Securing Lifelong Customers in a Disruptive Banking Market: Lessons Learned from Other Industries

Amid the Millennial- and GenZ-led disaggregation of banking relationships, financial services firms must redouble their search for new ways to attract and retain the younger generation and make them lifetime customers.

We’ve seen that user-friendly, frictionless mobile apps are the channel of choice for customers in this demographic. It is well known that as a result, consumers are cherry-picking discrete offerings, whether for loans, deposits, investments, or personal financial management, from various fintech providers, collectively turning single migrations into a steady stream of market share loss for traditional institutions, thereby to cater to their needs.

However, most banks still aspire to own and control the gamut of each consumer’s banking needs. As is well documented, in doing so, they have fallen behind in implementing successful digital strategies that meet customers where they are. This reality suggests that it’s time for banks to stop working against what customers are telling them and start solving the right problems in the right ways. This article points financial firms in this direction, highlighting lessons learned from other industries, relaying insights from digital leaders, and strategies banks must employ to regain lost ground.

Cross-industry analogies

The level of consumer adoption of fintech offerings is practical proof that consumers and banks have conflicting ideas on what the market should provide. Experience shows that consumer demands will ultimately prevail, making it essential for legacy institutions to adapt. The retail industry has seen similar market fragmentation, forcing big box stores to adapt or become obsolete.

Walmart is a great example of a legacy retailer that has avoided becoming irrelevant through an accelerated digital transformation. When retail saw a rise in direct-to-consumer specialty brands acquiring customers at a rapid rate, the giant retailer implemented significant changes across its entire value chain and acted fast to acquire digitally native companies, like Eloquii and Bonobos, giving it access to new markets and capabilities. Brands like AllBirds, Brooklinen, and Warby Parker disrupted traditional retail by mastering a single product in their category. It’s time for banks to follow suit and embrace digital strategies that cater to similarly evolving changing financial services needs.

Startups getting it right with millennials

Forbes reports that 34% of millennials feel unsatisfied with their current financial situation and only 8% have the financial literacy to manage their own finances. Reports reveal that 60% of millennials struggle with debt. Many startups offer new products that cater specifically to such millennial needs. These products offer easy ways to invest, budget, and save and are delivered in ways that appeal to younger audiences. A few examples include, digital native SoFi disrupted the loan market first by offering student loans, then home loans, and ETF offerings. Their crypto investing app allowed users to trade Bitcoin, Ethereum, and Litecoin. Betterment offered online money management services that help users save, invest, and plan for retirement. In a radical innovation, they were also the first robo-advisor to make a checking account available to the public without operating as a bank. Other disruptors include Venmo, an automatic savings app called Albert, and Cleo, a personal budgeting app with a programmed in sense of humor. And for anyone who has been through the gauntlet of a home mortgage application, Rocket Mortgage, the first services that allowed consumers to apply and go through the entire mortgage process without speaking to a human, must seem heaven-sent.

Some Traditional Banks Are Getting It Right

Some long-standing companies that have woken up to these consumer needs. But for those companies that do not rethink their product and service offerings, while they won’t necessarily lose customers outright, they will fail to form strong, long-lasting relationships with an integral market. Maintaining the status quo will weaken revenue streams from tangential purchases and limited potential. Some traditional institutions have had success in bringing new product offerings to market with the goal of serving younger clients.

Traditional banks leading the pack include:

Bank of America, which has digitized 77% of deposit transactions with blockchain, cloud, and biometric technologies and innovated through an AI-based digital chatbot which provides customers with on-demand financial guidance.

Capital One, which moved into cloud-based AWS (Amazon Web Services) storage and applied machine learning as well as AI to improve fraud detection and identify threats. Customers can track spending, make payments, and manage account balances.

BBVA, which brought in an agile organizational methodology and platform to enable the development of new future-facing functionality, and is using bots and cloud technology for do-it-yourself transactions online, and is providing an AI virtual assistant service available through WhatsApp.

Goldman Sachs, which acquired smaller fintech operations to expand digital offerings and secure digitally native talent. Goldman also built its own digital platform and partnered with Apple to launch a new credit card.

JP Morgan, which acquired WePay in 2017; using capabilities to compete with disrupters. The institution offers free same-day deposits for businesses while its competitors charge fees and usually take 1 to 2 days to process a transaction.

It’s clear from the above examples that these institutions mirrored in one way or another, whether through a spend-tracking, savings or payments capability, single offerings coming out of start-ups.

Insights for Action

It is often a challenge to implement new strategies that meet changing customer needs and align with corporate vision. Below we show five takeaways that we believe are key to winning over a younger market and ultimately securing lifelong customers.

1. Apply Advanced Segmentation for Success

The disaggregation of product and service relationships can be treated as an opportunity for growth rather than a threat. Younger customers have made it clear that they don’t want to be tied down by a single institution and industry leaders will adapt. Do you have advanced segmentation capabilities to identify audience needs and gather insights to tailor the offer and experience to acquire and retain customers?

2. Choose Quality over Quantity

The past few decades have seen continual growth of banking products and services with a goal of fulfilling every consumer need possible. This model no longer appeals to a new generation of customers, and banks need to find new ways to meet their needs. This could mean shifting focus from a ‘cover-all’ approach towards a focus on core competencies. We’ve seen the success of this model with Quicken Loan's Rocket Mortgage that has become the leader in residential lending through its online mortgage system. What areas of your company are driving the most business? Abandon expectations that a single institution should meet 100% of a customer’s needs. Shift focus towards offering superior service in fewer areas securing long-lasting relationships.

3. Focus on customer lifecycle

What are the next steps after converting a customer? Long-term success requires a proactive approach towards customer retention. Millennial financial needs will eventually shift from education to future planning and saving. Implementing services like in-app educational videos or price aggregators to benchmark major purchases are ways companies can prepare younger customers for a lifecycle transition. Institutions that stay one step ahead of shifts in customer needs will be most successful.

4. Improve consumer experience with data

Know what your customer wants. A customer journey supported by data can help companies better understand the customer path to purchase, revealing key insights into the moments that matter. Additionally, a design thinking approach can help companies reimagine the customer experience and service behind it in innovative ways. These best practices will lead to better product offerings and superior end-to-end user experience.

5. Get Ahead through ‘Self-disruption’

Disruptive forces in the financial services industry pose a threat to legacy institutions, but long-standing companies can create their own disruption. Netflix is a great example of self-disruption. The company’s implementation of streaming services rendered the former model for movie rentals completely obsolete. While this may have resulted in the steady decline of DVD subscriptions, it transformed the company into a vertically integrated content creator and increased its overall revenue nearly five times over between the time of its implementation and today. What’s holding your company back from undergoing this kind of transformation?

Conclusion

Change is no longer on the horizon—it’s here. The arrival of digital strategies has transformed the way customers manage their money and how financial services institutions do business. Traditional institutions that find ways of meeting these needs will win back lost ground.

About the Authors

John Rodgers is COO & Managing Partner, SSA & Company. He guides day-to-day operations, sets and steers SSA & Company’s business strategy, and oversees the Financial Services, Insurance, EMEA, and Healthcare practices. John has significant financial services operating and management experience with Aetna Life & Casualty and Cigna and has multiple insurance-related designations, including CPCU, RPLU, ARM, and AIS. He can be reached at [email protected]

Kim Muhota is Vice President in the Financial Services practice of SSA & Company. He is an executive with more than 20 years of experience in the Private Equity, Payments, FinTech, Banking, Technology, Business Services, and Consumer industries. He has demonstrated capabilities in working with C-Suite executives and line managers to drive actionable solutions rooted in deep analytics, and solving complex business challenges, and can be reached at [email protected]