I received my first package from Amazon on Dec. 15, 2009. It contained a copy of Albert Finney’s “Scrooge,” a 1970 retelling of the Charles Dickens classic, “A Christmas Carol.” It was the first Christmas my wife and I would spend together, and we weren’t going to make it through the holidays without watching that film, a Christmas tradition for my wife.
After scouring the shelves at Target, Walmart, and more, we had finally stumbled across an $8.58 copy that could be magically shipped in two or three days. Eight years, one saved marriage, and hundreds of purchases later, Amazon is still our go-to for seamless and effortless shopping in our household.
Digital providers for digital age
Hundreds of millions of people undoubtedly share similar stories about Amazon, Google, Netflix, and other like-minded companies that have created the gold standard for customer experiences, and built powerful brands and loyal followings in the process.
Google, Amazon, Facebook, Apple—what I’ll refer to as GAFA—and others were born in the digital age. That fact is constantly reflected in their business models and, just as importantly, the customer experience. Their user bases are massive; new products these companies introduce have instantaneous lift. (Find me a tech outlet that hasn’t written about the new iPhone X.)
Why? Because of the ubiquity and devotion of an intensely loyal customer base that wants and expects the next greatest thing from their favorite brands.
Financial institutions founded long before the internet became a public commodity—which is most of them—were not conceived in tech. Instead, they’ve been forced to adapt their businesses to the opportunities that computers, smartphones, and the internet provided.
The difference between using technology as a means of optimizing existing business practices and using it to create an entirely new paradigm around the customer experience is vast.
It’s the crux of the challenge many financial institutions face today.
How does your bank use digital tech?
Technology has gradually become available to aid financial institutions in expanding their digital footprints. Financial institutions have plugged that technology into different pockets of existing infrastructure to streamline or automate processes; create a new experience for the customer; open a new channel; collect customer data and more—all to better manage the business.
But these new technologies are simply incrementally improving the legacy banking model, not replacing it.
As a result, the majority of financial institutions are challenged to achieve growth and attract the intense loyalty similar to that of digital-first companies like Amazon, but lack the technology that provides the user experience that compels and attracts that kind of loyalty in the first place.
All this talk of GAFA and other tech companies may not seem like it encroaches on the business of community banking and financial services.
But it could.
According to Accenture, full-service banks could lost 35% market share to GAFA and fintech startups in the next five years.
Suddenly newcomers became role models
Initially, GAFA didn’t seem to pose much of a threat to traditional financial institutions. How could a company that builds iPods possibly impact a bank? How could a company that operates an internet search engine affect a financial institution’s ability to store a customer’s money?
Hindsight gives us more clarity today than when these companies were in their infancy, and identifying the potential of these trends to proliferate 20 or 30 years down the road would have been difficult.
Today, however, it is becoming increasingly clear that companies like Amazon and Facebook may pose an even bigger threat to financial institutions than fintech startups. This is primarily because of their ability to provide engaging user experiences that take advantage of customers’ desire to make shopping, or checking a social media account, actually fun.
When consumers say things like, “Why can’t my bank just be like Apple?” or, “This would be so much better if I banked with Amazon,” they are telling us that they have become so used to the simple, elegant experiences these companies offer that they look with disdain on anything that falls short of those experiences.
If given the opportunity to discard their financial institution in favor of banking with the likes of Google, Amazon, or Apple, I suspect that many brand loyalists would likely do so in a heartbeat.
Amidst this mindset, tech companies are pioneering new advances in cloud computing, AI, big data, blockchain, and more, all to improve the customer experience as a means of driving growth.
Meanwhile, financial institutions are mired in legacy technology, lagging years behind because they lack the tech experience within their organizations to adequately scale at a pace customers expect and demand.
How do banks catch up?
To make the improvements necessary to attract and retain customers with an engaging user experience, banks and credit unions have to adopt a growth mindset.
I’ve encountered several financial institutions that don’t place a premium on holding the conversations that address short-term pain points to learn the critical lessons that predicate success and growth.
Your financial institution is not going to become Apple overnight. However, you can have conversations with your technology partners about how they can provide the best possible tools for building unmatched customer devotion. You can attend conferences that envision the future of banking. You can dedicate your resources to creating the best possible customer experience, in the digital channel or otherwise.
In doing so, you’re laying the foundation of services and experience that can engender the same kind of brand loyalty that the biggest tech companies in the world currently inspire in their customers every time they log on to do some shopping or check social media.
About the author
Jordan Wright, director of business development at Q2 Open, is a proven fintech entrepreneur, innovator, and leader. The Q2 Open team uses API technology to drive new strategies for innovation and growth. Wright thrives on data, research, and meeting new people, and when he's not in the office, he loves spending time on fun projects with his kids.