Outside of retail, financial services has probably been changed most dramatically by shifting customer expectations. It’s easy to see financial interactions – especially the day-to-day activities of retail banking – as one-off transactions that don’t lend themselves to relationship building. Much like how Amazon upended the retail customer experience with its e-commerce platform, financial technology companies like PayPal, Venmo, and Ally Bank have done the same with retail banking.
This digital upheaval has forced legacy consumer banks to shift more operations from physical branches to online portals. This creates a problem in retail banking that’s the same as in retail itself: most legacy banks have a large footprint of physical branches which have experienced shrinking traffic as more operations move online and into the mobile arena. Banking apps and even digital loan applications have become more prominent in the last 15 years, which has led many banks to invest in building out their digital customer experience.
Similarly, more consumers have started using non-traditional financial services providers and shedding their relationships with traditional banks for everything from mortgages to auto loans and even checking and savings accounts. According to recent Capgemini/Efma research, 29 percent of consumers worldwide already have a relationship with at least one non-traditional financial firm. How have non-traditional companies captured market share from retail banks? The answer lies in the customer experience.
There was a time, about 20 years ago, when banks competed based on their savings account interest rates and product mix. Customer attrition was very low, mostly because account holders tended to stay local and it was a hassle to shift funds from one bank to another. Credit unions and savings and loans caused some attrition, but banks had overall retained strong balance sheets and customer attachment.
Then the internet happened. Digital communications technologies upended the traditional relationship between banks and their account holders just like it did for retailers and their customers. From their experience with online retailers, consumers began to expect to have all their digital interactions personalized and informed by historical activity. Google, Amazon, Facebook, and Apple – often called “GAFA” – are largely the drivers of this shift in customer expectations. Those four companies, more than practically any other, have led the evolution in customer experience because of their ability to personalize interactions and serve up the next best offer or next best action at speed.
Customers now expect the same kind of omnipresent personalization in all their digital interactions with every service provider. This expectation opened the door to non-traditional financial services providers who could emphasize the customer experience first and not be bound by the traditionally risk-averse and regulation-heavy environment of the traditional banking sector. Focusing on customer engagement can benefit a bank’s bottom line substantially; recent Gallup research found that retail banking customers who are fully engaged bring 37 percent more revenue per year to their primary bank compared to customers who are actively disengaged.
Non-traditional financial firms understand that customer experience is a core differentiator. As a result, they centered their business models on engaging customers better than traditional banks. They’ve had extensive success, as recent Capgemini/Efma research found that 57.8 percent of North American consumers had a positive experience with non-traditional financial services providers versus only 49.5 percent for traditional banks. But traditional banks still have an advantage because, as Accenture recently found, 87 percent of U.S. consumers plan to use local bank branches in the future and want human interaction when they go there.
Those two statistics seem contradictory, but the reality is that they provide an opportunity for traditional banks to regain lost market share. The customer experience gap between non-traditional financial institutions and traditional banks is less than 10 percentage points, and yet only 13 percent of consumers plan to not go to a branch at all in the future. That a supermajority of consumers do plan to patronize a bank branch in the future is instead an opportunity to enhance the customer experience. The way to do that? By adopting an omnichannel approach to customer engagement.
Much like how an omnichannel retailing strategy is how legacy retailers can compete, an omnichannel customer engagement strategy is the path forward for retail banks. Consumers live an omnichannel life, effortlessly switching from channel to channel and device to device on a whim. In each channel, they expect to be marketed to in a way that is contextually relevant to that moment and personalized to their unique needs. Banks that implement a strong personalization strategy stand to benefit from the $800 billion in revenue that, according to Boston Consulting Group, will shift to the top 15 percent of companies in retail, healthcare, and financial services who excel at personalizing interactions.
Traditional banks are already well-positioned for an omnichannel push. Banks possess a treasure trove of behavioral and transactional data on their customers, much of which can and should be used as fuel for an omnichannel strategy. The problem is that banks are not currently leveraging any of it to inform their marketing efforts. Capgemini recently found that only 37 percent of customers believe that banks understand their needs and preferences adequately. This lack of understanding is a massive roadblock to effective personalization – something that banks need to rectify moving forward.
By adopting an omnichannel strategy, banks can more easily understand which messaging impacts which interactions. This is important because, according to McKinsey, a high-impact recommendation conveying a relevant message is up to 50 times more likely to trigger a purchase than a low-impact recommendation. Banks can more easily provide that kind of high-impact interaction through adopting an omnichannel approach, which needs to be underpinned by a single customer view across channels and devices.
Bank marketers need to understand that consumers want a consistent experience across channels and devices. As banks become more able to deliver on that desire of cross-device consistency through an omnichannel approach to customer engagement, consumers will notice and show more brand attachment. For banks, that kind of customer loyalty is necessary as technology continues to disrupt the financial services ecosystem.