The established retail banks are in a privileged position. They have it all: customers, products, infrastructure, instantly recognisable brands and a richness of customer data.
Sustaining advantage in a rapidly increasingly competitive and digital environment, will need established banks to build on their strengths by focusing on these three things:
1. Really loving the customer;
2. Win and keep winning the digital battle for the customer interface, and;
3. Enrich customer lives through intelligent use of data.
Customers and the effective use of technology are at the very heart of this. The latest new breed of banks set themselves apart from the established retail banks. They are causing a paradigm shift in technology, customer experience and relevance that parallels the way that other technology-led B2C players engage with the modern customer.
The threat is considerable but there is still time. The tools available to new entrants are all available to the established banks.
1. Really loving the customer
Trust. A small word that sits deep in our values and beliefs and drives customer buying behaviour. For many years trust was a key asset of the established banking fraternity. Significantly dented since 2007, challengers recognise this as a key opportunity.
According to a recent salesforce report, less than one-third (29%) of UK respondents trust their bank with financial information and only 15% strongly agree that their bank has their best interests at heart.
Whilst customers will continue to need banking services, established banks must prove that customers still need and want banks. It will require knowing customers and engaging with them on a whole new level to provide indispensable helpfulness across the whole of their financial lives.
Bank customer’s satisfaction and perception has improved since 2007 through a huge re-focus on putting customers first. Re-branding and marketing has focused on being authentic and in some cases hailed back to times when banks were seen as safe and trusted. Much of this has been about stabilising customer confidence.
But established banks recognise that there is much more to do in the context of the threat of the new challengers. Loving the customer is about customer centricity; getting deeply involved in their lives to build strong emotional bonds.
The Boston Consulting Group (BCG) describes customer centricity as “A way of banking based on trust and fairness that uses knowledge of customers to meet their needs and achieve sustainable, valuable, long-term relationships.”
Uber has become a disruptive phenomenon and the heart of this is understanding and solving wider functional and emotional “life” needs. Uber adds a life role to its transport role. For example, “I’m worried I’ll be late” – Uber show predicted time of arrival and “Can I really afford this?” – Uber show fare estimate before agreeing.
Banks are finding ways to be helpful in everyday life too. Monzo, for example, text customers every time they use their prepaid debit cards and updates bank balance in real time. Although the service is still in Beta at the moment, the life use is evident in helping with budgeting and for example, keeping you on track on a spend outing!
2. Win and keep winning the digital battle for the customer interface
Traditionally, high street presence and bank brands emblazoned alongside other high street retailers was the way to guarantee customers and footfall. Yet we are now in an age where according to a recent PWC study, 68% of bankers are concerned about losing control over their customer interface.
An important battle has commenced for the digital customer relationship and is ramping up with the arrival of the new breed of challengers, the Payments Service Directive 2 (PSD2) and the rise of mobile technology.
Internet banking has been around since the late 90’s with mobile banking introduced more recently in 2012. The adoption rate on mobile banking is driven by the way that banking, like many things with mobile, can be done on the go. Described as a “wave”, 74k users sign up for mobile banking each day and within 5 years, mobile banking users will exceed online banking users.
The FCA has recently promised to look at ways of breaking down the barriers to enable account aggregators to succeed. In theory, you should be able to see your mortgage, credit card, savings accounts, bank accounts, investments – and even insurances all in one place.
PSD2 will allow third parties to initiate payments and extract account information from banks on behalf of customers. The latter will enable the Account Information Service Provider (AISP) to provide an aggregated view from more than one bank account. Facebook in particular is attracting much speculation about its intentions in this space. The risk to the retail bank is in being relegated to a commodity provider and becoming disintermediated from the customer.
Not surprisingly, mobile banking is already becoming the keystone of an omnichannel banking experience. Users expect to start interacting with banks and products on smart phones and then move seamlessly between other channels. And the momentum is being fuelled further from Millennials who grew up with the internet and are becoming 75% of the buyers of banking services.
Furthermore, once a competitor offers a mobile banking app with the ability to aggregate accounts across providers, customers will lose the need for multiple apps.
They�ll spend more time with that app and steal wallet share. The smartphone is the portal to a total banking experience. Banks must very quickly offer a primary financial application.
3. Enrich customer lives through intelligent use of data
As a hub and processor for many of our everyday financial needs, banks preside over a richness of data beyond other retailers dreams. The opportunities to capitalise on this rich heritage are vast. Eighty-six percent of bank executives agree that the widespread use of AI provides for a competitive advantage beyond cost.
It requires a complete understanding of the customer from a range of data sources including transactions, CRM, customer satisfaction surveys and metrics.
Artificial intelligence and Machine learning is already in use in banks to detect fraud by flagging unusual transactions. This technology also holds the key to further customer benefits, particularly in the digital experience, through beneficial intelligence or Intelligent Banking.
Still in its infancy and with banks experimenting, the goal is to make life easier for the customer by distilling mind boggling amounts of data into information personalised to the customer at a particular place and time. The current focus is on money management and suggestions and recommendations for new services.
This provides deeper and potentially more satisfying interactions and improves the customer experience. It’s about being proactive rather than reactive. Can you anticipate the customer need or prevent a problem?
You will see that loving the customer, winning the digital battle for the customer interface, and enriching customer lives through intelligent use of data are all intrinsically bound. And reassuringly it is important to consider that, from a position of strength, advantage can be found from within.
In my next article I will discuss how, with rapidly changing technology and the fusing of sectors, it is imperative to be stargazers and adopters; to learn from others.