The banking industry has undergone a huge amount of change in recent years. I have witnessed banks overhaul strategies underpinned by legacy systems that no longer work for the modern day customer. Simultaneously consumer behaviors have been shifting dramatically, accelerated by the global pandemic. Challenger banks have catapulted into the limelight and attracted a swathe of customers looking for innovative products and solutions, with their fresh approach capturing the hearts and minds of younger generations.
At the center of all of these changes is the customer and the growing demand for solutions, products and services specifically tailored to their individual needs. As customer experience continues to drive change in the banking industry, it is being influenced to some extent by what brands in other industries, such as retail, are doing with their services. From fashion sites to supermarkets, customer centricity is playing a central role in strategies for growth. Although personalization differs from industry to industry the philosophical shift is occurring nonetheless.
In addition to changing consumer behavior and the rise of challenger banks, digitization through data is playing a crucial role in the changes that are happening. Each of these three drivers are contributing to a more dynamic marketplace for both consumers and banks alike – let’s explore each in detail.
Digitization through data
Digitization and the enablement of digital customer journeys is vitally important to banking strategies. Centuries of legacy systems in traditional banks have meant that many are getting left behind as we transition to a more connected world. This evolution focusses on a broader change in strategy, but one main element is consumer centricity and learning from consumer data to understand what the next two, five and even ten years needs to look like.
Data gathering is a huge part of a digital strategy, but this can be a complex subject. On one hand the more data organizations hold about you and your life, the better the services they will be able to provide (in theory). On the other hand there are a myriad of problems and huge ethical debates that come with data sharing, privacy and availability of that data.
Banks are however getting a better grip on safely and effectively capturing the data that customers are happy to share, which has in part been helped by regulatory governance, for example regulation supporting Open Banking. But data gathering is only one part of the puzzle and the challenge lies in using this information to best effect. The real evolution of data-led digitization is creating a multi-layered approach to drive an intelligence based service offering.
Moving away from traditional ‘product’ based offerings and more towards tailored and personalized solutions is the way forward. Delivering contextualized solutions that resonate with consumers and make a material difference to their daily lives will accelerate those longer lasting relationships – ultimately setting the foundations for loyalty and trust. After all, in exchange for providing access to their data, there will be a consumer expectation for a more meaningful service in return.
We are seeing the potential for some examples of this come to fruition as data enables a clearer understanding of what people want. For example, in the mortgage space there is likely to be a move away from standardized interest driven offerings, to a place where banks are considering offering mortgages which are more reflective of today’s societal makeup, for example intergenerational mortgages. This highlights how a customer centric focus is not only shifting the digitization journey, but the underlying approach to the product offerings behind that next-generation innovation.
As outlined, data is going to play a huge part in the future of banking and ensuring that consumers remain at the heart of any strategy – but ensuring we understand the emotional needs of customers is just as important and data isn’t always able to provide that more nuanced information. These nuances will be better understood by delving into consumer needs and behaviors and how they are evolving.
The expectations from customers in terms of how they want to interact with their bank or financial services providers are changing rapidly due to the pandemic and other bigger societal shifts. Customers’ expectations are now more than ever about wanting to really be seen by the bank that they are with. Making everyday banking safe, simple and personalized is vital, alongside understanding and supporting the ‘bigger picture’ for each individual – whether that be supporting financial life goals or adapting services to reflect the wider state of the economy.
We are currently in an economic environment where many households are feeling the squeeze and are trying to carefully balance wages that are falling at the fastest rate the UK has seen in two decades, with rising costs driving up the price of everything from fuel to food products. Understanding how individuals will be emotionally affected by this will enable them to feel supported through difficult times. Even simple actions such as providing information, saving tips or support with financial life skills can create a customer service of distinction during more challenges periods. I believe that it is exactly during these times that deep and lasting relationships can be built through behaving with the best of intentions and adopting a true customer first mind-set.
The final trend driving consumer centricity in banking is the emergence of the ‘challenger bank’ and the healthy competition that this creates. Challenger banks have risen to fame over the last few years and for good reason. What they offer is often a more innovative, faster moving and agile approach to banking – naturally creating the opportunity for a consumer centric approach.
The rise of such banks has been in the main to do with capitalizing on societal shifts and changing consumer behavior that had yet to infiltrate the banking experience. This includes the popularity of smartphones and availability of data on the move, a shift to trusting digital retail experiences requiring less physical interaction, and finally more dispersed societies seeking engagement in new places. The COVID-19 pandemic has been a huge driver of consumers shifting to digital solutions. A McKinsey survey of 20, 000 European consumers showed that digital adoption in Europe jumped from 81 percent to 95 percent as a result of the COVID-19 crisis—a rise that would have taken two to three years in most industries at pre-pandemic growth rates.
The growth of challenger banks has been well documented, but in some cases not all that glitters is gold. There is still a balance to be struck between innovation and profitability, something which the traditional banks in the landscape have been navigating through for centuries. Although fleet of foot and nimble, the path to sustainable profitability can often be more difficult for challenger banks. New products and services can be inherently more customer centric but evaluating contribution to the banks long-term success is also vital – highlighting the delicate midpoint between innovation and viability.
As we go through the next period of banking transformation, I believe that by focusing on the customer, the industry will be able to take great strides forward. Customer centricity and understanding is going to come to the fore and harnessing data – whilst blending it with a deeper emotional understanding – is going to play a key role in delivering success. Banks are going to have to use what they learn to drive innovation across products and services in a way that supports customers experiencing the more challenging sides of our cyclical economy. Now really is the time for the banking industry to truly put customers at the heart and soul of everything they do.
First appeared in International Banker