What will set you apart in today’s banking world? The secret to sustained success comes down to one thing: the customer experience. And it’s here that the new breed of insurgent neobanks are streaking ahead of their incumbent rivals.
The insurgent threat
Fast, attractive and easy-to-use offerings are helping challenger banks around the world to grab market share.
New Accenture research suggests digital-only banks operating in the UK could almost triple their global customer base within the next 12 months, from 13 million today to 35 million customers. Challenger banks are acquiring customers at a current growth rate of 170% and have increased their average deposit balance fivefold in the first half of 2019. Delivering a better customer experience has also gained the digital-only banks an average Net Promoter Score of 62. Traditional banks are languishing on just 19.
Digital challengers are even making headway in the battle for US core banking services, such as mortgages, deposit accounts, payments and small business lending, notes a recent Financial Times article. Take the mortgage market, where the top three banks’ share of home loan origination fell from 49% in 2010 to 19% in the first half of this year. They have now been surpassed by online-only provider Quicken Loans, which last year became the country’s largest mortgage lender.
Digital banking is the means, not the end
With insurgent neobanks nipping at their heels, incumbent banks are waking up to the need to change.
To compete against the new wave of smart and agile challengers for today’s more tech-savvy customers, it’s tempting for traditional banks to think all they need to do is pivot towards a digital delivery model and invest in better technology. But if an incumbent eyeing its neobank rivals thinks the defining characteristic is the tech, it has missed the point. Yes, technology is vital. But it’s the means, not the end.
The real differentiating point is that neobanks put customers first. They use new technology and its possibilities to provide customers with a better experience, one that matches their needs and lifestyle. If incumbent banks don’t do the same, they will wind up with caricatures of neobanking models that fail to generate customer enthusiasm or loyalty.
Discover what customers value and give them more of it
Banking is seen by most consumers as a chore, more than anything. So enhancing the customer experience goes a long way. And it’s clear that traditional banks need to develop more efficient and appealing digital delivery mechanisms that can match up to what consumers receive from other institutions.
The success of their digital transformations though lies in the firms’ approach.
Too often banks’ digital projects become bloated and unfocused, as multiple stakeholders with contrasting views get involved in the decision making. In all the noise, the teams risk losing sight of their customers. Projects become bank-led, rather than customer-driven.
Instead, banks must learn to build products and services around a personalised, behavioural-based view of their customers – to give them what they want, when and how they want it.
Flip the product design
How do you do that?
Instead of designing products and services then selling them to customers, flip the process so developments are dictated by them. Collaboration – where banks use ongoing customer feedback loops and analytics to inform key design and production decisions – produces something customers actually want.
Ultimately, if customers don’t like or interact with what you design and build, it will be a wasted effort. Listening to customers’ voices takes the guesswork out of the process.
Constantly soliciting, and incorporating, clients’ feedback also helps banks stay more agile and responsive. Think more evolution, not revolution. It’s better to do lots of frequent updates based on customer feedback rather than sweeping changes which, by the time they come to market, might already be behind the curve.
In the digital world, consumers are used to regular, small-scale changes to their user experience, rather than massive redesigns once every two years. Apple, Amazon and Spotify constantly tweak their user interfaces to give customers a fresh, more engaging experience and challenger banks like Revolut do the same.
Spend too long on the design and implementation process – as traditional banks tend to do – and digital projects risk becoming overly ambitious and unwieldy, resulting in a disappointing end-client experience.
Value of a single customer view
Another major challenge banks must solve is their capabilities around centralised customer data.
Neobanks started with a clean database of client records. All their subsequent touchpoints, and the products customers own, are built on a single client view, allowing challenger firms to create more personalised, data-driven interactions.
Incumbent banks tend to be saddled with legacy databases spread across multiple product and business line silos. Creating a holistic profile of each individual customer that different parts of the organisation can access requires major, and expensive, data cleansing programmes. Yet without it, banks will struggle to deliver the sort of seamless, personalised, omni-channel experience customers have come to expect, and that provide the valuable cross-sell and upsell opportunities that will fuel their future profitability.
Consumers want that personal touch, and the first step is to make sure you have all the data relating to each customer on a central profile. Tailoring the experience to match the client will help to retain them as customers. For example, people from different ends of the age spectrum are likely to have a very different idea of what good service means.
Build on the customer relationship
Survival depends on embracing a customer-first mindset. Incumbent banks with a business-as-usual attitude may not disappear in the next year or two, but over the medium to longer term change will come. Yes, most consumers’ preferred primary account is still held with a traditional bank today. But digital-first banks though are gaining momentum, fast.
Incumbents need to take advantage of this window of opportunity. For the time being, they have much broader and deeper product offerings than their digital-only rivals. Together, this gives the banks multiple daily touchpoints and more ownership over the customer relationship.
The breadth and frequency of these interactions are a golden opportunity to strengthen and build on those relationships and make use of the data they produce.
More positive engagements will depend on putting customers front and centre of everything you do. That means making the customer’s voice the most important in any discussions about your digital transformation journeys. Banks that embrace such a customer-first mentality will have a far brighter future.