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Successful Retail Banking Needs to Blend Digital and Physical for Engaging Customer Experience

Successful Retail Banking Needs to Blend Digital and Physical for Engaging Customer Experience

For at least the last 20 years, banks have been doing their best to dissuade customers from visiting branches to transact. The rapidly changing technology landscape has helped them achieve much of their goal, and today there are many bank customers who rarely, if ever, visit a branch, while using the internet or their mobile phones to pay bills and transfer funds. Deposits of cash and cheques still require some physical interaction, but today the queue is at ATMs, not at bank tellers. This mass migration was achieved by making over-the-counter fees prohibitive, hitting the customer in the pocket.

With the benefit of 20/20 hindsight, this might have been a short-sighted strategy. First of all, the focus was on cost reduction, not on customer experience. Traditionally, in all global markets, the ability to migrate from one’s current bank to a competitor was so onerous that customers stayed with the devil they knew, despite being dissatisfied with service issues and pricing. Now all that has changed: companies that do not keep their customers happy will see them take their business elsewhere, and the bank’s sustainability will be severely compromised. In order to improve customer experience, banks are focusing on digital transformation and often excluding branch presence completely, unless it is to reduce their footprint. The steady erection of barriers to customers interacting directly with bank staff, forcing them to communicate via IVR (interactive voice recordings) and call centers, has generally eroded trust among bank clients. How to regain that trust should be one of the key drivers for any bank’s strategy.

Customers – Do they Trust their Bank?

Trust in banking is layered; there is basic trust in the stability of the bank and its ability to perform banking transactions, but there is also trust in the advice offered by the bank on products and services. Ernst and Young (EY) define the latter as “strategic trust,” and this is at an all-time low. EY recently built the Relevance Index and trust is one of the key metrics.

Their Annual Banking Survey for 2016 had 55,000 respondents from all parts of the globe. While nearly half of consumers globally trusted their bank on a transactional basis, only 26% trusted their bank’s advocacy and transparency. A score of less than 50% on trust in basic services is also nothing to write home about.

Source: EY’s 2016 Global Consumer Banking Survey

There is a considerable variance globally, as is to be expected, with Japan scoring very low at only 11% and China, where most customers are relatively new to banking and probably have had less time to become cynical scoring the highest at 79%.

Consumer trust in banks around the world (%)

Consumer trust in banks around the world (%) Source: EY’s 2016 Global Consumer Banking Survey

While the presence of branches is an important factor for many, new digital banks are actually ahead in the trust stakes in comparison to established banks. While this probably has a lot to do with the limited offerings of average online banks, it is obvious that traditional banks have a lot of work to do.

To be fair, the global slump in 2008, combined with the subprime mortgage scandal, has had a lasting effect on banks’ reputations, which has helped to fuel the mistrust. However, banks have done little to improve the situation.

Levels of complete consumer trust in different types of banks

Source: EY’s 2016 Global Consumer Banking Survey

EY is not the only company to report the loss of trust; the Harris Poll, Forrester and SalesForce have reported it too, with Harris stating that only 22% of US customers trust their bank. While SalesForce’s survey used small samples of US and European customers, and had a more positive response than Harris, these figures are not inspiring.

Please indicate how much you agree or disagree with each of the following statements

Data Source: SalesForce’s 2017 report

There is a much more depressing evidence of the trust gap between customers and banks, but the reason we are harping on it is that, without trust, building superior customer experiences is just not going to happen.

The Relevance of the Branch

Human trust is still built on personal interactions. One may have a useful conversation with a chatbot, but there is no meaningful relationship there. In the good old days, one could approach one’s bank manager for advice and help on new personal requirements. Now there is only a generic bunch of people called “front-line staff” who have differing amounts of knowledge and advice depending on how adept your bank is at training them. Half of the bank sits in back offices, and “do not speak to customers.” Really? Are the customers not good enough?

In order to build some solid relationships, bank staff need to be out there meeting and greeting customers, getting to know them by name and gradually rebuilding trust. This can be challenging when the bank has done everything in its power to chase customers away from branches. Some banks have got the point, and implemented innovative design and tried to create more of a retail experience than a financial one. A dutch banking giant started the trend 15 years ago with its ING Direct brand based in Orange coffee shops. Though not a full service bank (no account openings, for instance), customers could enjoy coffee and get financial advice. When Cap One acquired Ing Direct, they decided to keep the concept, while rebranding the cafes in a partnership with Peet’s Cafes.

Capital One Cafés are popping up all over the country

Source: Business Insider

This is one strategy to get customers back in branches; at least it rebuilds some of the personal relationship. By the way, Millennials are not as allergic to bank branches as everyone believes them to be. While they favor online banking via their mobile apps, SalesForce reports that Millennials still interact with tellers and personal bankers.

What is the main way you currently perform routine transactions (e.g., deposits, transfers, bill payments) with your bank

Data Source: SalesForce’s 2017 report – Connected Banking Customer: Insights into the Expectations of Today’s Retail Banking Customers

The role of branches is important: 44% of customers globally said that they did not trust banks without branches.

Lack of trust in financial organizations without branches

Lack of trust in financial organizations without branches

Source: EY’s 2016 Global Consumer Banking Survey

Branches are not Enough – Add Digital to the Blend

The fact that all banks are doing their best to transform is not a bad thing, the problem is that many of them are tacking bright, shiny apps, websites and social presences on to siloed old legacy back-office systems. This is not a recipe for success.

Customers want a consistent experience, not conflicting views of the same product depending on whether they are transacting via a mobile app, telephone or computer. Instead of building a facade, banks should ensure that they move to omnichannel as soon as possible. The silos between systems are often mirrored in the business units; each one has their own business rules, forms and processes that support very simple products – there is nothing complicated about retail banking. A wise digital strategy would be to team up with a fintech company with a new and consistent technology, and let them be responsible for the online presence, while the old bank will try to catch up with what is going on in today’s world.

The digital strategy should also be revisited. For so long, banks have pushed customers away to interact with machines rather than humans. In a remarkably far-sighted report, McKinsey found that the more US customers interacted digitally with banks, the more they wanted to visit a branch.

The more that customers use digital channels, the more they want human interaction

What is more, the customers who want the best of both worlds are generally your most profitable customers. This was Accenture’s finding in their report on digital strategy. What they also point out is that 73% of customers want a face-to-face encounter when sorting out a complex problem – they do not want to be sent down a digital pathway. It all goes back to digital strategy again. Accenture found that many companies embark on a digital journey based on false premises:

  • That their customers want more digital experiences (again, focusing on Millennials)
  • That catering to digitally sophisticated customers will increase loyalty and decrease service costs.

While digital services must be provided, Accenture cautions against plunging into a digital strategy that pushes away the most valuable customers because their customer journeys have not been taken into account.

Understanding the Customer in Front of You

There is a great deal of focus on BI consulting and how big data can be used to gather keen insights on your customer and build them a personal digital experience.

The truth is, most banks still have such basic customer segmentation that it would be pointless for them to focus on the volumes of social data clogging up their systems. With the move away from branch banking, most of them have lost touch with their customers altogether and can only identify them by some identity or account number.

There has to be a move to reclaiming the human relationship, and this can’t be done via a phone or a website. Front-line staff also need to be coached in how to build relationships (the long-serving members will still remember how to do it, but it could be a novel experience for younger employees).

Keep it Simple

In their report on banks in 2020, PWC found that bank executives realized they needed to simplify what their banks were doing currently on a number of fronts, if they were to survive and engage their customers.

A majority of executives believe tey need to simplify

The success of digital and fintech services can be attributed directly to their simple business models. While traditional banks may envy the ease with which a startup just has to build a digital platform and they are up and away, this does not mean that the same effect cannot be obtained in a brick and mortar environment. Are the traditional behemoths of the banking industry solving the problem? It seems they are not, according to Lafferty’s latest survey.

Where Will Banks Be in 20 Years?

It is quite possible that we will see the behemoths of the banking sector atrophying, as disruptors in the fintech space and smaller agile banks absorb their customers. While the traditional banks could transform and re-emerge as new and distinctive banks, the lack of trust will be the biggest hurdle to overcome. Newer banks are also not trusted that much, but they do not carry the odor of the sub-prime debacle around with them. In PWC’s report on Retail Banking in 2020, bank executives were asked how they perceived the entry of non-traditional competition into their markets. While the APAC (Asian Pacific) and emerging markets also saw these new entrants as a threat, they also saw opportunity, unlike Europe and the US. These opportunities would come in the form of synergies and partnerships with the disruptors.

Non-traditional players - Threat or opportunity

The common thread in how all banks will stay relevant is centred around the customer, while complying with local and global regulation. In order to get there, the current cumbersome processes need to be simplified and channels must be optimized, with no silos of data and business units. While the banks have reams of customer data, it is currently not used very effectively, and is of variable quality. All the banks know where they are going, as shown in the graph below, they are just very far from a target that is only three years away.
Six priorities - Significant gap between preparedness and importance

The rise of the connected customer is finally creating a disruption to the banking market, which has been able to promise customer-centricity for years, with little pressure to deliver. Today’s client does not have to place all his business with one bank, and can move to another bank much more easily than before. The client and his needs are driving bank innovation.

As Accenture puts it well:

“Digital isn’t disruptive. Human beings are”.

Darya Shmat

Darya has spent over a decade in the banking industry, working on various projects and in multiple capacities since 2003. In the early 2000s, a lot of the processes were manual, and no one had even conceptualized mobile payments and other technologies that are prevalent in the niche today. Darya witnessed the technological growth of the industry from within, as banks digitized and embraced mobile technology. Over the span of her career she has participated in a variety of projects that deal with operations automation, analysis, beta testing, auditing, efficiency evaluation, and other modernization efforts undertaken by banking institutions. She knows firsthand about the technological transformation that the banking industry is steadily going through. Today, Darya works as a business development representative at Iflexion and expertly applies her practical experience to help our banking and financial industry clients find the right development or QA solution.

  • Masha Marinina

    Banks definitely are missing the boat when it comes to physical engagement. While digital banking is good for simple problems that can be fixed via “self-service” (weasel words for “getting the customer to do the work that they are paying us to do”), any problem that is not the norm can be very frustrating to resolve for the customer. First point of contact is probably the call centre, which starts with an interminable IVR of “press X for Y” for several minutes -there never seems to be a speed dial option for “hold for an operator”. Sometimes the IVR can be quite aggressive and asks you for an account number before even asking you the questions; then it waits and reminds you that you have not keyed in the 16 digits it is looking for. When you finally get through to a call centre agent, they will ask you again for that very same number. Now you have to go through a series of questions to verify you really are who you say you are. Once all this is out of the way, you finally get to ask your question. If it is something out of the norm, the call centre agent does not have a script that will answer your question, and you will have wasted your precious time with no result.

    So you go to the branch. Who do you ask for? Do you stand in the enquiries queue? Is this aproblem with your mortgage or a credit application? The good old days when you went to a bank and asked for the manager are long gone. The back office processes that determine who is authorised to grant you a loan are opaque to you -you can spend 20 minutes talking to someone who does not have the authority to act in your situation and has to pass it along to some mysterious person who sits in the head office -a waste of both yours and the bank’s time. There is all the technology in the world sitting in the bank’s data centre, running credit scoring applications, but if the customer journey process has not been mapped correctly, things fall apart.

    Physical interaction works well if you have a “personal” or a “private banker”, a dedicated representative of the bank who resolves your issues for you. However, not everyone who has a bank account gets this personal service, and sometimes the banker moves on, leaving you to start a new relationship with a stranger. Trust and loyalty are not formed via an app or a website -these are just conveniences, and a bank offering better digital experiences can entice your customer away. Where there is a personal relationship, and the client feels that the bank knows him or her through this relationship, this will retainthat relationship way beyond any bright and shiny technology.Most banks need to understand this.