As we all know, the past decade has marked significant upheaval in the international banking sector. Young Gen-Xers and Millennials who came into their own after the 2008 financial and economic crisis may still be leery of big banks, but banking industry experts and thought leaders in the space are confident that the market is starting to look up.
According to Deloitte’s recent 2019 Banking and Capital Markets Outlook report, “Economic fundamentals are strong, the regulatory climate is favorable, and transformation technologies are more readily accessible, powerful, and economical than ever before.” While Millennials have every right to remain skeptical of such optimistic claims, financial institutions in the US and EU are seeing mixed results 10 years later.
According to McKinsey & Company, US banks have been outperforming the broader market since November 2016 on many key performance indicators. However, Europe’s financial and economic outlook isn’t as sunny as is in the US. Thanks to various missteps during the 2008 downturn and lingering macroeconomic and political headwinds, large European banks are still struggling to regain their footing to find viable, sustainable growth opportunities as alternatives to their traditional business models. In its report entitled The Future Models of Banking in Europe, Deloitte outlines the three primary issues that European banks are facing:
1. Significant erosion of net interest margins as a result of the negative interest-rate environment
2. Increasing costs due to a more complex regulatory environment
3. Evolving consumer preferences and the rise of competition and fintech substitutes
Regarding the last point, the report elaborates, “Customers are becoming increasingly well-informed and therefore more demanding in terms of pricing, convenience, and quality of service. Some of the barriers to switching providers are also disappearing with the shift to online channels and the advent of new regulation.” According to We Are Social and Hootsuite’s 2019 global digital report, there are 5.1 billion people worldwide who have a mobile device, of which 4.4 billion are internet users, and 3.3 billion use social media on those mobile devices. (There are 7.7 billion humans on the planet, if you’re counting.)
The explosion of mobile devices and apps in the wake of the 2008 global crisis has changed the rules of the game in the banking world and lowered barriers to entry for new service providers in the space. Widespread digitization means that physical bank branches are no longer required to provide personalized banking and financial services. Deloitte’s report continues, “Hand-in-hand with this trend, [disruptive] companies outside the banking sector... have started to launch alternative services in order to compete with banking providers. Competition has been increasing across all sectors, including a disintermediation of traditional credit [and payment] activities.”
Some of these new entrants include digital-only, mobile-centric banks like Ally, Simple, Chime and Varo, and purpose-built, user friendly disruptors for payment services (like Venmo and Square’s Cash App with 15M MAUs), money management (Acorns, EveryDollar, Personal Capital), and investment/wealth management (Betterment, M1 Finance, Wealthfront).
Other traditional revenue streams like mortgage and loan servicing are also under threat. Established players like Rocket Mortgage from Quicken Loans is a formidable challenge to the banks’ traditional mortgage business. But newcomers like Blend, Better Mortgage, and Affirm, along with listing services like Redfin and Zillow have entered the mortgage origination space.
Little by little, big banks’ incumbent revenue streams are being diverted by more nimble newcomers. In PWC’s global FinTech report, 88% of incumbent banks and financial services providers are concerned they are losing revenue to innovators and their businesses are at risk. 77% of Financial Institutions will increase internal efforts to innovate and they’re embracing the disruptive nature of FinTech.
Further complicating matters, as banks have moved their core customer-facing functions to apps and web banking, customer loyalty is increasingly at risk thanks to reduced face-to-face, human interaction with client service associates at a local branch. It’s critical for banks to bring a personalized, human touch to their digital channels and provide the best possible customer experience.
We advise our banking and financial services clients to look to create competitive advantage in digital customer engagement and to think deeply about how to improve their customer support and care capabilities across digital channels – from the web, to mobile apps, to secure messaging channels. Meeting customers where they are and providing effortless experiences at every touch point is the new reality and the prevailing customer expectation. This requires significant orchestration between legacy and new systems inside banks.
Returning to Deloitte’s 2019 banking report, the firm recommends that banks streamline their digital infrastructure, creating maximum value by seamlessly integrating technologies and solutions. Deloitte calls this process the “symphonic enterprise.” Digitization creates opportunities to drive both external CSAT and internal efficiency gains – with mobile application enhancements being the most sought-after improvements to the banking experience for most users. Who doesn’t want a bank branch in their pocket, while being able to interact seamlessly with a human banking associate?
Any executive in a digital, customer experience, or customer care function understands intuitively that a growing number of consumers are interested in non-voice communication as their primary mode of customer contact with the brands in their lives. This includes SMS, modern chat with no “hang ups” and “start overs”, public/private social media messaging platforms, and chatbots.
Financial institutions like leading Belgium-based bank Argenta have quickly seen the value of embracing these changes in customer preference. In January 2019, the company transferred its digital customer service channels to enable its 1.7+ million customers to contact the bank quickly and conveniently from within Argenta’s mobile app, and plans to deploy its WhatsApp service channel in the coming months.
While many of these messaging services have been used by consumers for years, banks and fintechs are only just now beginning to utilize them to engage their customers and to help solve their digital transformation challenges. So while technology may pose the greatest disruptive threat to traditional banks, being thoughtful in leveraging it for effortless customer experiences and customer service will ensure banks thrive in the digital age.
Jonathan Zorio is Vice President, Customer Experience and Strategy at Sparkcentral
Tagged under Channels, Performance, Customers, Core Systems, Technology, Financial Trends, Tech Management, Mobile, Online, Feature, Lines of Business, Retail Banking, Social Media, Profitability, Feature3, Community Banking,