Nikolay Lazarov is Head of Sales Division for Retail Customers at Eurobank Bulgaria (aka Postbank). He discusses his role, the challenges posed by inflation, and the balance between human contact and digital interaction in retail banking, in an interview for the Qorus-Avanade report titled Balancing human and digital: Are banks losing touch with customers?
What are your roles and responsibilities in the bank?
I hold the role of Head of the Sales Division for individual retail customers at Postbank Bulgaria. In this position, I oversee the daily activities, outcomes and strategies related to sales, managing a wide range of distribution channels including digital platforms, direct sales centres (branch network, telemarketing, partner networks, and catering to various segments such as the premium segment, affluent segment, youth banking, primary clients, key B2B partnerships, „Momento” express banking centres, and digital sales. This role offers ample opportunities for innovation and the implementation of digital solutions, making it a highly dynamic position.
Balancing human and digital: Are banks losing touch with customers?
What is your top customer challenge right now?
In my view, inflation appears to be the main issue at hand. Currently, we are facing a relatively high inflation rate of around 14 percent, which is nearly double the average rate in Europe. This situation is further complicated by the unique circumstances we find ourselves in, characterized by a low-interest rate environment for loans in Bulgaria, which is gradually increasing. Despite the prevailing low-interest rates, our customers are expressing concerns about the potential impact, considering they observe a shift in interest rates taking place in the Eurozone. It is worth noting that Bulgaria is also preparing to adopt the Euro next year, adding another layer of challenge.
How do you decide the balance between human contact and digital interaction for your retail banking customer segments? Can you give an example of where your approach has created a distinctive service? Do customers ever get lost in the process or experience lower levels of service?
To begin with, I would like to describe the prevailing environment in Bulgaria. Unfortunately, we are faced with a less favorable situation where the adoption and usage of digital platforms and Internet banking are relatively low. Only approximately 20%-25% of individuals utilize mobile or Internet banking, which is lower than the European average. This fact significantly shapes our strategy since a complete shift to digital platforms could result in clients disappointments and revenue loss.
Considering this perspective, we have adopted a balanced approach and closely monitor the performance of digital channels on a monthly basis. Although we have observed an increase in customers transitioning to digital channels. When we examine the behavioural patterns of different generations, notable differences emerge. For instance, the "Gen Z" generation, our main competition is not local banks but rather digital banks like Revolut. If we fail to establish a digital presence that caters to their needs, we risk losing our position in the market within the next 10 to 15 years.
When it comes to Millennials, we encounter two distinct segments. One segment consists of customers whose professional lives are more digitally oriented, and they prioritize digital channels. Conversely, the Walmart segment's target audience relies heavily on physical branches and traditional channels. Consequently, as a bank, we need to strike a balance between these preferences. In pursuit of this, we are introducing new technologies such as the mobile wallet.
The reason behind our investment, development, and customer training in these technologies is that they serve as effective tools to incentivize customers to adopt specific channels through pricing strategies. This approach proves successful for basic transactions such as ATM usage and digital self-service zones.
In the realm of mortgage lending, we have introduced a digital channel called the Digital Mortgage Center to appeal to customers with IT backgrounds. This channel still requires some level of physical interaction, which we facilitate through video meetings, a service that nearly 99% of clients have requested. The demand for this stems from clients' desire for comprehensive and detailed information about complex products, where they can ask questions face-to-face, receive summaries, seek clarification via email, or have multiple meetings. Clients typically take out only one or two mortgages in their lifetime, and having these options available to them makes the process more manageable. Recently, we have noticed an increasing number of people preferring video conferences over branch visits.
We exercise caution when implementing new technologies, digital products, or channels, taking into account how clients will adopt them. As an example, when we introduced the mobile wallet 1.5-2 years ago, it was a relatively new concept in Bulgaria, and we spent considerable time educating clients about its functionality. Subsequently, we began building a digital ecosystem around the wallet. We believe that introducing multiple new technologies simultaneously would require twice the amount of explanation. Therefore, we aim to train clients to adopt more digital behaviors. However, this approach does not apply to the "Gen Z" generation, as they are already digital natives and prefer not to visit physical branches. In fact, I came across research suggesting that for "Gen Z," going to a bank branch is as undesirable as going to the dentist!
Nevertheless, the initial association most people make with the word "bank" still involves the traditional bank building rather than a mobile phone or any other digital device. To offer more comprehensive products, we believe that a physical distribution network is necessary.
In Bulgaria, we are currently exploring a "phygital" approach, where we establish small sales points (around 20 square meters) in shopping areas known as "Centers for Express Banking Momento." Here, we provide one-stop-shop services such as mortgage loans and life insurance. While we initially engage with clients physically, approximately 90% of them subsequently transition to digital.
"In the 21st century, particularly in Europe, a strong digital ecosystem is essential for success. Different countries may adopt these approaches in varying ways, reflecting their unique contexts and market dynamics."
Do you think there are limits to what banks can do by focusing on digital only, or are the benefits much greater than the disadvantages?
The timeline for the complete digitalization of banking services varies depending on the context. If we consider the present situation in Europe, it might still be too early to envision full digital mainstream adoption. However, if we look ahead 20 years into the future, it's possible that digital channels will become the primary means of banking for individuals. The future is already here, but its implementation and spread differ across countries. On a global scale, physical branch networks continue to expand due to the significant number of unbanked individuals, particularly in regions like China, Central Asia, and Africa. In the Western world and parts of Eastern Central Europe, physical distribution networks are growing as well.
When we fast forward 20 years, the "Gen Z" generation, which is currently young, will be in their 40s and 50s. By then, digital channels will likely be fully mainstream, and the need for in-person visits to sales points will be minimal. I can provide a personal example involving my two daughters, aged 7 and 17. The older one comfortably manages everything through applications. Even when I call to order a pizza, she suggests using the app, which provides precise delivery time. On the other hand, my younger daughter, at the age of 7, considers applications to be outdated. She prefers using voice search on platforms like YouTube. They represent the future, where voice search and biometrics may dominate. Perhaps, in 20 years, applications will be similar to what physical branches are today. It is important to note that these predictions are speculative and subject to various factors and technological advancements that may influence the future landscape of banking.
In the future, how will banks make the most of human engagement? Will such engagement come at an additional cost for the customer or even at a premium price?
In my perspective, the future of the banking industry will witness two distinct approaches. Firstly, there will be banks that adopt a banking-as-a-service strategy. Leveraging their expertise in assessing risks and other financial aspects, banks can offer this service to other companies, such as telecommunications providers, that are focused on building robust digital ecosystems. Ultimately, customers desire simplicity and a seamless customer journey. Therefore, banks will need to align themselves with the evolving needs of their clients. For instance, when a customer intends to purchase a house, the bank's role will be to provide the necessary financial service to facilitate the transaction smoothly. In essence, the bank becomes an enabler, ensuring that the required funds are seamlessly transferred to the customer's account. Thus, in the future, banks will need to closely align themselves with customer needs, prompting them to go beyond traditional banking services.
I anticipate two main streams emerging in the future. The first stream involves banks selling their expertise as a service, a trend that is already evident today with various business models in place. The second stream revolves around banks going beyond traditional banking services and adopting a more client-oriented approach. This means not only providing financial products but also establishing a deeper connection with customers through digital integration. In the 21st century, particularly in Europe, a strong digital ecosystem is essential for success. Different countries may adopt these approaches in varying ways, reflecting their unique contexts and market dynamics.
As we enter a recessionary period, banks will be keen to demonstrate a greater understanding of and support for their customers. What initiatives are you taking to appear more human and empathetic? Or are you relying on more automated, contextual responses, based on algorithms and avatars?
The approach we take with clients depends on their specific segment and needs. For clients with larger mortgage amounts, we offer direct communication in the branch, mortgage centres or digital center to understand their requirements and provide personalized assistance. We are also considering implementing a tailored approach based on each client's profile and product usage. Even in the current period, we observe growth opportunities, such as debt consolidation. Through debt consolidation, clients can reduce their overall debt burden by increasing their instalments and extending the repayment period. It is crucial for us to actively communicate with clients because many seek the bank's advice. By offering guidance and recommendations, we can assist clients in making informed decisions that benefit them.
Are you developing any partner ecosystems and how are they integrated into the end-to-end customer process? What issues do you typically face? Can you demonstrate the benefits of adopting this approach?
We have established a partner ecosystem in the several business lines - acquiring business (SofPOS), mortgage and consumer loans, We are still a long way from the approach seen in China, where data is considered a commodity. In our market, data is regarded as highly valuable. With data, we can conduct better analysis, improve sales, and achieve superior results. However, the concept of openly sharing data models or score models with other businesses, especially for banks, is not yet widely embraced. I believe that in around 10 years, we may see a shift in this mindset. It may be initiated by a major company with extensive knowledge and access to data, including unstructured data. Currently, we possess a wealth of structured data from sources such as emails, Viber, and call centers at every touchpoint with the bank. Once this data is effectively utilized, it will be a game-changer. The marketing process will become more cost-effective, and proposals for clients will be delivered precisely at the right time and place. At that point, we will truly witness the power of targeted marketing. However, implementing this concept is not as straightforward as it may seem. It requires a shift in our thinking and potentially changes in regulations like GDPR (General Data Protection Regulation) compliance.
Achieving nano marketing, where we can personalize offers based on data from various sources such as telecommunications companies, utility companies, or payment companies, is a goal we aspire to. Currently, we have access to data from credit cards and select insurance companies, allowing us to create special proposals for individual clients. Nano marketing entails using artificial intelligence to track client behaviors and needs, enabling us to provide the right proposal at the right time and place. Although it sounds simple, the process involves transforming our thinking, navigating regulatory considerations like GDPR, and leveraging advanced technologies effectively.
How Postbank Bulgaria has organized its digital distribution with a human touch
How do you collect and use customer data to improve your customer experience, and do you have an example you can share?
We have made significant strides in actively gathering customer feedback through various channels. Our approach involves tailoring specific strategies for each channel to ensure a comprehensive understanding of our customers' needs and preferences. For premium clients, we conduct direct phone interviews to engage in personalized discussions and gather valuable insights. Additionally, we utilize digital surveys that employ a five-star rating system to collect feedback from a wider customer base. These approaches provide us with a wealth of information, particularly regarding our branch services. To effectively manage the high volume of feedback, we have implemented structured models and systems. Our team is well-prepared to handle and analyze this feedback, ensuring a prompt and appropriate response when necessary. Over the past 7-8 years, we have adopted a multi-channel approach, enabling us to receive feedback through various touchpoints. This has allowed us to accumulate a vast amount of feedback on a daily basis.
Does that mean that your colleagues also recognize the importance of it?
Indeed, in the retail banking sector, it is crucial to understand that the target audience is diverse, encompassing a wide range of individuals beyond corporate or investment bankers. The aim is not to provide an extravagant five-star restaurant experience but rather to adopt an accessible approach akin to establishments like KFC. While marketing and sales play significant roles in retail banking, they are not the sole focus. It is also important to establish a strong brand identity, implement efficient processes to handle high transaction volumes, and ensure the presence of robust IT infrastructure. However, the most critical element in retail banking is the people who work within the industry. Given its inherent nature as a face-to-face business, a labor-intensive approach is necessary. Building and maintaining strong relationships with customers is paramount. Ultimately, there are four main pillars that support the foundation of retail banking: marketing, processes, infrastructure, and people. Neglecting any of these pillars can result in failure, particularly in an industry where exceptional customer service is of utmost importance.
What collaboration tools do you provide for employees so that they can work more effectively on improving customer experience? Are there any other collaboration tools that you use?
We have implemented a robust feedback system that operates round-the-clock, ensuring that we capture customer feedback in real-time. One of the tools we utilize is specifically designed for quantitative feedback, enabling us to promptly evaluate individual performance based on customer ratings. This quantitative feedback is used for periodic assessments, whether on an annual or quarterly basis, rather than focusing solely on specific branches or banks.In addition to quantitative feedback, we employ various other tools, including SMS and Net Promoter Score (NPS) surveys, to gather feedback from our customers. On a daily basis, we receive nearly 10,000 feedback responses from clients, with approximately half of them originating from different channels such as call centers, online banking, and marketing initiatives.
Our clients understand the personal significance of the feedback process, recognizing that it is meant for their benefit. By tracking and analyzing the feedback through our annual assessment forms, we gain valuable insights into customer behavior and satisfaction levels across different channels. This analysis has revealed that clients often express dissatisfaction with long wait times at branches, while generally indicating higher satisfaction with digital channels, such as telemarketing. By closely monitoring customer satisfaction across various channels, we are able to make informed decisions and take proactive steps to enhance the overall customer experience. Our ultimate goal is to continuously improve our services and better meet the needs of our valued clients.
What issues do you face in adopting technology to manage customer interaction? How have you managed the need for legacy modernization, for example?
As an early adopter of new technologies, we understand the challenges that come with introducing these innovations. It is crucial for us to demonstrate the measurable benefits, such as time savings or cost reductions for customers, to ensure that the value of these technologies is clear. We recognize that later adopters may require more explanation and justification for adopting these new technologies, as their focus may be on the value they will receive rather than the novelty factor.
In our experience, only a small percentage of staff and customers tend to embrace new technologies initially. This highlights the importance of effective communication and promotion to encourage wider adoption. We heavily invest in training and change management efforts to support the adoption process. However, if we find that it is too early for widespread adoption and the market is not yet ready, we are willing to postpone the launch until the timing is more favorable. We strive to strike a balance between being proactive in embracing innovation and ensuring that it aligns with market demand and profitability. One of the specific challenges we face as a legacy institution with a long history is the implementation of new technology in our core banking system. Traditional product-oriented core systems, which are still widely used by the majority of the market, may not be suitable for the direction we need to take with a model-oriented core system. This often leads to complex and interconnected processes that need to be untangled and streamlined.
Effectively addressing this challenge requires significant investments in artificial intelligence and back-office systems to ensure compliance. With millions of transactions occurring daily, it becomes almost impossible to maintain compliance without the support of robust back-office systems. While some banks may choose to build a new brand from scratch to overcome these challenges, it may not be a feasible option for those with a more traditional approach to banking. Overall, we recognize the importance of carefully navigating the adoption of new technologies, addressing challenges, and ensuring that investments align with market readiness and business objectives.
How are you applying AI and analytics to generate better customer engagement?
Having access to various tools, such as marketing modules and analytical tools, allows us to develop sub-segments and refine our targeting strategies. This enables us to tailor our offerings and messages to specific customer groups. The use of these tools, helps us achieve precision in identifying and exploring these sub-segments.In line with the changing preferences of the younger generation, we have implemented a chatbot feature on our website and Internet banking platform to assist customers. Although chatbots may not yet be mainstream in Bulgaria, we anticipate that as the younger generation continues to grow up, they will prefer interacting with chatbots over human representatives. This preference aligns with their digital-focused lifestyle and the increasing importance they place on environmental, social, and governance (ESG) factors. As we target the younger demographic, we have observed that digital solutions and ESG-focused initiatives hold significant value for them. They prioritize banking solutions that are digital in nature, offering convenience and accessibility. Additionally, they have a strong inclination towards ESG-related considerations, favoring environmentally responsible practices and products. If a solution is not digital or if it raises concerns related to air pollution or other ESG-related issues, it is less likely to resonate with this customer segment.
How do you see the role of regulations and technological advancements in transforming the banking industry? What challenges and opportunities do you think arise from these developments?
Regulations, technologies, and generations shift will change the banking industry, and we believe that regulation is always playing catch-up with technological advancements. I strongly believe that the following trends will reshape the banking industry and will continue to have a profound impact on how financial services are delivered and experienced. Adapting to these changes and embracing innovation will be crucial for banks to remain competitive in the evolving landscape.
1 - The traditional product-centric business model is shifting towards a customer-centric focus, and now it's time for a life-centric model of doing business and serving clients. Embedded finance, Banking-as-a-Service (#baas ), and banking „beyond” are potential solutions, requiring different strategies to implement the life-centricity business model effectively.
2 - We are transitioning from the Internet of Information to the Internet of Value, which will revolutionize capital transfers and transactions. #blockchains, both public and private, have the power to reshape ecosystems.
3 - Cryptocurrencies have a promising future beyond the hype of recent years. Digital cash, #crypto commodities, Central Bank Digital Currencies (#CBDCs), Non-Fungible Tokens (#nft ), stablecoins, security tokens, and utility tokens will all play a role in modern finance.
4 - Self-sovereign digital identity (#ssi ) will empower consumers as regulations push for its adoption. Companies must prepare for this shift.
5 - The #quantum era is approaching, and governments, societies, and businesses need to establish rules, supervision, and security measures to navigate this new landscape.
6 - Artificial Intelligence (#AI), various algorithms, and digital tools can be developed internally or acquired from vendors. The approach to this choice may not be black and white. Banks may consider investing in their own IT companies and fully transforming into technological companies.
7 - Banking with a purpose, focusing on Environmental, Social, and Governance (#esg ) principles, will be a significant milestone for both society and regulatory bodies.
8 - Acquiring, motivating, and retaining talent from Generation Z and Generation Alpha will pose real challenges for businesses. Traditional models such as coaching, mentoring, management by objectives, and carrot-and-stick approaches are no longer effective. Employers must adapt and offer new and different incentives to attract talent.
9 - Changing Workforce Dynamics: The banking industry is experiencing a shift in workforce dynamics, with an increasing need for digital skills and expertise. Banks are embracing talent from diverse backgrounds, including technology, data science, and user experience design, to drive innovation and adapt to changing market dynamics.
10 - How all these changes can help us live a great life, have fun and enjoy all the moments that are worth it!
