Mobile banking rings the changes

More mobile banking options and a rethink of bank offshoring are two of the big changes that are likely to hit the financial services industry soon.

According to the World Retail Banking Report from Capgemini, for some banks the emphasis is now shifting from cost-cutting measures - such as driving customers towards automated banking - to increasing revenue growth by what Capgemini vice president for financial services, Nasrin Janmohamed, terms "a bigger share of the customers' wallet".

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This means a greater intimacy with the customer - something hard for banks to do at the same time as consolidation hits the retail banking sector, with many big players becoming global entities.

One of the ways banks will try to keep customers loyal is by reaching out to them through previously untried channels, such as e-banking over mobile phones.

This is likely to flourish fastest in emerging markets and then spread out to the rest of the world.

Capgemini global retail banking expert Paul Willis said: "It's true that emerging markets will be early adopters of mobile banking because of the lack of other infrastructures but there is also a mindset in other more developed regions, such as Korea and the Baltic states, that lends itself to that channel.

"These customers aren't used to dealing with their banks at a branch or through a call centre, so they don't have existing practices. I think the next 18 months will see more focus in that area in the UK. Customers are becoming more familiar with the mobile phone as a medium."

Offshoring is an established strategy amongst the world retail banking sector but Janmohamed believes there will be a second wave as banks review their resources.

Contact centres will be brought back to the UK so customers identify more readily with their banks by talking to a local customer service operator. This will enable banks to gain the customer loyalty they need to get a bigger share of wallet.

At the same time, other back office functions, such as applications development and system management, may go to countries such as India or China, where IT professionals are available and relatively cheap.

Janmohamed said: "Offshoring has to become smarter and more industrialised.

"I think the areas that will go offshore are the back office functions for payments, consumer credit applications and mortgage processing. A high percentage of other non-banking functions, such as finance and administration processing, HR and some treasury and procurement, will probably also go offshore."

According to the research, banks in the UK have the lowest variation in pricing between banks of all the countries surveyed. Janmohamed said this indicates the UK retail banking sector is competitive but that there may be scope for new entrants to come into the market with innovative price packages.

Janmohamed predicted account management fees will inevitably be introduced into the UK, driven in part by the current public concern over bank charges.

She said: "This is going to drive transparency in the way banks charge for services, which will have serious implications for banks that bundle products."

Capgemini's Willis said packaging services - which exist in the UK for affluent customers - will be offered much more to the mass market. "If the packages include non-core banking products, banks are going to have to address their IT infrastructure's ability to accommodate new products into the package and price it accordingly. It's also about different businesses' abilities to share IT resources. Barriers between business units are going to have to be reduced to do that," he warned.

Janmohamed added that this often unfamiliar co-operation between business units will have to extend out to marketing divisions, who will need to co-ordinate their efforts.

The report is based on information from 180 banks in 25 countries and looks at how banks' business models will be changed by retail banking pricing strategies.