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Remaking Global Financial Services

Are Europes Banks Ready for the Future of Work?

To keep pace with globalization and virtualization, and to better serve millennials, European banks must embrace a more collaborative and multidisciplinary approach to problem-solving and decision-making. By Frdrik Arns & Gabriel Schild

Globalization, demographic change, virtualization, new technologies the confluence of these drivers is forcing European banks to adapt rapidly to stay on their game and remain relevant in a world that, five years from now, will demand an entirely new way of doing business. This new world of work will require accelerated innovation by competency-based teams; knowledge-intensive processes to facilitate just-intime migration of information to the appropriate locations; and collaborative, multi-disciplinary approaches to problem-solving, issue resolution and decision-making. These challenges wont be easy for European financial services institutions to address, given the ongoing economic reset and the constraints of their traditional operating models. For example, most European banks are organized in silos optimized to support established organizational hierarchies. These models frequently perpetuate a clear role distinction between the business and IT. As a result of these boundaries, as well as personal preferences, European bank employees tend to be less laterally and geographically mobile. The key questions European banks face include the following:
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Can they adapt and survive the demands of a new corporate operating model? Under what conditions can they remain globally competitive over time? How quickly can they convert CapEx into OpEx spend, using third-party service providers for their contextual business and IT processes without compromising data security and privacy?

In response to these challenges, European banks have begun to establish virtual value chains, albeit only for the most mundane of tasks. Virtualizing processes and variabilizing costs are changes that must be made, and made quickly, if European financial services firms are to withstand the onslaught of accelerating globalization.

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Change Wont Come Easy

To the uninitiated, change appears to be happening slowly in the European financial services industry. However, a close examination of numerous business-technology initiatives adopted over the last few years reveals an industry in constant flux, predominantly forced by regulation. Technological developments have already changed the European banking status quo, including the Internet and client/server systems, as have legislative mandates aimed at risk reduction (Basel Accords), transparency (MiFID), proper record-keeping (Sarbanes-Oxley) and consumer protection, both the Payment Services Directive and Single Euro Payments Area initiative (self-regulation). One by one, these new rules and technologies have led to remarkable and swift changes in the visible operations of European banks: home banking using Internet applications, cashless shopping with payment by debit and credit cards, same-day valuation for wire transfers, zero-cost intraeurozone payments, drive-through ATMs and adjustable-rate mortgages, to name just a few of the innovations over the last 20 years in the banking industry.

European banks have begun to establish virtual value chains, albeit only for the most mundane of tasks.
The invisible operations of European banks have, however, undergone less change. Sadly, there was no need for them to change, given the incredible levels of profit that most European banks realized over most of the last two decades. As ferocious top-line growth fueled ever-increasing bottom-line results, a review of a banks operational cost base was mainly conducted for a limited set of business reasons, such as:
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Post-merger integration (e.g., the creation of the Fortis conglomerate in the Benelux and the merger of BNP and Paribas in France). Adverse macro-economic conditions (the post-Internet bubble in early 2000 and, immediately after, the credit crisis of 2008). A byproduct of investigation into employee-induced catastrophic market events. Barings Bank in the early 1990s and Socit Gnrale in 2008 following the Kerviel incident are examples of developments that prompted a review of support systems, processes and procedures.

From a business case point of view, the same old systems, processes and procedures did just fine supporting top-line growth. All they needed to do was keep up with new requirements for innovation around new products and services, as well as regulation drafted by regulatory bodies and the European Union (EU). Similarly, the operations and IT organization supporting this infrastructure remained static; there was no impetus for change. As a result, many European financial services institutions retain an operations and IT infrastructure that in many cases dates back to the 1990s or even the 1980s. This out-of-date operations and IT infrastructure is characterized by a number of common features, as follows:
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The IT function is organized centrally and operates separately from the rest of the organization. It is often a shop within the shop and does not operate in tandem with the banks business. IT adheres to its own schedule for new releases and deployment and has its own technology strategy, without clear explanations of the connections to the expectations of the banks clients and the institutions commercial strategy. Out of frustration, many bank business unit managers go their own way regarding their IT needs, under the radar or in plain sight.

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The IT infrastructure is typically disparate, fragmented and rigid. Hard-coded interfaces, mono-technology servers, inconsistent data centers and ad hoc add-ons have given many European banks a proverbial spaghetti-like infrastructure that often prevents timely or affordable changes and upgrades. This situation leads to ubiquitous work-arounds on the shop floor. For example, when looking at the operations of a typical money center institution, it is all too common to find traders in the front-office maintaining financial data in stand-alone spreadsheets; compliance officers setting up their own databases for knowyour-customer information storage; and product managers who, on an individual basis, procure services from third-party service providers for new products. Knowledge management is non-existent or spotty. The uncoordinated procurement of applications, services and data leads to incomplete asset administration, limited documentation for future reference and abhorrently low retrieval and reuse rates. As a result, many European banks score very poorly as learning organizations that can capitalize on knowledge and become more efficient by applying past experience to future challenges.

Many European banks score very poorly as learning organizations that can capitalize on knowledge and become more efficient by applying past experience to future challenges.
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Back-ofce operations are componentized. Not only is there limited interaction between a banks IT and its business, but there is also often a separatist approach between the business and back-office operations staff that is fostered by either geographic distance, an us-vs.-them mentality or simply a lack of ability to exchange information in a timely manner. More often than not, back-office employees lack workflow tools to support key operational processes, especially if their IT infrastructure does not support them or the technology strategy does not allow them. The result is a string of operational islands that move transactional exception cases between groups without efficiently sharing information on next steps or potential solutions. Operations and IT are kept in-house to a large degree. Many European banks have gone through the internal exercise of mapping answers to core vs. context questions. One could argue that banks need to focus on building superior financial products, providing excellent customer service to their clients and managing a string of risks associated with taking deposits from individuals and corporations and then making loans to other clients. Broadly speaking, all activities unrelated to payments, deposits and loans undertaken by banks such as data storage, functional and technical application maintenance and mainframe upgrades are fully contextual and could be procured from third-party service providers. However, European banks are bound by rules and conventions, preventing them from outsourcing their IT and operations to a large degree. As a result, the banks employees have less time to do what they should be doing: focusing on innovation in financial products and services and making improvements to client service. The impact of individual employees is limited and conned to their immediate professional environment. Especially in the lower ranks of the IT organization (i.e., those who tend to back-office infrastructure), the actions of individual employees have a relatively low level of influence on the overall policy and direction of a European bank. Collaboration between departments or business units is not always actively encouraged, innovative ideas are smothered in procedures or processes, and decision-making authority is almost always elevated to the highest levels of management for both line operations as well as project

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work. There often exists a multitude of committees, working groups and executive boards that make decisions without paying too much attention to the recommendations originating from the lower ranks. These factors could make recruitment and retention of workers under 35 years old (e.g. the millennials) problematic for many European banks. Whether its reality or perception, a career with high job security in a slow-moving, hierarchy-ridden, sometimes dysfunctional organization with limited promotion prospects is not what todays young workers aspire to (many of whom are used to more real-time, transparent, and networked interactions).

Market-Induced Shifts of Operating Models Will Force Radical Change

In the immediate future, change in the European banking industry should be far less regulation-driven than what occurred over the last 20 years. At the very least, there will not be the knee-jerk reactions we saw after the credit crisis. Instead, it is anticipated that the individual and combined forces of change (globalization, virtualization, millennials and cloud) will have a more profound impact on European financial services institutions.
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Globalization: Continued globalization of business means that barring the erection of legislative barriers new providers of financial services will arrive on Europes shores. With Internet banking now a staple service, access to European depositors and lenders is only a banking license away. The meteoric rise of Internet-only banks such as HSBC Direct, Santander Consumer Finance or UBank is proof that in the near future, non-European banks could very well become serious contenders to well-established household names such as Deutsche Bank, Rabobank or Credit Agricole in the battle for European consumers and corporations. There is already a number of Turkish banks successfully taking savings and loans market share away from established players in both Germany and the Netherlands by offering higher than average yields on deposits.

The arrival of the millennial generation as employees and customers means that banking services will have to be offered on digital native terms and conditions: anyplace, anytime, anywhere, on any device.
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Millennials: The arrival of the millennial generation as employees and customers means that banking services will have to be offered on digital native terms and conditions: anyplace, anytime, anywhere, on any device. This involves offering banking services through a mobile device with the obligatory alerting service, such as those that notify customers of large withdrawals from current accounts or unusual charges to a credit card. It also means that some sort of customer involvement must be offered, such as co-creation of a product or service, a Twitter feed or a Facebook page. And of course, participation in a service comparison site such as ABN AMROs MoneYou or the Netherlands Independer is a must (see related article, "Doing the Millennial Mind Meld," page 21). Virtualization: Now that profitability in the banking sector has returned following the global financial meltdown, the core vs. context debate will make a comeback. Many European financial services CEOs shuddered at the sight of some of their peers being bailed out by

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governments and will strive to avoid being caught in the same quagmire. Besides prudent risk management and a thorough understanding of the potential devaluation of some of the assets on their balance sheet, they need to be able to better control their operational costs. IT and operations from the tap would be ideal: Open the spigot in times of need, and close it again if business slows down. This calls for a hard look at current business and IT operations and an exploration of ways to dynamically source certain parts of these operations from third parties. The virtualization of the European banking value chain into contextual components and core competitive differentiator components has only just begun. It is highly likely that large numbers of financial utility providers will emerge over the next decade, and smart European banks will exchange capital expenditures on systems and processes for noncore operations, for operational expenditures on utility services providers. Such an exchange will allow these banks to quickly respond to changing market circumstances and, over time, improve their cost-income ratios.

Large numbers of financial utility providers will emerge over the next decade, and smart European banks will exchange capital expenditures for operational expenditures.
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Cloud: Acquiring business services, software applications or IT infrastructure via the Internet in a one-to-many constellation has gained tremendous uptake over the last decade, including in the financial services industry. The as-a-service model offers a number of opportunities over the do-it-yourself model, in terms of fixed-cost reduction, dynamic scaling, quality improvements and economies of scale. A large percentage of banks in Europe are using some sort of cloud service (SaaS) to source non-core software (HR, CRM, document management), and a smaller percentage uses infrastructure as a service (IaaS). Research shows that these percentages are set to increase rapidly over the next two years, especially if providers can start to offer so-called verticalized services (a true banking business process as a service, or BPaaS, rather than a single piece of software or processing capacity). According to Gartner, a true cloud service should be scalable and elastic, multi-tenanted (shared), metered by usage and delivered as a service, as well as use Internet technologies.1 Many cloud solutions currently in place in the banking industry are delivered over a private cloud, sans Internet, and are, therefore, not real cloud solutions, technically (in some pundits minds). In addition, for risk management and security reasons, banks do not use public clouds to procure services but stick to private or hybrid clouds.

Preparing for the Future of Work

To remain successful in the future, banks must consider the following (in no particular order): 1. Pay inordinate attention to the millennial generation as both customers and employees. 2. Embrace accelerating globalization by creating a new international banking business model different from the existing capital- and asset-intensive one. 3. Create virtualized value chains, built via the global sourcing of process and infrastructure components. 4. Foster innovation brought about by virtual teams and a collaborative workforce.

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Fast-Forward to 2020*
It is another day at the home office for John Lanting, a 30-year-old credit process analyst operator working for the Netherlands branch of European Credit Process Analysis (ECPA). He joined ECPA only six months ago as a team lead and has spent nearly three full weeks in a cubicle located in ECPAs non-descript office, in an anonymous business park on the outskirts of Amsterdam, for training, swarming and social purposes. Other than that, he works from home, usually from 8 am to 12 pm and again from 6 pm to 10 pm, if his other job fitness instructor at a local gym allows. Using the iPad 8G he bought for himself, John logs into ECPAs private cloud and checks his to-do list generated by the business process modeling software tool that ECPA sources as a service from The Work Goes On and On Ltd. in London. As soon as he logs in, he receives an IM from his co-worker Lee-Pen in Shenzen, China. Although he has never met Lee-Pen in person, they have grown to respect each other as virtual team members. They have, in the meantime, even befriended each other on WorkLife Circle, the most successful social network for young professionals from the bling generation, which followed the much-scrutinized millennial generation. Lee-Pen and Balajee in Bangalore another co-worker with whom John has a very successful virtual working relationship have cracked a difficult exception-based Australian credit approval case. The case had been pending for days for one of ECPAs non-traditional banking clients, Alfalfa Food & Drug. They are about to set up a telepresence session for later that day with the clients credit relationship manager based in Dallas. John IMs Lee-Pen back to set up the telepresence for 3 pm he will take it from his smartphone while at the gym and asks Lee-Pen to direct him to the case file on the collaborative operating platform he and his team members use to share their workload and exception cases.

Making it Work ... Virtually

John has a look at his agenda for the day, which shows a videoconference call with the IT and operations teams at one of his prospective banking clients (BancoSur based out of Caracas, Venezuela) at 11 am. Together, they are trying to redefine the BancoSur credit approval process in terms of efficiency and customer experience, and have made great strides creating innovative solutions based on the collective knowledge of the team. As a consultant, John tries to bridge the ideological gap between the two departments of his prospective client, which dont always see

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eye-to-eye. The team also received ideas from outside experts they found through crowd-sourcing and blog trolling. In fact, some of their most valuable ideas actually originated from these outsiders who do not work for either ECPA or BancoSur. John hopes that at the end of this project, BancoSur will become a full-service client of ECPA just like Alfalfa Food & Drug so that he can expand his team in China and India to create utility services that would provide the banks clients with a direct interface for credit approvals. BancoSur still runs most of its own banking processes on its proprietary software operating on servers purchased in 2005. These servers are housed in the basement of a very expensive office location in Caracas that John discovered through Google Earth. John reckons that in time, BancoSur could make more money from either selling or renting these offices than it does from the credit-granting business that operates from this location.

Successful Service Utility

ECPA itself has been on an upward swing for a number of years now, operating as one of the most reliable global banking service utilities. Running white-labeled credit approval processes and interfacing directly with end-clients of some of its customers, it has become an indispensable element in the componentized credit process value chains of a number of banking and non-banking clients around the world. Roughly 90% of its employees work from home, only visiting their office if inperson interaction is required. ECPA does not own many assets: Most of its limited office space is leased, and the applications and infrastructure it does use are based on the pay-as-you-go EaaS (enterprise as a service) model. ECPAs employees are paid well but do not have any fringe benefits and are expected to expense the business use of their own smartphones, tablet computers, hydro-fueled cars and in-home wireless super-Internet access. ECPA succeeded in creating a valuable service provider niche by embracing many of the EaaS principles that were labeled as future of work in the previous decade. But soon, other utilities were providing the same services and more, from certain parts of Africa, Brazil and Indonesia, where skilled and trained labor was in abundance in similar but cheaper ways compared with India and China. John didnt worry too much about this phenomenon. As an experienced team leader, he could work for any virtual financial services utility provider, no matter its origin. Hes a true blinger.
* This is a fabricated scenario intended to illustrate how global banking may be conducted in the future. All company and individual names are fictitious.

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1. Millennials as Customers and Employees

Research suggests2 that millennials are principally motivated by:
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Technology-created convenience. Peer recommendations created by a trusted community. Style and purpose but not traditional status or hierarchy.

This generation of digital natives uses technology as an inanimate extension to conveniently interact for personal or professional reasons. Understanding this, European banks must mobilize strategies that prioritize convenience or quality of service over price or competitive salary (for attracting or retaining millennials). Conversely, negative recommendations, technologic inconvenience and ill-inspired advice will equally work against the bank, as they will be quickly shared by millennials in various social networking forms.

2. Creating a New Global Banking Business Model

The evolution of internationalization in banking and financial services in the 1990s allowed banks to tap cheaper sourcing of funds, hardware, software and workforce. It also influenced the way the banking business works today through foreign equity control, efficiency in allocating cross-border growth in credit and follow-the-sun trading of financial instruments. On the downside, this shift also exacerbated international transmission of financial shocks and cycles. As a result, competition in international finance today is more intense, and local monopolistic distortions have been reduced.

Banking products and services will become more glocalized: global and standardized where possible to save on processing, maintenance and marketing costs; and localized where required to meet local client needs, legal requirements or other country- or language-specific demands.
Globalization in banking will only accelerate these developments. Todays truly global banks (such as HSBC, Deutsche Bank, StandardChartered Bank and Citigroup) all hail in origin from the West. They have a global delivery model predicated on an extensive network of branches and agents, and they can rightfully claim to offer their clients similar financial services the world over. For instance, non-ATM access to a checking account from Beijing to Buenos Aires is only supported by the global banks, based on their strong backbone of systems and people. Built during decades of international expansion, this backbone is often rigid and inflexible, and it carries an associated cost with it. This cost is factored into the pricing of services these global banks charge their clients. Tomorrows banks with a global reach could come from India, China or even further afield. They could be predominantly Internet-based and, hence, rely on a less expensive cost model. This will be reflected in their prices. As is the case with some Turkish banks operating in the Netherlands and Germany, these banks could start to offer higher credit interest rates on deposits if the transactions are conducted in currencies other than the euro or Swiss franc. As these banks will not be burdened by inflexible legacy systems, they will be able to operate in a more nimble and dynamic manner than their European counterparts. They will offer global banking services that are cloud-based, delivered via the Internet and global from the start.

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Ongoing globalization of the banking industry will force European banks to become product and service specialists and leverage the service offerings of processing specialists for some of the needed supporting services. This development will spur the rapid emergence of more global financial services utility providers, focused on one or more componentized, contextual parts of the banking value chain. Banking products and services will, therefore, become more glocalized: global and standardized where possible to save on processing, maintenance and marketing costs; and localized where required to meet local client needs, legal requirements or other country- or language-specific demands. Underlying processes and software will become more standardized, with deviations from the global standard limited as much as possible in order to save on operating costs and increase operating efficiency.

3. Creating a Virtualized Global Value Chain

Under pressure from new and more efficient competitors from across the globe, European banks will be forced to re-examine their cost base. Very quickly, this analysis will yield evidence that the dynamic of this cost base cannot be changed much, unless the value chain that is its foundation is componentized and sourced differently. Core processes of the componentized value chain should be identified and separated from the contextual processes. These core processes are what make the bank unique vis-a-vis its competitors, whereas the contextual processes present little or no opportunity for competitive differentiation.

Business processes such as cash and securities reconciliation, financial asset pricing, credit application decision-making or insurance claims processing are excellent candidates to be offered in the near future by utility service providers that employ large swarms of millennial workers in one of the BRIC countries.
The contextual processes should be sourced from parties that specialize in the provision of utility services for financial services providers. Business processes such as cash and securities reconciliation, financial asset pricing, credit application decision-making or insurance claims processing are excellent candidates to be offered in the near future by utility service providers that employ large swarms of millennial workers in one of the BRIC countries. These types of knowledge-intensive processes will find their rightful home location, in the same way that manufacturing processes were outsourced to China and data processing services to India in the late 1990s and early 2000s. Thanks to broadband Internet 4G, cloud solutions and ever-increasing computing power, these service providers to the financial services industry will grow into a blossoming industry before the decade is out. As such, European banks must be able to deal with a number of implications of the virtualized value chain they will run in the near future. These include:
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Global sourcing from service providers: Providers are more likely than not to operate from a different continent, under a different jurisdiction, using different value systems and operating in English. Their employees are highly educated, skilled and capable but may perform work differently from their European counterparts. Collaborative teams: The nature of a virtualized value chain causes its operators to work across borders, time zones, language skills and cultural differences. The bank must deploy collaborative tools to make virtual value chain workers more efficient.

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Variabilized cost structure: Capital expenditure on assets such as data centers, office buildings, hardware and infrastructure and software licenses will be exchanged for operational expenditure. By renting these elements on a per-use basis from utility service providers, the bank can allocate funds elsewhere that were previously tied up in these assets in a more productive way. To put it in accounting terms, the banks working capital increases, and its cost-of-goods-sold is more directly tied to levels of revenue.

It is clear that many European banks have a long way to go in the optimal use of virtual value chains, not in the least because of a lack of service providers. The nascent banking utility industry needs to provide more education to convince more European banks of their added value.

It is clear that many European banks have a long way to go in the optimal use of virtual value chains, not in the least because of a lack of service providers.
4. Fostering Innovation Delivered By Virtual, Collaborative Teams
According to a recent study of North American and U.S. companies conducted by the Economist Intelligence Unit and Cognizant, most respondents expected to see related benefits within three years of implementation from the use of virtual teams and collaborative tools in the workplace.3 In fact, some are already experiencing measurable results, predominantly in the areas of innovation, productivity and talent recruitment and retention. Companies already reporting measurable results believe that a more virtualized and collaborative way of working is enabling them to significantly outperform their peers. Although a clear link with bottom-line financial results was not identified, there is overwhelming empirical evidence of the benefits of a virtual, collaborative work environment. European banks are no exception.

European banks should set aside a percentage of revenue or profits for innovation and should create a collaborative work environment consisting of labs to foster this innovation.
To become more globally competitive, European banks should focus on the remaining competitive differentiators available, and the most important one is the ability to innovate. European banks should set aside a percentage of revenue or profits for innovation and should create a collaborative work environment consisting of labs to foster this innovation. The work environment of the innovation lab should comprise tools such as knowledge-sharing platforms, business process modeling tools, blogs and telepresence facilities. The innovation process should be structured and well managed, with a clear mandate to start or stop new ideas without necessary approvals from outside of the innovation labs. The innovation labs should be established in those parts of the banks geographic presence where talent is abundant and rich. It should be easy to tap this talent by emphasizing the independent and preeminent position the innovation labs and process have within the bank. If executed well, these labs should produce success in short order, such as contactless payments for small purchases (Visa, American Express), mobile banking solutions for smartphones (Rabobanks Rabo Mobile) or for paying bus fare or vending machine snacks through SMS (City of Antwerp and City of Stockholm, respectively). Innovation could also be focused on processes instead

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of financial service products. Examples include reconciliations of accounts and amounts, the registration and documentation process for new banking clients or the prevention of fraudulent activities, such as card skimming at ATMs or phishing for online bank account details.

Innovation could also be focused on processes instead of financial service products, such as reconciliations of accounts and amounts, the registration and documentation process for new banking clients or the prevention of fraudulent activities.
The spin-off of these ideas into practice could have more widespread results beyond the actual implementation. As our study points out, the collaborative nature of working in the innovation labs should be employed in the banks traditional operating process, as well. Collaborative tools in the banks production work environment will help boost productivity. Tearing down imaginary silos between business and IT through the use of a shared collaborative workspace with the same tools as in the innovation labs will help improve productivity. Whereas business and IT remain at odds within the bank, mandating them to use the same collaborative tools will encourage them to commit to the same results. Competency-based teams and the introduction of collaborative tools will also help millennial employees feel more at home in the banks work environment, since the way they interact in their private lives with their communities all over the world will finally be replicated in the office environment. Attracting and retaining millennial employees should become easier and more effective.

Competency-based teams and the introduction of collaborative tools will also help millennial employees feel more at home in the banks work environment.
Building New Ways of Working
European banks display many of the characteristics of corporate behemoths that fly in the face of the new way of working: Siloed operations with limited relevance to individual employees, low levels of learning and knowledge management, limited collaboration across departments and country borders, and operating value chains with restricted use of third-party service providers. Over the next decade, the four forces of globalization, demographics, virtualization and new technology will start to wield their influence on all corporations, including banks. They will create change in the European banking landscape at an unprecedented scale. European banks will need to radically revamp their operating models, slash their cost base, improve their employee management skills and virtualize their value chains to stay viable. Millennials as customers and employees will prove to be one area of focus that European banks will need to crack, as they display as a generational group very different purchasing patterns and working methods than todays bank customers and workers. They also need more advanced office tools and require a larger purpose in the workplace.

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Another strategic decision for European banks is whether to become experts in financial product design, marketing and management, or specialists in financial services processing. Either strategic direction will require a more collaborative operating environment made up of competency-based teams with greater innovative powers a concept that is, in some cases, alien to European banks today.

European banks will need to radically revamp their operating models, slash their cost base, improve their employee management skills and virtualize their value chains to stay viable.
Finally, European banks must arm themselves for a global banking model that is very different from the capital- and asset-intensive international banking models developed in the 1990s. European banks must capitalize on the emerging global client base, while preparing for new overseas competition. A first step in the right direction would be to start sourcing certain parts of the banking value chain from new, globally active financial services utility providers to virtualize and variabilize their operations. There are no easy answers, nor are there ready-made complete solutions. The areas addressed in this article will yield more value if they are approached in a strategic manner. Comprehensive analyses and planning for the four forces shaping tomorrows corporate operating model is a must for any European bank.

Gabriel Schild is a Director at Cognizant Business Consulting (CBC) based in Amsterdam, Netherlands. He has over 15 years of experience in operations and consulting for the financial services industry, and is head of France, Benelux and Nordics for CBC Strategic Services. Gabriel holds an MBA from Thunderbird, the Graduate School of International Management in Phoenix, AZ. He can be reached at gabriel.schild@cognizant.com. Frdrik Arns is a Manager at Cognizant Business Consulting (CBC) based in Frankfurt, Germany. He has over six years of experience in operations and consulting for the financial services industry and holds an MSc (Hons) 1st in International Finance at CERAM Nice, France and Westminster Business School London, UK. He can be reached at frederik.arns@cognizant.com.

Footnotes
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Peter Redshaw and David Furlonger, Cloud Computing for Banking and Investment Services, Gartner, Inc., August, 2010. The Millennials: Confident. Connected. Open to Change, Pew Research Center, February 2010. Next-Generation CIOs: Change Agents for the Global Virtual Workplace, Economist Intelligence Unit and Cognizant Business Consulting, October 2010.

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Remaking Global Financial Services

Doing the Millennial Mind Meld

To appeal to the next-generation consumer, banks will need to apply proven approaches from other industries regarding how they develop and deliver new products and services. By Frdrik Arns & Gabriel Schild

When dealing with millennial customers, banks should look beyond the traditional service of ready-made financial products and services. To succeed, they will need to concentrate on three important strategies: Co-creation, customer experience and community recommendation.
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Co-creation: Millennial customers expect to exert influence on the product or service of their choice. Not content with run-of-the-mill products, they want to be able to design their own products and their own services to reflect their own unique personality. Putting ones photo on a credit card or tailoring the layout of their mobile banking GUI are two tell-tale examples of things to come. Like other businesses, European banks must think of ways to drive this co-creation trend even further in order to appeal to the millennial client. The traditional rigidity of many financial services products are a hindrance for co-creation. New offers could include: U Mortgages or credit cards that allow customers to make a monthly donation to a good cause of ones own choice. U A credit card with a choice of delivering cash back or a lower APR. Further enhancements could come from making these choices available online and switching between choices on a monthly basis.

Customer Experience: Millennials are very sensitive to the overall customer experience they receive from any business, especially financial services institutions. They want an experience beyond the bare-bones products or services being offered. It is, therefore, important for banks to focus on the entire A-through-Z process before, during and after the purchase. Of course the use of technology plays a very important role. It is clear that banks are not masters of managing customer experience yet. They can learn a great deal from some of the following examples: U Dominos Pizza has an online co-creation pizza-ordering service, with a track-andtrace function. Dominos customers can create their own pizza online, put the order into Dominos system, track the pizza creation, baking and delivery process through five steps (from your pizza is being garnished with the toppings of your choice, to your pizza is now in the oven, to the pizza courier should be at your door in 12 minutes bon apptit.) Banks should be able to design a similarly transparent

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process for the application of various financial services products. Anyone who has ever applied for a mortgage, credit card or loan knows the mind-numbing nontransparency of this process, which could be made far more accessible with some simple online tools. U Starbucks Coffee has an online customer suggestions box that enables consumers to make special requests or provide the company with feedback on an outlet-by-outlet basis. As a result of a customer suggestion, a busy Starbucks branch in the U.S. uses a fast-food-style light display above its customer counter to advertise its wares in a more accessible manner (replacing a traditional hard-to-read chalkboard in the back of the outlet). Banks should be able to use technology in a similar way to get to know the wishes of their customers better and drive up branch or Internet traffic and profitability, accordingly. U Transavia Airlines publishes customer complaints and remedies on its Web site, if the customer agrees to it. Not only do these posts make for interesting reading, but they also serve to let potential clients know that the airline cares about its customers beyond the e-ticket and low-cost fares. A bank providing full transparency on its customer complaints could garner similar effects among its clients and prospects. While some banks are moving forward along these lines, most are not. They clearly lag other consumer industries, such as travel and hospitality. The following are a few of the important lessons to be learned from this segment:
I Community Recommendation: More than any preceding generation, millennials share a certain distrust for established institutions and do not easily accept their advice. They would much rather take advice from the online community to which they belong, even if they have never met any of its members in person. Millennials rely on crowd-sourcing scanning the vox populi for advice on purchases, investments or other important decisions. For successful marketing communication with millennials, a community recommendation is golden, whereas a bank branch recommendation is suspect.

Banks, therefore, must develop and implement an active community around their products and services, ideally with an open and public membership. The community should allow for both the good and bad news about the banks services to be published, in order to come across as genuine and sincere. In addition, the community should be closely monitored by the bank answers and advice must be proactively managed, and millennial prospects and clients must feel that the bank takes its community seriously. It is believed that millennials also rely heavily on independent comparison sites such as Independer or MoneYou for advice on financial services products. It is, therefore, important that banks actively promote and participate in such independent communities and understand the pitfalls and benefits of a direct comparison of its products and services with those of their peers. Community management must not be taken lightly, and it should be an essential part of a banks social media strategy. United Airlines United Breaks Guitars Youtube video is a near-perfect example of how the lack of online community monitoring can have a detrimental effect: The videos nearly 10 million hits blasting the airlines perceived lack of customer service has cost United an estimated $150 million in market capitalization and countless rants on various travel blogs.1

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Similarly, banks will need to offer millennials more than a salary and bonus to entice them to work for them. Although the additional motivating factors beyond remuneration will vary as much as the weather, some patterns are slowly emerging: U Avoid the Sunday night/Monday morning experience: Everyone knows the story of the millennial employee who quit her job after only two months because she was not allowed to use social media tools in the office. Not providing Facebook or Twitter access, she argued, was not unlike disallowing a salesman to use the phone, his car or a calculator. The point here is that millennials are used to multitasking online in their private lives, and not allowing them to do so in the office will turn them away from an employer. Of course, a middle road must be found between millennials needs for unfettered Internet access and banks needs for actual work time. U Jettison the command-and-control structure: Millennials dislike hierarchy and glass ceilings. In the online lives they lead, everyones opinion is equally important, and access to so-called experts, managers or supervisors is unrestricted. Similarly, the decision-making process needs revamping, as well: Millennials want a sense of influence and importance concerning mission-critical issues, particularly those that could potentially affect them. Relegating certain decision-making power to the lower-ranking echelons may seem unnatural at first, but this is what millennials are used to in their digital lives. U Abolish silo thinking, working and process: Millennials crave collaboration and will quickly crowd-source their way to a collaborative solution once they are faced with a difficult task or challenge. The adoption of a virtual teaming modus operandi is important to attract and retain millennials. U Aspire for more: Millennials are looking for a workplace with a cause or a greater purpose. A job to many millennials is not all about making money but a means for making a difference in the communities they care about. Corporate social responsibility is important, and a genuine CSR policy will go a long way in making sure the millennial worker is and remains a motivated employee.

Gabriel Schild is a Director at Cognizant Business Consulting (CBC) based in Amsterdam, Netherlands. He has over 15 years of experience in operations and consulting for the financial services industry, and is head of France, Benelux and Nordics for CBC Strategic Services. Gabriel holds an MBA from Thunderbird, the Graduate School of International Management in Phoenix, AZ. He can be reached at gabriel.schild@cognizant.com. Frdrik Arns is a Manager at Cognizant Business Consulting (CBC) based in Frankfurt, Germany. He has over six years of experience in operations and consulting for the financial services industry and holds an MSc (Hons) 1st in International Finance at CERAM Nice, France and Westminster Business School London, UK. He can be reached at frederik.arns@cognizant.com. Footnotes
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http://www.youtube.com/watch?v=5YGc4zOqozo

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