The digital transformation has already changed financial services in many ways – from mobile payment services to P2P-lending to robo-advisors and so on, no stone is left unturned. For many of the startups, which disrupt the traditional banking industry, automation sits at the centre of their solutions, providing more efficient services and driving down costs. Many incumbents have reacted by equally looking to lower the costs of their operations through the use of technology. However, for both disruptors and disrupted not cost savings or other considerations but customer satisfaction must be the priority if they want to succeed in the long run.
The traditional response
I’ve been a customer for a couple of years now at a local cooperative bank with more than 100 branches that serves 250,000 clients across the region I live in. Like many other traditional financial institutions, it has to deal with the influx of start-ups that want a piece of its business. Online banking, loans and other forms of financing, innovative solutions together with the low-interest environment have caused the incumbents to reduce costs by letting people go and closing branches. The response of my local bank is similar: branches were closed, people were sent home and at the same time the fee for my online account was increased significantly because of “higher costs for IT systems and respective staff training”. I like the idea of talking to a person in a branch as opposed to speaking to someone in a customer centre potentially somewhere on the other side of the globe or conversing with a chatbot, even though it gets increasingly easy to build one (have a look at this guide here). If I’m paying more for less service, the natural consequence is that I probably close my account and only use an online bank that is free or only charges a fraction for its services.
The highest good
In a survey by Celent, 70% of financial institutions named Customer Satisfaction as their top strategic retail banking priorities. Sales results with 41% or cost reduction of operations at 34% follow way behind. The question is if this is to be more than paying lip service to banks’ ideals or brand image though. If it isn’t only cheap talk, traditional players and newcomers need to invest significantly in customer experience as their client basis changes and develops different needs.
How should financial institutions respond though? Technology, as the FinTech boom shows, can contribute significantly. Millennials favour digital over bricks and developing online channels sits solidly at the top of priorities. Older generations though still prefer to walk into their local branch and talk to a human being (there is always a queue at mine). While a report by Javelin suggests that this is changing, too – according to the report, 2017 was the turning point when for the first time more than 50% of people aged 50 or older name online banking as their channel of choice – banks still need to strike a balance to cater. This is also reflected in the recent struggles of UK challenger banks fading in the fight with the big four banks in Britain.
Digital transformation for many traditional organisations often appears to be limited to Internet banking or the use of a fancy iPad. Digital transformation is so much though and the main objective must be to use technology together with a human element to improve the customer experience. People generally don’t embrace change unless there is a substantial incentive as the example from above underscores.
Financial institutions have access to customer data that if used properly reveals insights in a client’s life no other service provider has. It can enable organisations to provide real value for them by advising them on their spending in accordance with their finances or providing appropriate risk protection in their investments. Adding the human element, for instance, through the effective use of branches and staff can create a service that would be hard to beat and secure customer loyalty.
A fundamental part of customer satisfaction touches on another important area for financial institutions is data protection. When we discuss the data that enables banks old and new to provide their clients with better services, it must come with data protection of the highest levels. Recent scandals show the damage a data breach has for an organisation and customers become more and more reluctant to share their data with everyone. And at the same time, regulations like the GDPR have further raised the bar in that context, so financial institutions – old and new – must make sure that cost cutting doesn’t cut the wrong corners.