Alessandro Saini
Head of Marketing
Reading Time: 15 minutes
Introduction
Ever since their rise, banking institutions globally have fought to gain absolute power and market share, within an industry that initially had very few alternative choices for customers. However, with the technological disruption and resulting emergence of new fintech alternatives, the marketplace has now transformed into a battlefield, where industry growth or profitability is stagnant, and customer retention is more challenging than ever.
In today’s hyper-connected world, where competition is the biggest threat, offering innovative products, implementing creative marketing strategies, or restructuring business models is just not enough. Digitalization is no more a luxury. According to research, more than 65% of customers agreed that their digital experience on a brand’s website or application is ‘very important’ in determining their willingness to vouch for the given brand.
The COVID-19 pandemic can be held as a black swan event that pushed all retail banking institutions to the most pivotal spin in their history. Digital Transformation became a ‘do or die’ choice to remain relevant and survive, otherwise risking the possibility of newer fintech startups confining traditional banks to a low-utility space. Customers have become more demanding and difficult to please, than ever before. Therefore, delivering an integrated customer experience across all channels has become the most basic business strategy.
Traditional banks have come a long way from the previously prevalent legacy systems. The first real technological disruptor that laid the foundation of the current digital banking solutions was PayPal. While long-established banks treated the new entrants as insignificant and trivial, over time it made its way to the top by disrupting the highly lucrative and established, bank-dominated payments industry. By the end of 2015, PayPal had over 173 million customers, and $1.2 billion in profits, thereby becoming more valuable than its parent, eBay.
With increasing ease and adoption of digital banking solutions among young and coming-of-age customers, the banking industry regulations have also been relaxed. Mobile wallets, online banking, and net-banking have become the new mainstream. Fintech startups are now driving the industry in a new direction with neo-banking being the latest buzzword among tech-savvy customers. Overall, customers are highly reliant on digital banking solutions not only for carrying out simple transactional activities but also for high-quality digital interactions involving complex queries.
Moreover, the banking industry has experienced a seismic shift, from traditionally being product-centric to becoming more customer-centric with time. Customers rely on instant banking solutions for routine activities like grocery shopping or retail shopping on giants like Amazon, watching movies, booking show tickets, or purchasing subscriptions of OTT platforms like Prime or Netflix, and much more. Simultaneously, customers also rely on banking advisors for secondary needs like wealth planning, investment advice or wills. Therefore, the essence of offline banking services is also not lost.
Consequently, financial institutions and banks must heavily focus on curating a strong digital foundation to offer agile banking solutions, while also maintaining a consistent omnichannel approach for positive customer engagement across both online and offline points of contact. The future of banking is undoubtedly technology reliant. Therefore, all banks, digital or physical, must focus on serving the latent needs and demands of customers through high-quality digital experiences, to remain relevant and successful in the future.
The first step to curating a positive digital customer experience is- Understanding the digital customer.
Understand your Digital Customer
When it comes to digital customers, assuming their needs and choices is not the most ideal approach to follow. Every customer has a separate set of expectations from the business. It is crucial for businesses to conduct a deep and thorough market research before designing a strategy to deliver a positive digital customer experience. Research can help understand the buying behavior, preferences, and pain-points of digital customers.
The internet today has become a basic utility which has empowered every individual to make well-informed decisions. Product information, competitor’s products, product reviews, company profile, and much more is easily available over the net. These customers have access to an endless pool of choices and the autonomy to deviate their course of actions, thereby not settling for average. Consequently, businesses need to be honest and agile by designing a digital customer strategy that is convenient and encompasses relevant information. Only with genuine efforts and options can businesses win over today’s well-informed and aware customers.
Digital channels of banking like online and mobile banking have become common across every age-group, especially after the COVID-19 pandemic. All customers, young as well as old, have learned to utilize the latest technology to their advantage. For example, Wells Fargo reported a 35% increase in remote cheque deposits and 50% increase in online wire-transfers during the pandemic, as compared to the previous year. Similarly, every other bank in the US, reported a sudden spike in the use of digital banking services.
Irrespective of the age group, digital customers want quick services, relevant information, prompt responses and instant gratification. The lack of promptness and agility pushes them to bounce back and move ahead with the next option. The internet and the banking industry are flooded with unlimited alternatives and opportunities to fulfill every demand of the digital customer. Therefore, banks and financial institutions need to capitalize on the latest technology, and use it to their advantage, by offering their digital customers the most pleasant and impressive experiences, and consequently make their customers loyal.
Moreover, the needs and expectations of customers are constantly evolving, just as the technology involved. Banking and financial institutions need to look out for industry trends, future trends and adopt a flexible approach that can incorporate the changes from the dynamic business environment. They also need to observe the socio-economic and cultural trends that have a direct or indirect impact on their customer’s needs and perceptions. In addition to convenience and instant satisfaction, customers also expect personalized solutions, even in digital communications.
This raises another relevant question: What can banks and financial institutions do to expand their digital offerings and redefine the digital banking experience for their customers? Once again, the solution lies in understanding the needs and expectations of the digital customers. Having insights about them would enable banks and financial institutions to design relevant strategies and offer a pleasing customer experience.
Financial institutions and banks must attempt to think from the customer’s point of view. In this manner, it is easier to understand their expectations, identify gaps in the current industry offerings and design products or strategies that can bridge such gaps, alongside meeting their expectations. It will also help institutions choose the right technological solutions to reach their target audience. This is known as a solutions approach culture where institutions first grasp their customers’ intended experience and expectations, and then evaluate where the functionality should come from.
As popularly quoted by Steve Jobs, “You’ve got to start with the customer experience and work backward to the technology. You can’t start with the technology and try to figure out where you’re going to sell it.”
Designing a strategy for digital customer experience is all about tracing the journey of any customer, right from the awareness stage to the purchase stage of the sales funnel. One needs to closely understand the intended experience of a customer across every stage of the funnel, and design POAs, products and strategies to deliver the intended result, for every stage, digitally. The mix of right strategies, products, services and offers can help banks and financial institutions achieve the desired results in terms of pleasant digital customer experiences.
The Omnichannel Customer Experience
In this digital era, customer experience has become a key differentiating factor in every customer’s decision-making process. A company’s image is essentially fabricated from the positive or negative experience that it delivers to its customers, across the various touchpoints. As a result, delivering a strong and consistent customer experience across all channels should be the top priority of every business, be it even banks or financial institutions.
An omnichannel customer experience involves multiple touchpoints- web, mobile, e-mail, tablet, chatbot or phone- wherein all seamlessly connect, enabling customers to pick up where they left on one channel and continue the same experience on another. When the customer experience is optimized in a manner that a single interaction is supported across various channels, it becomes a complete omnichannel customer experience, and that is expected by today’s digital customers.
Digital Customers vouch for instant or near-instant gratification. Research suggests that approximately 5% organizations had their users leave their website after as low as a one-second delay, and longer the delays, higher the percentage of clients that begin to look for alternative options. Therefore, any factor that attributes to a slight delay in the whole customer journey poses the risk of losing these customers.
Another crucial factor that banks and financial institutions need to take into consideration while designing a digital omnipresence experience for customers is the availability of customer service representatives, assigned to assist customers. These representatives must be trained to offer prompt responses across multiple channels. They should be provided with the right technology and infrastructure to instantly assess the customer’s profile, their transaction histories and other information, so that they can offer quick solutions without unwanted delays.
Overall, customers expect the banks and financial institutions to offer consistent service across all channels of communication. Interestingly, more than 68% of customers have reported that their service representatives must have information about their service history. Moreover, 73% of customers conveyed that they are likely to switch brands if the organization fails to offer a consistent omnichannel experience. Therefore, banks and financial institutions must invest in designing a successful omnichannel experience strategy, that can win them competitive advantage and deliver an engaging and integrated experience, just as the customers expect.
Customer Expectations in Digital Banking
Modern customers no longer evaluate their digital banking experiences in an industry-silo. They expect banks and financial institutions to curate an experience culture that not only nurtures their basic needs and expectations, but also exceeds their expectations by offering greater value, building trust, and delivering highly personalized products and services.
Due to tough competition in the banking industry, and as digital banking penetration has exceeded physical visits, banks and financial institutions are constantly endeavoring to adapt to the dynamic customer expectations in the digital world. With more than 75% of the US population using digital channels, following are the most basic expectations customers have from these financial service providers –
1. Managing Finances:
Customers, most often, rely on banks for recording and managing their finances. They expect banks to provide a digital record of their deposits, borrowings, expenditures, investments, and withdrawals. Moreover, notifications related to account credits and debits, credit card payments, EMI reminders, recurring monthly expenditures and much more, should be sent on the customers connected devices in a timely manner. Some banks and financial institutions also offer value-added services like tax filing assistance, establishing emergency funds, will and wealth management advice, prompt customer support, opening new accounts and much more.
Banks must attempt to create a seamless digital customer experience that is consistent across all channels.
2. Transfer Funds to Friends and Family:
Customers across all age groups use mobile and web banking applications to transfer funds to friends and family. The ease and luxury to send/receive money 24*7, beyond normal banking hours, has been one of the most utilized features of digital banking. Therefore, banks must ensure that their web and mobile applications are user-friendly and light. They must also include some value-add features like an inbuilt payment split option, or pay your contact, etc.
3. Make Payments/Express Payments Online:
With acceleration in the use of digital payment solutions like bank transfers, UPIs and QR code payments, making recurring payments to contractors, general stores, bill payments, recharges, etc. has been immensely simplified. Customers can directly clear their monthly expenses/payments using mobile applications, from the comfort of their homes.
4. Invest/Trade:
With digitalization of the stock exchanges, customers expected banks to offer in-app solutions for making investments or trading stocks using mobile or web applications. Various small and large banks allow their digital customers to invest their funds, by connecting their bank accounts with their digital demat accounts. However, to offer specialized services, most of these trading and investment platforms are separate from banking applications. Financial institutions must take steps to offer all these facilities within a single application.
5. Loans:
Digital customers expect banking and financial institutions to offer applications for remote/online application of loans and credit. The application must have features for e-application, verification of documents, credit analysis, and finally, getting loans sanctioned. Banks can deploy technology for these processes thereby eliminating any manual error in verification of documents and sanctioning the loan. Digitalizing the loan sanctioning process guarantees simplified and hassle-free loans that can be availed in shorter time frames.
6. Filing Taxes:
Filing taxes has always been considered a complex and time-consuming process. However, by digitizing the tax filing process, banks and financial institutions can leverage this feature as a competitive advantage. Customers can avail the luxury of filing their tax returns online, using mobile or web applications.
7. Financial Planning/Forecasting:
Millennials are constantly scrolling the web to find tips for financial planning and investments. Such content on the web helps them understand the importance of financial planning and makes them financially responsible. Banks and financial institutions can capitalize on this opportunity by consolidating financial planning advice from multiple trusted sources and providing it to their digital users in a single website or mobile application. Such features will help institutions attract and retain young and empowered people who are looking out for reliable information sources, online.
8. Cryptocurrency and Blockchain Integration:
Many traditional banks initially considered cryptocurrency as a threat to the established banking and financial industry. However, with developments in the blockchain industry, it has proven to become an enabler for digitization of banks and financial institutions. Banks now use blockchain as a public ledger to maintain records of transactions and customer information. Cryptocurrency and Blockchain are all set to shape the future of the banking industry. Digital customers expect banks to take advantage of this versatile technology to scale and offer increased functionalities, over the web.
9. Automated Financial Processes:
Modern and technology-dependent people prefer setting automated payment mechanisms for recurring payments like mobile bills, EMIs, subscriptions, investments/SIPs, and likewise. Banks and financial institutions can set up such automated payments mechanisms as per customers’ demands, thereby taking complete responsibility of making recurring payments on behalf of customers.
10. Superior Customer Service:
At the top management level, the most important KPIs used by strategists to define success include customer experience. With increased technological know-how, customers not only expect ease and flexibility, but also look forward to a positive experience throughout their journey with the given bank or financial institution. If at any stage, their needs are not met, they can easily look for alternatives. As a strategy for customer retention, banks should focus on the mobile channel and integrate all other channels in coordination to it. Therefore, pleasant customer service is crucial to earn customer loyalty.
11. Security and Trust:
Although the adoption of digital banking channels has become mainstream, the fear of thefts, frauds and the security being compromised is very high, even today. Customers stick to banks that give utmost priority to safety and security of their personal credentials, passwords, and pins. Banks and Financial institutions must undertake safety practices, advocate their clients for best safety practices, and alternative ways to exchange personal data. These drives would increase customers’ confidence and trust in the given bank and consequently improve customer loyalty.
12. Honest Communication:
To win the trust of digital customers, it is crucial for banks and financial institutions to undertake honest and transparent communication with them. According to a survey, 88% of customers trust companies that promise not to share their customers’ personal information without their permission. Therefore, banks and financial institutions can set up a strong PR and communications team, to interact and engage with their customers throughout the year. In this digital age, when rumors and negative information spreads like wildfire, it is crucial for banks and financial institutions to effectively communicate with their stakeholders.
13. Integration and Optimization Across Channels:
Above all, digital customers expect a complete omnichannel experience that is interactive, flexible, engaging, and consistent across multiple channels. Banks and Financial institutions require to offer all their digital products and services over their website, mobile application as well as integrated third-party applications. Along with their primary offerings, they need to also set up value-add services like customer support through bot-chats or calls, education and advice through blogs, security precautions, advisory services and so on. Keeping in mind the customer dynamics, they should keep mobile applications as their central channel and the rest can be integrated to match the same.
Empathy, The Human Touch in Banking
The increasing competition and digitization within the banking sector has given rise to a new set of challenges. Despite offering the best omnichannel experience, banks and financial institutions lose a number of customers to their competitions. Switching to newer alternatives has become the new normal, making customer loyalty the biggest goal for every other business. After curating a complete omnichannel experience and filling or correcting every loophole therein, banks need to next focus on retaining these customers.
The process and efforts behind customer retention need to be perpetual and innovative. A very significant aspect of customer loyalty lies in creating strategies after understanding the customer’s behaviors and cognitive biases. A study of human behavior could offer insights into how one can emotionally inspire customers to stay connected to a given brand, by humanizing their overall experience and adding emotional value to every interaction.
A greater majority of established banks and financial institutions function in a hybrid manner. Some customers still rely on the physical channels for assurance and safety of their money. When it comes to digital channels, customers sense the lack of this human touch. As a result, they keep alternating among different banks, ending up feeling lost and frustrated. Therefore, banks must humanize their digital channels to garner meaningful interactions with customers and help them through every need, by understanding their behavior.
Efforts should be made to humanize and personalize the digital banking channels and make them more intelligent and empathetic, such that customer issues are resolved promptly. AI models like chatbots should be trained to understand the wide range of human emotions. Adapting their approach to the given emotion can make these digital conversations much more personal, and human-like. This also increases customer satisfaction and consequently, customer loyalty.
Adding the human touch to technology can also help increase the overall revenue of companies and cut down on significant costs. One can also take inspiration from other industries. For example, Amtrack’s chatbot was trained to help with automated bookings. This increased their revenue by 30% and fielded over 5 million customer queries, thereby saving over $1 million in a year.
Another angle on introducing the human touch in banking involves using customer segmentation and user profiling, that can be enhanced by psychographic information to humanize digital experiences. It can help predict customer behavior and influence every touchpoint in the customer journey. A relevant example is how the Discovery Bank in South Africa, the world’s first behavioral bank, has effectively leveraged loyalty and behavioral analytics to offer a high-value-laden and personalized end-user experience.
Another example is how the State Bank of India has leveraged AI and machine learning to analyze borrower behavior using structured/unstructured internal and external data, as a corrective measure to solve severe loan impairment crises. Therefore, behavioral banking helps introduce empathy into technology, thereby allowing banks and financial institutions to wholly imbibe the digital experience.
Cognitive Biases
Cognitive Biases refer to limitations in our thinking that appear as vagaries from the expected norms and behavior. The human brain tries to simplify the process of data analysis within the mind by means of shortcuts called heuristics which most often result in different types of biases. Therefore, when the human brain tries to process data that is large and complex, cognitive biases are meant to arise. In such cases, customers tend to make incorrect judgements or decisions, because of their bias.
By studying these biases and designing strategies and triggers, attempts have been made to create solutions for improving the customer’s decision-making ability. Some common biases, one often faces in the banking and financial industry include –
- Anchoring bias – which involves over-reliance on the first piece of information one hears/reads.
- Present bias – this involves taking decisions in favor of the present moment, without thinking about investments for the future.
- Mental accounting bias – which involves the allocation of money into separate categories and into different mental accounts; and many more.
With the help of deeper behavioral understanding, combined with the latest technology, several banks and financial institutions have launched initiatives targeting specific biases. With the help of those initiatives, they educated the customers about some cognitive biases they should look beyond, to make better life and financial decisions. Here are some examples:
Merrill Lynch, the wealth management giant, launched an initiative called “Face Retirement Experiment,” wherein pictures uploaded by their younger customers were run through an ageing algorithm. This initiative targeted the “Present Bias” and because of this initiative, younger customers were encouraged to save better for their retirement.
Another example is Goldman Sachs “Marcus,” which was launched with the vision to broaden the bank’s wealth management offerings. The initiative allows customers to simultaneously manage different mental categories of accounts into savings, expenses, loans, and investments, thereby leveraging the ‘Mental Accounting Bias.’
Similarly, DBS bank uses a conversational AI platform, called KAI Banking from Kasisto, which is an AI-based conversational and advisory robot. Digital recommendations from KAI banking help people overcome the ‘Unconscious Bias.’ This bias restricts people from accepting suggestions, recommendations, and advice easily.
The banking industry has recently undergone a seismic shift towards digitization. It has seen newer technologies replace the traditional ones at an untraceable speed. This adoption of newer offerings, improved ease and simpler processes proves that the digital banking customers are welcoming innovation with open arms. While the primary focus of the most small and large banks has been on enhancing customer experience around investments, savings, and payments, some progressive banks are bringing into picture behavioral sciences to curate meaningful products, initiatives, and strategies. Such banks focus on providing solutions to fulfill both financial as well as psychological needs of their customers.
With help from behavioral science, strategists can create innovative solutions for pressing concerns like customer retention, value management, and mitigating losses where the results have not matched their expected performance. Every aspect of banking, be it online or omnichannel banking experience, architecture and infrastructure-related concerns, AI capabilities, personalization, marketing and value management, process re-imagination or even big data analytics, can be improved with innovations-inspired from behavioral science.
Real Future of Digital Banking: What would digital banking look like in 10-15 years?
With the introduction of web and mobile banking, financial services are already at our fingertips. Undoubtedly, the concept of digital banking has grown highly utilitarian. However, with all the progress made, it still seems like the concept of banks is emotionally disconnected from its customers. Having realized that, several banks are trying to humanize their processes and customer experiences by introducing behavioral banking solutions or training AI algorithms to understand human emotions, and so on.
Alongside, we have also seen the rise of different types of digital-only banking institutions like neo-banks and challenger banks. In this rapidly changing landscape, the ubiquitous question is- what’s next? If we look at the technology trends that will define our near future, and what can be the next big thing for banks and financial institutions, we get only one answer: Metaverse. Metaverse can truly bring the personal human touch to everything digital, with the help of virtual avatars of real people, interacting virtually within the metaverse.
The metaverse opens new channels for reaching out to newer audiences, especially the younger, tech-savvy generation. Banks and Financial institutions will have to innovate new ways of interaction for their virtual audience in the metaverse. For example, enable avatars of their customers to visit a virtual branch to apply for a loan, get investment advice, attend seminars, file taxes, or attend a bank-sponsored community initiative and so on.
For example, JP Morgan has become the first major bank to enter the metaverse space. It has created an Onyx Lounge, by acquiring space in the virtual mall Metajuku, on Dectraland. They have strategically decided to engage with a completely new set of tech-savvy audience, with the intention to improve their revenue streams and stay ahead in competition but being innovative and using technology as a competitive advantage.
Another global bank that has quite recently entered the metaverse space is HSBC. The bank acquired a plot of land on ‘The Sandbox’ in March 2022. Their land looks like the game Minecraft. However, apart from virtual engagement and branding, the purpose of this space is not quite clear. Lastly, Kookmin Bank in South Korea has come up with an interesting utility within the metaverse. They have pioneered one-on-one consultations between the bank employees’ avatars and the virtual avatars of their customers, requiring customized financial solutions within the metaverse space.
Similarly, the Union Bank of India recently launched a metaverse space and lounge, where avatars of their customers can visit, access the lounge, and avail financial services, without having to physically visit a bank. Likewise, all major banks must consider capitalizing on the vast potential that metaverse is offering in this industry and start acting before it’s’ too late. They can simply come up with prototypes, the potential use-cases, cost-benefit analysis, and other research materials before they step into the metaverse world.
The opportunities present in the metaverse are limitless for financial institutions and users alike. Once capitalized, emotionally detached banks and financial institutions would be able to enjoy high-user engagement, user-driven content, and earn revenues from commercial activities in digital lounges. The metaverse enables banks and financial institutions to leverage cutting-edge technology with a human touch, thereby personalizing every single user-engagement activity.
Banks will be able to strengthen their connections with customers, while continuing to provide the primary financial services. In this manner, they will be able to retain more customers and earn higher revenues. On the other hand, customers would be able to avail every financial service through their metaverse avatar, from the comfort of their homes. Overall, the concept of banks within a metaverse is a win-win for both- the customers, as well as the banks themselves.