As originally published in International Banker on June 14, 2017.
Historically, banking operated using a product-centric business model; financial institutions employed mass marketing to sell consumers products and services, with an eye toward servicing the needs of the customers making in-person visits to their branches. The teller-customer relationship was based largely on completing transactions, be they deposits, withdrawals, transfers or otherwise. But we live in a disruptive economic era, one that’s now challenging this transactional approach on which legacy industries have thrived for so long. Taxis, hotels and chain retailers are all vying to meet the new demands of consumers, and banks are no different.
Today’s customer’s preference toward mobile and online banking has put pressure on banks to find a way to reimagine the face-to-face interactions they once had with their customers at brick-and-mortar branches. When the expectation is that an individual consumer will have 24/7 access to a seamless, customized experience, waiting in line to see a bank teller seems inconvenient. This is not to say that customers don’t want a relationship with their banks—it’s just that their perception of what banking should be has changed. They want personalized banking experiences streamlined to their own convenience.
Retail banks have recognized this fact but are struggling to get a successful digital personalization strategy off the ground due to conventional development and decades-old IT (information technology) infrastructure that hinders the pace and quality of innovation. To add to this challenge, retail banks now exist in a larger, more varied competitive landscape than before. Fintech startups are permeating the market with disruptive new approaches to digital banking. Retail banks must be willing to rethink their digital-banking approaches if they want to satisfy evolving customer expectations.
Simply overhauling IT infrastructure is not enough for banks to catch up to consumers. The ROI (return on investment) of this strategy is low, as the time and cost required to implement and scale major IT initiatives just sets banks back further. So how can banks begin to update their approach without trying to transform into tech companies?
Embracing a new approach.
The first step is to shift the angle of digital banking from being primarily transactional to being more consumer-centric. That doesn’t mean lessening the importance of basic banking services; it simply means they become one part of the total end-to-end consumer experience. Beyond merely digitizing everyday transactions, banks can leverage their digital channels to nurture customer loyalty and cultivate deeper relationships through financial advice.
Take, for example, a PricewaterhouseCoopers study showing that just 24 percent of Millennials possess basic financial knowledge, while only 8 percent exhibit high levels of financial literacy. While financial knowledge trends low among Millennials, they are seemingly frequent users of their mobile banking apps. This interesting gap presents an opportunity for banks to engage Millennial customers and beyond. The next generation of digital banking will focus on improving customers’ financial health and wellness.
When customers engage with their banks for every component of their financial lives — and not just transactional nuts and bolts — it reveals customers’ needs and wants, which can be used to further personalize customer experiences. With that in mind, here are some strategies for becoming less transactional and more advisory:
- Look past the branch. There are many opportunities for banks to engage their customers beyond the walls of their brick-and-mortar branches. Consider a Millennial customer looking to buy his first home. Because Millennials are accustomed to having technology at their fingertips, he will likely research the costs and benefits of a large purchase online before committing to a brand. This means that he may rely on his primary bank for basic transactions, but he is willing to stray when it comes to making such a significant financial commitment —if he can find a better deal elsewhere.
While the aforementioned primary bank may not offer the lowest mortgage rates, delivering relevant nudges tailored to the customer’s needs throughout the home-buying process could positively influence the decision-making process. Examples include notifying the first-time homebuyer of available tax credits when he’s applied for a mortgage prequalification, sending a mortgage approval offer when he visits an open house, and keeping him informed of additional expenses to consider when buying a home. Creating end-to-end advisory services will allow the bank to increase customer retention and establish a competitive advantage over others.
- Discover new ways to engage. Personalization is more than ads and push notifications disguised as product recommendations. Monzo, a UK-based digital-only bank, is an example of personalization done right. It offered prepaid Mastercards to consumers augmented by a digital service that made it easy and intuitive to track spending in real-time, by category and across locations. Monzo’s growing consumer base proves the effectiveness of this approach because it builds transparency into the banking process, pulling back the veil on the fees and fine print that are common pain points.
Monzo and others like it realize that they can provide tremendous value by augmenting transactions through relevant, real-time financial-advisory services that establish trust in the financial institution and provide added convenience for the customer. Companies can now become a finance and lifestyle concierge, giving consumers the right kind of service and guidance exactly when they need it.
- Partner with fintech. Banks and fintech companies have traditionally seen each other as competitors, but they work better as partners. Banks can rely on small, agile teams and the spirit of innovation within fintech companies to update their digital offerings without being hindered by traditional banking regulations. At the same time, a partnership with a bank generates opportunities for fintech companies to tap into a huge base of relevant consumers. While fintechs have the means to optimize the banking process for customers, banks give that technology an audience.
Today’s consumers have grown accustomed to frictionless, online-to-offline experiences. Whichever institutions find out how to be the advisors, partners and financial facilitators that customers want will find a lot of eager business. We live in a world in which the customer truly does come first. Although retail banking’s product-centric business model was built for a different time, the essential role that finance plays remains an opportunity for banks to leverage their digital channels and support customers throughout their financial lifecycles.