Banks used to compete largely on price, product and scale of the branch network. But today, customer experience is the main competitive front. That means a new emphasis on simplicity and convenience of interactions across a variety of channels, responsiveness to consumer requests and a proactive approach to continual engagement with customers – all aimed at helping consumers increase their financial well-being.
Findings from our Global Consumer Banking Survey of more than 55,000 consumers provide insight into why banks are under such intense pressure to master the customer experience:
1. Increasing commoditization: customers increasingly see traditional banks as all the same. Enhancing, personalizing and streamlining customer experiences will enable banks to differentiate themselves.
2. New competition: FinTechs and other new market entrants have used superior experiences to capture significant market share in some markets. Traditional banks must fight back with better experiences or expect further erosion of their most profitable customers.
Thus, traditional banks must think and act like FinTechs – understanding and even emulating their approaches in key areas, including:
- Radical simplification of the customer journey
- Truly end-to-end customer engagement, with fully integrated and coherent channels
- Simpler products that are easier to understand, rationalized product portfolios and more transparent pricing
- Banking ubiquity, where core services are embedded within digital personal assistants (e.g., Apple’s Siri or Amazon’s Alexa) or via other platforms
- Serving narrower segments of the market (e.g., teenagers, seniors, expatriates or frequent travelers)
- Entirely new lines of business, partnerships and joint ventures that explore new product territories
What is customer experience?
Fundamentally, “customer experience” refers to the ways in which banks engage and interact with their customers:
- Harvard Business Review: “The sum-totality of how customers engage with your company and brand, not just in a snapshot in time, but throughout the entire arc of being a customer”
- Forrester: “How customers perceive their interactions with your company”
The many dimensions of experience
According to survey results, traditional banks still “own” the primary financial services relationship for most consumers. But their relevance has begun to taper because of eroding trust, evolving customer expectations and the emergence of credible alternatives. That’s why customer experience matters.
The rise of FinTech
While the industry has long been aware of the threat of FinTech, consumer migration is accelerating and usage is high:
The seemingly small and incremental gains new players have made in the last few years are now reaching a critical mass, largely because they have set new standards for innovation and customer experience.
Most important reasons to consider an online or a mobile nonbank provider (%)
Actions banks should take to innovate and enhance the customer experience
Banks can chart their course forward by thinking in terms of two tracks:
1. What needs to be done to provide better customer experiences:
- Transform customer journeys – better customer experiences begin with in-depth knowledge and understanding of why and how customers interact with the bank – the “customer journey”. Customer needs and expectations should drive the experience design at all steps.
- Radically simplify product portfolios, product features and pricing – from the very first encounter, customers must understand the value banks provide and what different products and services cost. The first step is to make all offerings simple and transparent.
- Broaden services and expand into new “territories” to create an ecosystem of value-adding services, including non-financial services – banks must find new ways to expand or extend the core banking value proposition into new areas beyond traditional product and transaction sets. The promising territories include tax support, education around retirement savings and special offerings for narrowly defined customer segments.
2. What needs to be done internally to enable those better experiences:
- Form partnerships to deliver a broader ecosystem of services and offerings – banks will be well served by forming partnerships and collaborating with FinTechs to expand the range of their offerings. There are risks to consider; simply providing a balance sheet but not owning the services or platform could lead to the erosion of customer relationships. But banks do not need to provide all products and services on their platform, and can rely on partners for the provision of parts of the product set.
- Structure the organization, build the talent base and shape the culture to drive innovation – to design and deliver first-rate customer experiences, banks will need to transform their workforce, starting with how they attract, engage, develop and inspire their talent. Financial institutions that win in the market five years from now will look very different; that difference will be driven by people and teams as much as it is by technology and data.
- Collaborate with FinTechs to deliver better outcomes for customers – for traditional banks, innovation can be accelerated through collaboration with FinTechs. Banks that have begun the process of collaborating with FinTechs have explored a number of approaches, including the creation of special focused teams and programs to drive innovation initiatives internally.
Winning through customer experience in a new world
The imperative to offer a great customer experience reflects the fundamentally new world in which banks operate. Whether banks can learn to act like FinTechs and master the many different manifestations of customer experience will play a major role in deciding how the next era of consumer banking plays out.