Finance has always been quite conservative but it hasn’t missed out on technological progress. Now banks are separating from their customers due to technological progress. According to 2015 research by Bankrate.com, 44% of American bank customers don’t visit banking offices for six months or more. The number of local bank branches decreased by almost 50% between 1995 and 2015. Transactions are rapidly moving onto the web as more and more financial services are provided online. Digital channels are already dominating.
At the same time, customers want banks to deliver a best-user experience, matching the kind offered by leading startups and IT companies. The talk on new technologies such as chatbots, blockchain, artificial intelligence, and machine learning going around the business world, media, and analysts often highlight their advantages.
However, the global obsession with new technologies often veils a clear vision of their pros and cons in the financial sector. Obviously, digitalization cannot be stopped, but at some point it’s better to proceed with caution. Let’s discuss trending technologies of 2018, the implementation of which is particularly important as far as customers’ experiences are concerned.
1. Can blockchain and chatbots be harmful to customers?
The main goal of every innovation is to make a user’s life simpler. Only in this case, the innovations will be successful in the business. It is important not to listen to the hype and to take an unbiased look at the benefits of the new technology.
For instance, the advantages for banks from the blockchain implementation are the buzzword. Analysts’ reports project large savings through reducing infrastructure costs, improving data quality, and transaction transparency. Financial firms’ estimated savings from blockchain range from $8-12 billion up to $20 billion a year.
With this in mind, banks consider implementing this technology. But first it’s better not to take immediate profits but to consider the customers’ interests. If these technologies aren’t convenient for customers, then they won’t be used and thus won’t bring any profit. This approach allows us to look at the blockchain in perspective. So, besides enthusiastic feedback, it’s vital to fully understand the technology and consider its disadvantages. Did you know that the entire Bitcoin network can only handle about 7 transactions per second? In comparison, the Visa payment system can handle up to 24 thousand transactions per second.
Users demand instant transactions, and this low speed won’t keep up with innovative technologies. It means that this technology is not yet ready for mass application in large banks. The development of the blockchain technology should correspond to the users’ expectations from online banking.
Here is another example. According to recent estimates, the use of chatbots for customer support allows a saving of up to $0.7 per interaction. Therefore, some experts propose to develop banking solutions fully based on the chatbot technology.
But bear in mind, that the majority of customers are now used to a graphical interface, and as a result, some of them (such as senior citizens and non-tech-savvy users) cannot use the chatbots. They need appropriate communication channels.
No need to bet on the predictions of a particular innovative technology dominance and make financial services strategies based on them. The first priority is the customer, his comfort, habits, and needs. The smart use of new technologies in the right context will help to enrich the user experience in a profound way.
From this point of view, AI-driven chatbots are a great solution for banking services via social networks and messengers. In its turn, the blockchain already has the potential to help to effectively conduct complex transactions through “smart-contracts.” New technologies are integrated by making a real benefit for real people.
2. Open Banking: the death of banks or the dawn of client-centricity?
Businesses try to improve their efficiency, but even the most advanced technologies have their “dark side.” For example, Open Banking is frequently talked about and the countries of the European Union have started to adopt it. Under the Revised Payment Services Directive (PSD2), all banks in Europe had to launch the API to their services for third-party market players, this month (January 2018).
The goal is to make the access of licensed financial services to customers’ financial data easier (with the user’s consent, of course). This initiative is a true revolution, which will completely disrupt the banking industry. It will lead to the creation of new and more convenient financial services. For example, marketplaces, where the customers will be able to pay for the services of different banks, insurance companies, and other businesses.
At first glance, everything seems fine. On the one hand, banks will be able to get new customers and they won't even need to finance their acquisition. This task will belong to the fintech start-ups using the API. On the other hand, customers will be less dependent on a specific bank and potentially unaware of whose services they are currently using. In the end, it may be as easy to change the bank as the financial product—just a couple of clicks on the same marketplace.
This does not mean that the API launch will eliminate banks. Open Banking is a logical step in the development of a digital society, and it has obvious benefits, such as allowing banks to go beyond the usual geography and increase their number of customers and list of products.
But banks should pay more attention to the user’s interface interaction. The conditions of Open Banking’s highly competitive market will transform the users’ interface into the vital factor in determining the success of financial services and fintech firms are already quite experienced in it.
Banks should reconsider their role in terms of the customer-centered digital reality, and move from the pattern of “branch networks” to an “open technology platform.” Then, they can focus on creating value for final users by collaboration with Fintech companies.
3. What if fintech success is just an illusion?
Fintech startups are the main translators of new ideas in the global financial market. But before praising just another popular project, it is worth remembering how financial innovations are actually arranged.
Unfortunately, nobody knows about the initial effectiveness of an innovation. Fintech startups are forced to use every opportunity to attract attention because the investments and the number of interested users depend on it. Therefore, the popularity of the technology of the specific project may outweigh its potential for creating a profitable business.
In local markets, the products and services of some fintech startups look successful and show inspiring traction. But a startup is not a bank with millions of customers and operating under government regulations. The model, working on a small number of clients with no restrictions imposed by regulations, could prove to be detrimental when scaling up to a high level.
In any case, a fintech startup should provide its rich customers with financial protection and security on a certain stage of growth. So, it will become the object of government regulation and hence be licensed. This, in turn, imposes certain legal requirements on business processes and interaction with the customers which often deprive the startup of its facilities (which have been chosen by customers).
Therefore, during the integration of the next "hot" technology by the teams of fintech startups, banks should be very careful when answering the questions: "How will this work on our scale?"; “What benefit will it bring to our customers?”; and “What difficulties may arise?”
4. How to save your service using personalization?
Today, the level of financial services development doesn’t show the final user a significant difference between them. This means that a dramatic improvement of a provider’s market position via some minor improvements of the same services may not be a long-term strategy. The services market is moving towards personalization of the customer experience. This leads to the development of digital technologies such as big data, predictive analytics, artificial intelligence, and machine learning.
For example, by using these tools it’s possible to conduct instant scoring and automatically respond to a loan application or to even offer it at a favorable moment. It’s also possible to offer services and products based on specific customer spending—for instance, a card with advantages for frequent travellers when shopping internationally. Moreover, insurance is automatically offered for the customer who has just bought a car. This use of new technologies will enrich the customer experience and could raise banking services to a new level.
Today, we can already see the implementation of personalized context advertising and “cookie-based” search experiences. Technological giants are a great reference for inspiration in this area. The number of areas offering a personalized experience will grow rapidly. Don't miss this train.
5. Does the interface of your service confuse customers?
In a modern world, the most important thing for users is convenience. This is why food delivery services are so popular. Many people are willing to pay more for food just to not cook themselves.
The financial sector is no exception. Even the most advanced and innovative product won’t be used if it is inconvenient. In terms of tough competition, it is not enough just to implement trending technologies like chatbots, blockchain, or artificial intelligence. Businesses need to give the customer the best experience. That’s why a thoughtful functionality must be offered through usable and appealing interfaces based on key user scenarios.
There’s no need to make a customer fill in a registration form if his data can be verified through the API from the provider where he once registered. Why bother the user with things that can be automated?
Ideally, all the complexities should be covered by the service, and the interface should be easy, intuitive, and frictionless. These are the main directions for the use of advanced technology combined with design thinking and user experience design in 2018.
New technologies are only good if used in an appropriate way. There is no need to implement something new just because of the hype and "because everyone is doing it." It’s better to analyze the pros and cons of the technology first, to understand its best functionality that will help your customers handle their tasks efficiently. Otherwise, the implementation won’t be successful.
And don’t forget about the exponentiality of technology. You have to be ready to follow the market changes. In this case, fintech is a wonderful source of inspiration. Yet not every fintech firm has a catching idea that might work for a large bank with millions of customers.
Modern customers do not want a service which is just slightly better than the competitors’ offering. They seek maximum service adapted to their needs. So, the key initiatives in the future of banking are trending technologies, personalizing financial services, and the user’s interface based on their best experience.
About the author
Linda Zaikovska-Daukste is CFO and co-founder of UX Design Agency, a customer experience firm based in Latvia. This guest blog originally appeared on the company’s website and on Ms Zaikovska-Daukste’s LinkedIn page.