The most common conversation in board rooms around
the globe today is how to improve productivity & operational efficiency and
reduce cost. Banks, more than any other industry need to have a view of how the
industry will evolve over the next 5 years.
The survey highlights that providing
differentiated customer experience is synonymous to innovation with technology
being the biggest driver – along expected lines. But enhancing elements of
customer experience through usability, personalization and self-service without
a fundamental business model change, will only help you succeed when your competition
is within the industry.
Yes, most of the banks that survived the
global financial crisis of 2007 have emerged stronger and more profitable. Customer
experience has become much better by virtue of the banks transforming their
online and mobile presence. However, various disruptive forces particularly in
the form of new competition outside the industry are driving the banks away
from the customer’s daily lives into just being mere providers of secure
back-office transactors real. Let me explain.
Consider three broad categories of customers –
(1) Who require help to do research and identify
their needs,
(2) Who have identified their needs, but are
unaware of how to address it (product selection),
(3) know exactly how to
address their need and want their bank to make it faster and more convenient
for them to satisfy?
Most banks today address the smallest of the
categories – the third, and are negligent in addressing the bigger market
opportunities around categories (1) and (2). They engage lower in the customer
experience value chain and are removed from customers' day-to-day lives. Their product
development and bundling strategies thus tend to hinge on an average to poor
understanding of customer behaviour.
Look at what other industries are doing. Google
recently acquired Nest home automation for $3.2 Bn. Why should a provider of
smoke detectors and thermostats interest a technology giant? Because it gives
them the ability to get into our home (the most personal of places) giving them
valuable insights of how we live our lives. Even retailers like Starbucks are
using their customer connect leverage to take away payment volumes from banks
by getting customers pay through their loyalty cards.
While other industries are busy trying to get
close to the customer, most of the innovation and focus within the financial
services industry is focused around their online and mobile presence. This
makes them susceptible to the threat of new entrants from industries like retail,
telecommunications and even technology firms (e.g. Google and Apple). These competitors
have a greater ability to provide mass retail financial services due to a more
intimate understanding of customer needs (at least addressing the category (2)).
The only saviour for the financial services
industry is that customers associate them with trust and security. But how long
will they serve as good enough entry barriers?
Recent developments suggest this is short
lived. Functions like Payments, deposits, transaction accounts and general
insurance are very susceptible. Payments have seen competition emerge through
technology platforms e.g. PayPal, Square and Stripe. Telcos in certain markets are
now providing deposit, transaction and savings functions. Celcom Aircash customers
in South East Asia who don’t have a bank account or want greater convenience can
have a stored value account. They can create a mobile wallet, load money by
walking into a shop and transfer to friends & pay bills. Celcom also
provides viewing account balance and adding / withdrawing money from branches as
added features. Customers can dial a number to register for the service and
with an NFC sticker pay at point of sale.
HOW TO BANKS COMPETE WITH NON-INDUSTRY PLAYERS?
Conventionally, banks have focused their attention on improving customer
retention and experience through innovations in ‘their own’ channels -
branches, internet and mobile. This myopic view of their sphere of influence
will only drive incremental growth and customer satisfaction.
To address the bigger market of category (1) & (2) customers, banks
need to adopt Xperiential Platforms -
constructed around buying life cycles through collaboration with diverse
industries across points of touch. These platforms will be built around delivering
enhanced customer experience through strong customer insights providing
customers what they want.
But How - One option is to become Lifecycle Aggregators. 63%+ of
executes we surveyed, rated investment in tools to gather strong customer
insights and in merchants/brokers/service aggregators amongst their top 2
customer acquisition strategies. However, why should investment be restricted only
to the sales end of their product lifecycle? Why do banks not extend this to behave
as platform led aggregators of business functions across the customer lifecycle
to gain proximity to customer’s daily lives? They will need to build different
aggregator ecosystems for customer need chains like wealth and advisory,
mortgages and transaction banking. This model is centred on prioritising
process value chains and establishing the right partnerships in those value
tiers.
Some banks have made small movements. At the
peak of recession, USAA launched home circle as a one-stop shop to service the
home buying life cycle. The platform allows potential customers to search for
homes and real estate agents, create their personal profile, researching a neighbourhood’s
demographics and listings, online community to share experiences, provide movers’
assistance and finally finance and insurance services. They have set this up
through an end-to-end partner aggregator ecosystem giving them in-depth,
individualized insights on each customer, improving their retention rates. They
have extended this to the Auto Circle – integrating the car purchase experience
on a similar platform. Customers can compare
cars and reviews, save by buying cars from certified dealerships at a discount,
repairs with vehicle protection with car financing and insurance.
In Spain, DB launched
a lifestyle credit card designed for better work-life balance. Services
provided in addition to credit are legal & tax advice, medical hotline, paediatric
& child health advisors by telephone and assistance in finding private
teachers at preferential rates. Most of these non-banking services are outsourced,
but the bank benefits from enhanced customer experience, greater retention and
deep customer insights by being part of the daily life.
So, should banks be in the business of
addressing a need by helping customers through the journey of their buying
life-cycle or maintain status quo of simply financing the buy? Though provision
of finance is their core business, ignoring the process up until the decision
point of say, buying a house, can prove detrimental for their market share.
While lifecycle aggregators are one option banks
have of getting close to customers, it may still not be as effective a counter to
the threat posed by non- industry playing in the e-commerce value chain.
Will cover that in my next post - register to be notified and stay tuned.
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