More than any other sector, financial services is in need of a customer experience overhaul. In addition to waging the ongoing war for high lifetime value customers with their traditional competitors, retail banks are losing customers to non-traditional competitors as well. These disruptors are not just financial technology companies like Venmo or Ally Bank. Technology giants like Google and Apple, and major retailers like Walmart, now offer products that will encroach on banks’ traditional markets.
The rise in new options for financial services – from payments to savings accounts – means banks can no longer compete on product mix alone. It is because of these new challengers that financial institutions need to find new differentiators. Because financial products are largely commodities, retail banks must differentiate on the customer experience to win the wallet share battle and outperform their total basket of traditional and non-traditional competitors.
“Digital-first” financial services providers and others have cut into banks’ market share by emphasizing the customer experience. For many non-traditional financial brands, the ability to tailor interactions based on history and financial information is the differentiator. The disruptor’s digital-first “pure play” heritage enables these companies to more easily personalize digital interactions. Digital-first financial services providers do this through taking advantage of advanced technologies, which legacy banks are often slow to adopt.
The ability to personalize customer interactions is a powerful differentiating factor. According to Accenture, 48 percent of consumers expect specialized treatment for being a good customer – regardless of industry. This means that consumers want individualized experiences from every brand at every touchpoint. For retail banks to survive and thrive in this new customer-first world, they need to take a page from their digital-first competition and emphasize personalization.
The success or failure of retail banks has always been built on trust. Fifty years ago, this trust was gained by local bankers having face-to-face interactions with their community. That kind of neighborhood involvement and human personalization has largely dissipated as banks discovered they could compete more effectively by providing one-size-fits-all financial products in an “assembly line” model.
This assembly-line approach worked for a few decades, but then customer expectations changed as digital natives, having grown up with mobile and social networks, assumed control of the relationship with the brand. Tech-savvy Digital Natives want personalized interactions with their banks. They expect financial institutions to know their needs based on lifestage, to understand their spending habits, and to provide tailored financial advice. Recent Accenture research revealed that 33 percent of consumers who abandoned a business did so because the personalization was lacking. In that same research only 22 percent of consumers acknowledged that companies personalized interactions at all, which is a problem.
Banks that personalize the customer experience accordingly stand to benefit. Boston Consulting Group recently found that, over the next five years, $800 billion in revenue will shift to the top 15 percent of companies who get personalization right in financial services, retail, and healthcare.
Banks need to start now though because digital competitors aren’t wasting time eating into their marketshare. According to Capgemini/Efma research, 29.4 percent of consumers worldwide already have a relationship with at least one non-traditional financial firm. Additionally, 40.3 percent of consumers worldwide have had a positive experience with non-traditional firms, compared to 37.1 percent of consumers who had a positive experience with traditional banks. The delta in these numbers isn’t in favor of traditional banks either: 37.2 percent of Generation Y/Millennial consumers (digital natives) use non-traditional banks, compared to 22 percent in all other age groups.
Right now, 57 percent of consumers view their bank as a “necessary utility,” according to The Digital Banking Report, and only 37 percent see it as a “trusted partner.” Traditional banks need to step up their game to change this perspective. They have a goldmine of customer data that can help with personalization, but many have hesitated to leverage it as privacy issues have assumed center stage.
Protecting account-holder privacy is important, but doing so will not win additional business. Banks who continue to focus on compliance and regulatory issues only, at the expense of a sound customer experience strategy, will continue to lose share.
Legacy banks that use data to provide timely, relevant, and proactive offers and services have the opportunity to distance themselves from the pack. The reality is that customers want their financial institutions to act more like non-financial brands in how they leverage personal and transactional data. This involves understanding preferred engagement channels and delivering contextually relevant offers for financial products and services.
The banks that succeed in monetizing their most valuable asset, customer data, will emerge as the future leaders, growing and protecting marketshare against both traditional and non-traditional competitors.