Banking has emerged from the great recession with a very different landscape. With many of the standard revenue sources from Retail are being undermined by new niche players (foreign exchange, payments processing, personal loans). The next 5 years will be characterised by unprecedented margin pressure alongside a need for higher innovation levels than ever before.
During the recession banks have moved to cut costs and to help customers to better self-serve. The implementation of a coherent digital strategy based on customer’s ability to access bread-and-butter services through web, app, ivr and also (in exception) through bank representatives is the primary investment direction of the majority of retail banks today. We argue in this paper it is time to step back from the delivery of functionality (apps, web etc) and time to look again at how customers will “spend” their money, attention and recommendations with regard to their personal financial needs.
The change in perception.
In 2005 Net Promoter Score was all the rage. The idea that customers were persuaded by word-of-mouth from friends and colleagues about the effectiveness of a banks offering and the service quality was a new idea. Investing in building “golden experiences” that led customers to promote the bank became a key part of many banks strategies. However, it didn’t happen! Even before the recession the backlash had started, the rise of Customer Effort Score was an attempt to refocus service improvement effort on removing transactional friction and improving all customers ease of use rather than creating stand-out experiences. Now a more pragmatic story is emerging; customer will leave because of a bad service experience or other cause for complaint – but they join you or find you based on your great product. They will use Amazon style peer-validation to check your offer before buying but are more likely to start their search for a product to meet a new need on Google rather than on their banks website. Take-away lessons;
In 2005 a significant proportion of Bank revenue came from commission based services based on insurance products or penalty fees on badly managed accounts. As the recession finishes, teller offers such as “I see it is time for your account review – I can set up an appointment with our adviser next Tuesday” are seen by customers as clumsy sales ploys. As governments start to push and publicise the importance of non-commission based products, customers are continuing to separate their day-to-day transactional banking from where they choose to discuss their new and more profitable needs.
In 2005 customers remained to be convinced about the security around on-line banking. Card readers and additional layers of security looked diligent and of added value. In 2015, even though the security threats have risen, customers are more trusting of the banks ability to manage the online transactional space. This customer complacence also creates new potential service problems and new complaint areas. While a customer may value a card-reader for their business accounts, they may be frustrated that they need a card reader and a card-reader facilitated online transaction to setup a payment before they can use the payment transfer app for their personal account. As channels proliferate customers will develop a diversity of habits using different providers or tools for different things. For the bank this creates more complexity. However for an individual customer, these new tools promise simplicity which can then appear to be snatched away by clumsy implementation. Example; I can see the payee on my app on my phone, but I cannot make the payment because I have not used my personal card-reader in an on-line environment to make the first payment. I can use the contact centre to make one-off payments, but they cannot enable the app either. I can go into branch to see if they can enable my app, but no-one seems to know if that’s possible!
In 2005 Paypal was relatively new, as disruptive incumbents they had no turf to defend and everything the banks were doing was slow and bad (according to Paypal). As banking moves toward 2020, the cracks in the surface of these new players will start to appear. Paypal doesn’t work well with Amazon and if you need cash in a hurry Paypal will not help. As Banks start to build out their new digital platforms new opportunities will emerge to rebuild market-share (albeit at lower margins) in markets they have lost.