Krish:
That’s a really good point. It’s really about taking more of a partnership approach versus a sales approach, right?

Alan McIntyre:
Yeah.

Jannine Krish:
But with that, we have two minutes left. I don’t know if, Hossein, if you have any final thoughts before we leave for today.

Hossein Rahnama:
There is one question I see it on my chat panel. It’s a great question. I very quickly want to address that. I think it’s a question from a great pal that asks about the role of government data, and in the US we have data.gov and in India we have data.gov.in. I think those data sets and really bringing government and open data as partners and really create curation programs that not just a developer but citizens can become core developers around banks will really contribute to the emergence of a lot of new economic models that we talked about.

Hossein Rahnama:
And with that again, I want to thank everyone for joining us. It’s great to be on the panel with Accenture. Accenture is one of these very unique organizations that are doing some very, very unique things in the market, and I’m glad that we had an opportunity to be with Alan today. I’m looking forward to staying in touch.

Jannine Krish:
Thank you everyone. We’re going to send out a follow-up email with the recording so you can share this with your colleagues. And we will definitely invite you to our next summit series event in a couple of weeks. Have a great day. Bye.

Hossein Rahnama:
Thank you. Bye.