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Member expectations, cost management and new regulations are all putting pressure on mutuals, but a KPMG-hosted roundtable discussion explored how leveraging technology can turn some of these issues into opportunities.
As Australia’s mutual banks move on from the vast challenges of the past 2 years, from the 2019 bushfires to the global COVID-19 pandemic, they will want to uphold their leading position when it comes to building close member relationships.
However, that strength needs to transform from a focus on in-person environments to incorporating a seamless digital experience to meet changing member expectations, as well as to compete with new digital-only banks that are optimised to support members anywhere and at any time.
Mutuals are also facing the challenges of maintaining financial performance and growth, and responding to the broader transformative shifts in the financial system such as new regulations.
Digital transformation will be core to supporting mutuals to manage these complexities, and to prepare for even more demands as they unfold.
To discuss these issues and how digital transformation can make a difference, KPMG Partners David Cummins and Alex Moreno hosted a virtual roundtable in early November 2021, joined by representatives from banking software providers nCino, Salesforce and Thought Machine.
Here are some of the key insights that they shared.
Mutuals offer personalisation to their members
Mutuals have a long history of building close relationships with their members.
These close relationships are particularly evident in industry sectors such as teaching, policing and nursing, and also in Australia’s regional communities.
Stuart Ward (Regional Sales Director – Financial Services, Salesforce) said in the last 2 years, this personal factor was exemplified as mutuals helped their members through the various challenges by tailoring loan relief. He highlighted that this level of service should drive their digital transformation strategy.
“They have this natural alignment to being member focused, right from their core structure,” he said.
However, Adi Gulati (Senior Sales Director – Financial Services, Salesforce) said that advantage became a complexity in COVID-19 – as their members were swiftly forced away from in-person banking and immediately needed digital ways to engage.
This found some mutuals unprepared.
“Many struggled to scale their operations in a digital world, and acquiring new members was impossible,” said Gulati.
“I think the gap widened for them from a bank who is digitally ready.”
Legacy technology burdens digital transformation
Breaking down legacy technology and data siloes.
A key issue holding the mutuals back from being able to quickly shift into a comprehensive digital operating environment is their reliance on legacy technology.
Nicholas Wilde (Managing Director, APAC, Thought Machine) referred to recent Thought Machine research that found the average age of legacy core banking technology in the sector is 20 years old. He said a lack of incentive and previously large cost and risk of transformation has been an inhibitor to change.
However, Wilde said that now, “there's more pressure than ever to transform – and there is new technology that makes that transformation worthwhile.”
Gulati pointed out that part of this pressure is the need to deliver new and tailored products and services at speed, drawing on data insights to see the opportunities and act.
Legacy technology often sits in siloes across departments, meaning that data isn’t centralised and bankers can’t get access to the right information instantly. “And that, in today's world, is absolutely slowing them down,” said Gulati.
Financial performance under pressure
With competition from large banks and digital-only banks, it is vital that mutuals financial performance is supported by cost management.
Wilde said that mutuals can look to digitally native banks to see just how much lower the cost of operation can be. “…a built-from-the-ground-up digital bank could run as much as 50-70 percent cheaper than an equivalent legacy organisation,” he said.
Mark Bernhardi (Managing Director, Australia & New Zeland, nCino) said that while there is an initial cost to digital transformation, the long-term cost of not transforming in terms of the employee and member experience, efficiency and regulatory risk, will be much more.
“We obviously see the capital costs from a program perspective, and the ongoing support and licensing costs from a technology perspective, but I think the key headline is the increasing operating costs, in terms of the ongoing cost to serve and the return on assets,” said Bernhardi.
“This is being significantly impacted by the time and effort it takes from loan application to having it approved and the cash being in the customer’s account. If you could significantly reduce that, then it's going to lead to significant cost savings, with less time and effort touching that loan. Not to mention a far better customer experience.”
He added that leveraging cloud platform software to ease manual handling across areas of daily operations will also bring a cost benefit.
“By moving to a single platform and being able to chat in real time and in context about a loan, means that you can avoid unnecessary back and forth emails with the customer and internally in the bank,” said Bernhardi.
Mutuals employee experience central to success
Providing an optimal employee experience is directly related to both the financial performance and the member experience.
Bernhardi said one of the things that holds mutuals back from delivering a good employee experience is the need to undertake extensive manual administration, rather than making the most of technology capabilities such as automation.
“We hear a lot about very manual, very rigid data entry experiences for bankers…they're not spending as much time in front of the customer… When we move a lot of that manual time to customer engagement, bankers feel like they do more meaningful work,” he said.
Dylan Steenhuisen (Sales Director, Thought Machine) pointed out that while some mutuals have many aspects of their processes digitised, such as filling in home loan applications, the aligned automation isn’t flowing throughout the whole process from the front through to the back office. This is creating backlogs that need to be managed manually.
“In order to have a truly digital organisation, you have to be extremely agile at the front end, as well as at the core, to give you that pure, straight-through processing,” Steenhuisen said.
Ward added that employees gain a lot of satisfaction from having the tools to know their members well and to support them in a proactive and seamless way.
“The industry learned a lot in the bushfires – being able to detect transaction patterns and perhaps notice when income stopped flowing into a customer's account. It gives you the ability to then proactively reach out to the customer to check in, as one example,” Ward said.
Interactions that delight increase member satisfaction
Members want seamless, simplified interactions and experiences with mutuals.
The roundtable participants agreed that at a basic level, mutuals’ members want their experience with their Mutual to be frictionless, whether it is online, in-person, on the phone, or a mixture of all at different times. They only want to enter their information once, and they don’t want to have to go in-person to offer physical documents that could be verified online.
At the next level of member experience, they want the benefit of the mutual having a deeper understanding of their needs and wants, which can be established with the support of a suitable customer relationship management (CRM) software system.
Ward explained that this system needs to help the mutual pull together data centrally, and to leverage it for member insights.
“When you use CRM well, no matter how you interact with the bank, each interaction builds upon the understanding the bank has about the customer. We (as customers) appreciate being known and to have that demonstrated through the way we are communicated to, and what offers are made to us,” Ward said.
He emphasised that the key is to get to the heart of member ‘intent’ and to become ‘predictive’ to support that intent. It might be seeing a savings account grow and proactively offering a tailored home loan product.
“Then…how do we make that loan process as simple as possible, and as transparent as possible, as to where they are at in the journey?” he said.
For Steenhuisen, delivering optimal experiences requires knowing each member as a “segment of one”.
“Having that capability and flexibility to offer hyper-personalised services is becoming increasingly important for customers. Having that flexible (technology) platform, all the way down to the core, will be extremely important.”
This points to a need for having a member driven ‘purpose’ for existing, above simply providing daily banking needs, Gulati added.
“Research has shown that if mutuals are ‘purpose driven’ it’s far greater for front-end profitability, far greater for stakeholder relationships, the community and brand awareness. The need for ‘transparency’ is more and more the key word in banks that we hear,” he said.
Meeting growing regulatory compliance through digital efficiencies
With regulatory pressures on the rise, particularly around ESG, mutuals need efficient ways to reduce risks.
Bernhardi said if mutuals first focus on the member experience that they want to deliver, then layer the required compliance into that experience using technology controls, it can turn into an opportunity.
“What we see as one of the key benefits of moving to a single end-to-end customer and originations platform is the ability to embed automated checks and controls…So, as you engage with your customer and team, validations and triggers, rather than excel or paper-based lists, can help ensure you are asking and satisfying the right questions at the right time,” he said.
Bernhardi added that with end-to-end visibility of processes and operations, it is not only easier to report and track regulatory and compliance related data and controls, but also much easier to modify and change as these requirements change.
The build, buy or partner equation
Weighing agility, configuration, complexity and cost.
Cummins raised that as mutuals look to digital transformation, they have choices of whether to build their own technology platform, buy one and have it implemented, or partner with a provider to obtain a Software as-a-Service experience, with ongoing support and maintenance.
Wilde said that for mutuals, building a platform from scratch can be time consuming, costly, require a lot of in-house expertise and the mutual won’t benefit from continual provider upgrades. Instead, taking on software that has been specifically created for banking needs, and accepting the built-in best practice processes, can be much more practical.
“We're (at Thought Machine) a very clever ‘LEGO brick’ and there are other very clever LEGO bricks out there that do the various things you need, and APIs (Application Program Interfaces) allow you to assemble the LEGO. So, you can build something that really suits your brand promise to the market and to your members,” he said.
Moreno pointed out that mutuals can benefit greatly from systems that allow very agile configuration versus complex coding.
“It means you can just drag and drop versus writing lines of code, so you can just deploy faster and you get adaptability,” he said.
Change has never been faster
Starting digital transformation now will help mutuals adapt to the pace of change.
Ward summed up the benefits for mutuals of starting on their digital transformation journey sooner rather than later.
“If you’re not relevant in today's world, you're not going to be increasing your wallet share…if you can reduce your operational effort, improve the customer effort, and be more proactive with messaging and customer journeys, that's definitely a benefit to you,” he said.
Wilde added further incentive: “One of the things I truly believe in is, everybody talks about the rate of change and digital disruption, but change will never move slower than it is today,” he said.
Therefore, he said it is better to get started on the journey, aware that it doesn’t have to be arduous.
“If the mutuals find the resources and the willpower, they have that wonderful service history and customer focus, and they are typically much smaller – so transformation could be quite agile,” Wilde said.
Next steps for mutuals to achieve digital transformation
Embracing the future and driving transformation goals.
At the conclusion of the roundtable, a shared view was that mutuals have a core strength in member relationships which they can leverage to offer richer digital member experiences.
They can draw on their deep knowledge of the sectors and regions that they serve to tailor products and services that meet unique needs, giving them a competitive edge. The significant advancement of cloud software has brought into reach capabilities that were previously only accessible to large enterprise banks with very large IT teams.
As mutuals move into digital transformation, they have the opportunity not only to meet the expectations of employees and their members, but to better manage the cost to serve, find new growth avenues, and meet ever-changing regulations – particularly around the ESG agenda.
With a range of advanced technologies and experienced partners able to support both technology implementation and the change journey for all involved, the discussions made it clear that the technology landscape is now simpler than it was, and given the urgency to change, now is the time make the move from legacy technology and to embrace the future.
Be clear on the vision for the transformation and the business value that will be realised out of the program of work
Prepare for organisational change and build and execute on a robust change management approach
Balance decision making between optimal technology choices with the protection of existing investments
Dedicating a team to the transformation effort and agreeing metrics and measures for transformation upfront
Put in place an appropriate governance structure that will manage the processes around the transformation and any dependencies.
Our clients consistently experience obstacles in realising their transformation goals, our advice in getting started is to:
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