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How Not To Break the Bank – A Strategic To Do List for Retail Banks

“When I go to Silicon Valley, they all want to eat our lunch,
every single one of them is going to try
and a lot of them will succeed!”

This is Jamie Dimon, CEO of JP Morgan, and a banking industry veteran, warning his shareholders of how the fintech revolution will affect the retail banking industry.

In the mid-1990s, when online banking arrived and the use of cash and cheques was declining, little was done in terms of innovation. Banks in Europe and North America enjoyed unprecedented returns and saw no real reason to adapt to the rapidly growing digital environment.

They remained largely offline when all the other industries were going digital and disruptive services like Google, Amazon, PayPal, Alibaba and Spotify were taking over the world.

Banks, instead of evolving, were staying cold and complex.

Today, retail banks are catching up to their younger rivals and are working to re-establish themselves as tech-savvy, customer-centric institutions.

The way ahead is, however, riddled with challenges:

Disruptive challenger banks stealing away business, soaring expectations of tech-fluent customers, rising interest rate environments, the struggle with legacy systems and culture, and a reluctance to break free of the siloed traditional banking system are just a few of the problems that retail banking continues to face even as the decade approaches its end.

87% of global bankers participating in PwC’s Retail Banking 2020 survey said that innovation within the banking system is important while only 11% said that their organizations are very prepared.  61% acknowledged that developing a customer-centric model was “very important” to the business. Yet, only 17% said that they are “very prepared” for it.

It is imperative that retail banks address the challenges facing them.

The rules of engagement have changed as customers step up to demand better services from banks.

So what are the challenges retail banks face and what can they do to overcome them?

☐ Becoming fiercely customer-centric – And meaning it.

For a long time, banks have been the only formal institution for keeping, saving and growing your money. So customers went to banks, whether they liked it or not.

Today, however, customers no longer have the patience for walls of fine print, capricious terms and conditions, and opaque customer policies. They expect the same level of convenience they receive from tech giants like Amazon and Apple. They demand the ease and expediency of Uber. They expect banking to be as easy as ordering a pizza, and retail banks need to deliver, or someone else will. Banks need to:

  • organize themselves around customers and not products and channels,
  • offer a seamless customer experience,
  • integrate sales and service across channels,
  • and tailor offers for every individual customer.

Download the Whitepaper “Human Engagement in Digital Banking

 

☐ Competing with fintechs – If you can’t beat them, join them.

Fintechs have already understood how important customer-centricity is in a digital realm and built the business from the end user’s perspective, not a product perspective. The result: 73% of customers would be more excited about a new financial service from tech companies like Google, Apple or Amazon than an offer from their bank.

Fintech startups have captured the market in a short time, with 81.9% of consumers saying fintech companies are easier to use, 81.4% saying they are faster and 79.6% saying they provide a good experience. Fintechs are bending over backward to offer superior customer experience typically on mobile devices, and scale through platform and APIs.

This tells you how much more mileage tech companies have gained within a few years compared to an institution that has been around for centuries.

With brand loyalty already on a slippery slope, banks need to work much harder to keep their customers.

Traditional retail banks are beginning to take up this challenge head-on by increasing technology investments.

According to the 2018 Global Retail Banking Report, “technology and digital” are finally bigger priorities (48%) than “regulatory fines and recompense orders” (43%) among bankers.

And instead of competing with disruptive fintech startups, some banks are now strategically partnering with them, mainly in wealth management, P2P/P2B lending and blockchain.

bank and fintech partnerships 2016
Examples of partnerships between Banks and Fintechs (2016)

 

☐ Offering financial advice – Take it to where the customer is.

banks financial advice

Despite all that disruption, the notable thing is that customers still highly regard their banks.

When it comes to financial advice, customers value banks more than anyone else.

J.D. Power’s 2018 Retail Banking Advice Study found that 78% of consumers want financial advice and guidance from their bank. However, only 28% of consumers actually received this advice.

Banks that are not offering it to their digital-only customers are missing out on a huge opportunity. The study found that customer satisfaction surges when customers receive the advice they need.

Most commonly, customers seek advice on matters such as investment, retirement, keeping track of expenses and saving for a large purchase. Banks must proactively engage their customers and offer useful advice in these matters to win at the game of customer satisfaction.

“The challenge for banks is getting the advice formula right and delivering it in a personalized manner across all channels—not only at the branch but also via the website and mobile app.”
– Paul McAdams, J.D. Power senior director of banking practices

Related article: Why Banks Need Guided Selling Now More Than Ever

 

☐ Becoming a trusted advisor – Ask the right questions.

retail banking becoming a trusted advisor

The bottom line is that customers expect a banking experience tailored to their individual needs.

We can’t say it often enough: They want real-time contextual solutions, outstanding omnichannel service, intuitive design, simplicity, transparency of products and pricing, strong personalization, and a seamless experience across channels.

Unfortunately, many legacy retail banks have a major gap in customer understanding and lack the necessary data at a behavioral and attitudinal level to deliver these personalized offers and services with real value and relevance.

Capturing data to understand a customer’s behaviors, motivations, preferences, wants and needs means involving them, engaging them, and asking the right questions. It requires compassion and empathy.

“We all say that we like to service people, but if you sit down with them and ask them what they’re worried about, that’s a different conversation than just opening a checking account for them.”
– Greg Shook, CEO at $390 million-asset Essex Savings Bank in Essex, Conn.

Similar to fintechs, retail banks can benefit from intelligence-driven tech solutions that help them engage with online customers in a meaningful and contextually relevant way by simply asking the right questions. It lets them drill down to truly understand customer needs and continuously learn from customer behaviors to deliver human-friendly experiences across digital channels.

According to the EY Global Consumer Banking Survey, there are four factors that banks should focus on:

  1. Data to Build and Earn Trust – Beyond the ability to look after a customers’ money, it’s the ability to always do the right thing for the customer and provide unbiased, high-quality advice.
  2. Data to Better Understand Customers – Understanding behaviors and tailoring propositions to different types of customers.
  3. Data to Rethink Distribution and Engagement – Analyze the role of branches and customer journeys across channels.
  4. Data to Innovate Like a Fintech – Improve product offerings and deliver exceptional, simple and contextual customer experiences.

Once retail financial institutions figure out how to start a dialogue and engage banking consumers, they can build a more personal and emotional relationship, becoming their customer’s “financial friend” and trusted advisor, bringing the feeling of a human touch to the digital banking relationship. This is priceless!

 

Conclusion

Reports of your bank’s death have been greatly exaggerated.

While retail banking has major challenges in the upcoming years, that hardly means that retail banking will become archaic.

As long as banks acknowledge the need to digitize, become more customer-centric, and provide customers with new and innovative ways to save and grow their money, they will remain in business just like they have for hundreds of years.

 

Explore SMARTASSISTANT and find out how you can deliver the intelligence-driven, personalized experiences today’s banking consumers expect.

 

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Myra Yadav is a content writer and storyteller with a passion for e-commerce, retail and consumer psychology. She writes and advises brands on how they can become more personal and customer-centric.