Business Strategy

Rethinking customer experience in retail banking: Digital transformation in financial services

Rethinking customer experience in retail banking: Digital transformation in financial services
The following is an excerpt from Cashing Out: How Financial Institutions Can Survive Disruption, a white paper outlining the complex challenges facing the financial services industry. Download the white paper for more info.

There’s an eroding relationship between banks today and their customers, and customer experience is a big part of the problem. That’s one of the major takeaways from a 2015 study exploring the evolving financial services landscape.

The study, commissioned by Vision Critical, found that 49 percent of customers have only “moderate trust” in their primary financial institute. Almost one-third of banking customers believe another firm can offer them a better experience.

The problem becomes more significant if you look at the biggest cohort in the workplace: the millennials. A large majority of this group (58 percent) would consider abandoning traditional retail banks in favor of tech companies like Google or PayPal.

This recent study is just another reminder that the billion-dollar retail banking industry is ripe for disruption. Aside from the introduction of ATMs back in the early 1980s, the design of the typical American bank branch has gone basically unchanged for over 100 years. As a retail concept, the branch simply hasn’t kept pace with the world it is intended to serve. At a time when transactions are increasingly handled online, the telltale landmarks of retail banking—the lineup cordon, the anchored pens with their ball-bearing chains, even branch hours—seem like anachronisms.

The financial services industry is well aware of this conundrum, and many firms are aggressively rethinking and experimenting with both the design and purpose of their branches. But no one knows exactly what the branch of the future ought to look like.

These early experiments represent attempts at transformations of not just the branch experience, but the brand experience as well. And each is based upon a different concept of a bank’s model customers: who they are, what they need, where they need it, and how they want to be served.

But whose vision of the model customer is right? Are any of them? The path is treacherous for any financial institution that re-engineers its customer experience without the best customer data they can collect.

Financial services and the empowered customer

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If there is any lesson in these varied attempts to re-invent branch banking, it’s that the relationship between financial institutions and their customers is itself undergoing a radical change: in the age of the empowered customer, financial institutions can no longer count on traditional pathways to structure their customer interactions. The adoption of new technologies means that financial services professionals interact directly with their customers less and less.

Related: Watch this three-minute demo to discover how you can engage customers in the financial services industry, win back their trust and work together to secure your financial future—and yours.

Online technology has produced benefits for the industry, most notably in terms of lowering the processing cost of transactions. But these gains have come at the expense of personalized contact, eroding the financial world’s relationships with customers. Banks have long been dogged by the accusation that they treat customers as numbers rather than people, a perception that has only intensified in the wake of recent bank mergers and the financial crisis of 2009. Nothing would address the problem better than a pleasant, helpful face-to-face encounter, but these are increasingly rare.

In fact, the problem is self-perpetuating: the less people interact with financial services professionals, the less they value them and the companies they work for. Empowered customers not only handle their basic transactions when and where they want; they seek out financial information and advice whenever and wherever they need it, from whomever they trust most. As a result, personal networks are quickly displacing financial professionals as trusted advisors.

Related: For more info about the empowered customer, read Cashing Out, a white paper about the disruption facing the financial industry.

Through online social networks such as Facebook and Twitter, empowered customers can quickly access the wisdom of crowds: they can post a question about mortgage rates, and within minutes they’ll have a string of answers. They are using third-party smartphone apps to design and manage everything from household budgets to account balances to stock market investments. They are developing their own support system for their financial well-being, and their financial services providers aren’t necessarily included. For banks, it’s imperative that empowered customers perceive them as more than mere storage lockers and counting houses for their assets.

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It is a hallmark of empowered customers that their behavior can be unpredictable, making them appear fickle and distracted. In reality they are seeking out new ways of connecting, engaging and interacting. Their behaviors are shifting faster than most data analysts can track, in part because they are experimenting with emerging technologies whose capabilities and penetration are not yet fully realized. The impact of smartphones on mobile banking is still evolving, and there’s great potential in smart watches and other wearable technology.

In a broader sense, however, empowered customers are in search of exactly the same thing as their financial services providers: an ideal combination of self-directed services and open-channel advice that serves them better and helps them accomplish more. Studies show that people will open more accounts, pay more for services, and increase deposits with financial institutions that invest in them, assist them with a financial plan and help them find ways to save money. Vision Critical’s own research has shown that, for customers holding more than two accounts with a single bank, the key differentiator of success was whether “my bank listens to me and addresses my needs proactively.”

In other words, empowered customers are looking for the kind of intimate connection that cannot be made by branch redesign alone. The financial services industry finds itself in a unique moment of opportunity to redesign and re-create every aspect of its customer experience. Those who don’t risk losing the connection entirely.

 

How banks try to re-connect with customers

Some financial services firms are finding success re-connecting with customers. Here are three ways they’ve embraced customer experience.

  1. Thought leadership

Bank of America has created the Better Money Habits program in partnership with the Khan Academy, a non-profit organization dedicated to helping people learn math and other subjects. The Better Money Habits website offers a series of instructional videos on a range of financial topics, from homebuying to credit ratings. It’s a unique partnership: one of the world’s biggest lenders providing free financial education through an impartial, trusted institution—all available online, whenever and wherever customers are ready to access it.

  1. Giftvertising

To show how well it knew its customers, TD Bank embarked on its “Automated Thanking Machine” campaign. Specific customers, nominated by branch staff, were sent to a special ATM to conduct a transaction. There, a voice inside the ATM spoke to them and thanked them with personalized gifts: game tickets for a baseball fan, a DisneyWorld family vacation for a widowed mother of two, a trip home for a Trinidadian woman who’d been sending funds to her cancer-stricken daughter. The encounters were all captured on video and posted on YouTube, where they quickly went viral: the gifts reflected how well TD understood what mattered most to its customers.

  1. Personal motivation

Aetna’s What’s Your Healthy campaign is an interactive advertising and marketing initiative that encourages people to share their definition of what it means to be healthy. From its CarePass web site, Aetna encourages customers to state their fitness goals and connects them with mobile fitness apps to track their progress. The campaign is a way of acknowledging and acting upon Aetna’s stake in the good health of its policyholders.

Conclusion

These examples show that financial services companies are looking beyond brick-and-mortar branches to connect with empowered customers. The truth is that the empowered customer wants it all: mobile, online, face-to-face and everything in between. The urgent and critical task for banks is to figure out what truly matters to their customers and deliver the experience people are looking for.

Financial services firms can’t do that by going with their gut instincts alone. As they continue their efforts to optimize the customer experience, financial services companies need to engage with their customers directly. Only by committing to a two-way conversation with customers can banks truly get ahead of trends, fend off new competitors and create a meaningful and authentic relationship with their customers.

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  • Emilia Przebinda

    We all know that banking transformation is unavoidable. I agree with your statement – in the age of the empowered customer, financial institutions can no longer count on traditional pathways. Providing them with superior level of convenience and security regardless of distance is best the bank can guarantee. If you wanna know how can banks dramatically improve their customer service, read our latest artice: https://bit.ly/2Q7Rtxh

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