Retail banking is undergoing a massive disruption. While banks have traditionally been the providers of retail services, they're now facing real competitive threats as new mobile technologies and emerging financial and non-financial intermediaries combine to provide trusted alternatives and less-expensive solutions for both the unbanked and for profitable customers.
Consumer banks are rapidly losing market share as a result. In fact, according to the 2013 Accenture study, Banking 2020, banks could lose about 35 percent of their market share by 2020, and up to 25 percent of U.S. banks could disappear completely.
The same study estimated that 15 percent of traditional banks' revenues could shift to online-only players—including branchless banks and new technology entrants—in the next seven years as more consumers flock to technology-driven services. Another 20 percent could go to "retail-driven players with a mass-market focus."
Some of these non-traditional providers include Wal-Mart, which has partnered with American Express to offer Bluebird, an alternative to debit and checking accounts designed to enable consumers to deposit checks and pay bills via mobile devices, maintain a zero minimum balance, and avoid any overdraft fees; and 7-Eleven, which offers prepaid banking cards that enable customers with the ease of doing business by allowing ATM transactions, the purchase of money orders, fund transfers, check cashing, and bill pay.
In addition, online-only providers have made a splash on the scene. Top players include: Moven, an online debit account provider that promises to support its customers' financial wellness through transparency, the ability to connect customers with their money 24/7, and the knowledge to make sound financial decisions; GoBank, which offers custom Visa and debit cards and mobile deposits; and Simple, which promises "no surprise fees," offers personal budgeting tools, and boasts a branchless banking experience. [Note: Multinational bank BBVA acquired Simple in February 2014 for approximately $117 million, validating the importance of these new competitors in the banking industry.]
Traditional and non-traditional financial services institutions alike are seeing some of the biggest advances happening in mobile banking. Accenture reported a 50 percent increase in mobile banking activity since 2012, with consumers saying online banking is the single most important investment banks can make.
By leveraging the wide range of mobile functionality available, including mobile POS such as Square and PayPal, near-field communication payments like Google Wallet, mobile banking, and in-app billing, traditional and non-traditional financial providers are offering a low-cost channel to acquire new customers and scale-up efficiently. In doing so, they're hedging their bets for a share of the massive market currently dominated by the large consumer banking providers.
These mobile developments, as well as the introduction of mass market players, are posing a threat to financial institutions as profitable customers become less satisfied with their banks. According to the World Retail Banking Report 2013, from Capgemini and Efma, customers are mostly unsatisfied with their banks in five core areas: knowledge of customer's needs and preferences (37 percent satisfied); product-channel fit (43 percent satisfied); trust and confidence (51 percent satisfied); intimacy and relationship-building (43 percent satisfied); and providing a consistent multichannel experience (44 percent satisfied).
This research shows that today's banks must understand their customers, repair their relationships, and focus on providing personalized, cross-channel engagement to defend against new competitors, avoid commoditization, and ultimately lead to higher profit growth.
These repairs will only work if they're established upon a foundation of trust, which requires banks to deliver on the moments of truth for their customers, forming a relationship bond that transforms the customer experience. There are five key pillars of customer trust that work to improve customer engagement in banking and increase customer retention to both grow and retain a profitable customer base.
1. Know the customer
Too often the decision to introduce new financial products or services is based on assumptions made from incomplete data or anecdotal information. When financial institutions invest in the strategies and processes that help them understand their customers, they can focus on services and offerings that simplify and enhance their lives.
First banks must understand their customers' motivations and behaviors, and have the ability to address issues like how to ensure long-term loyalty from their high-value customers, attract and retain different types of customers, and what types of loyalty program rewards to target to its profitable customers.
Such a granular level of information relies on having a mix of relevant data to understand customers' behaviors and predictive analytics capabilities, which relies on capturing relationships between explanatory variables and the predicted variables from past occurrences. Together, this rich information and high-functioning capabilities will enable banks to target the right offers at the right time and make changes required throughout the customer lifecycle.
For many banks, applying predictive analytics and tying those results to personas gives banks additional insight into their customers that they can use for risk management, pricing, and achieving higher levels of customer satisfaction.
2. Remove friction
When a bank takes away friction, it protects customer trust as well as builds trust through guided interactions. According to Don Peppers, founder of Peppers & Rogers Group, frictionless interactions and extreme trust are the cornerstones of successful customer strategy in this digital and social age. A good customer experience, he maintains, is frictionless because it removes obstacles for both the individual and the business.
For example, Ally Bank clearly displays its toll-free number on every page of its website, along with the estimated wait time customers will have before speaking with an associate. In doing so, the bank is removing friction from its customers' experience. Additionally, last year U.S. Bancorp became the first traditional U.S. bank to offer mobile photo bill pay. The goal was to remove tedious manual data entry and to eliminate any friction between customers and the bank.
As Peppers says, "The best kind of experience a customer can have is one in which he can meet his need or solve his problem completely effortlessly, without having to jump through hoops or overcome obstacles."
3. Resolve problems
The true quality of any organization is judged by how it resolves its customers' problems, not by whether it offers the best products or the most competitive prices. When working with an upset customer, associates should know that problem resolution is a major reason why a customer leaves a bank and has the single largest impact point on customer satisfaction.
Standard Chartered Bank in Singapore saw first contact resolution jump 62 percent the first year it created its Customer Charter—an overarching strategy that places customers at the heart of every action the company takes and decision that it makes. Part of the charter aims to motivate and empower front-line personnel to understand customers' needs and resolve their issues promptly without escalating to a manager.
Bank of America also aims to minimize instances of customer complaints and grievances through proper service delivery and a review mechanism that ensures prompt addressing of customer complaints and grievances. Through a Six Sigma process, the bank trains its employees in its End-to-End Problem Handling Course, teaching its employees the strategy, "GUEST—Greet, Understand, Execute, Satisfy, and Thank/Track."
Financial services providers must resolve issues with customers at first contact. Customer issues and escalations are part of any business; it's how firms handle them that make the difference between earning customers' loyalty and losing them to the competition.
4. Eliminate surprises
A new report from Moebs revealed some surprising news: Overdraft fees are back. Moebs found that total revenue from overdraft fees grew from $30.8 billion in June 2011 to $31.5 billion in June 2012, a $700 million increase. In fact, according to an FDIC report, overdraft fees are the leading cause of involuntary bank account closures.
Many of the online-only banking newcomers like GoBank have eliminated complicated fee disclosure forms, minimum balance requirements, and overdraft protection programs which can help rack up extensive fees. A well-crafted program includes in-depth communication delivered across multiple touchpoints. Customers who have a clear understanding of the the banking fees they may incur, awareness of the finance programs available to them, and receive alerts about any sudden program closures will make informed choices and respect their banking institutions in the long run.
5. Protect the customer
Historically, banks have held a position of trust and authority when it came to money. Yet today, 40 million households in the U.S. carry an average credit card debt of $15,000 while earning an average income of only $50,000 per year, according to Moven.
Customers don't want to be persuaded to buy what they don't need; they want banks to sell products that are in their best interests. Military-based insurer USAA stands for protecting its customers and putting their needs above anything else. More providers should take a cue from those that promise transparency and no fees.
The banking industry is witnessing a permanent shift in consumer expectations. Mobility and social media are creating a new marketplace where consumers expect anytime, anywhere access. Yet most banks struggle to provide true omnichannel customer experiences.
To stay competitive, banks must adopt sophisticated analytics and technology, embrace mobile banking, create highly differentiated, segmented approaches to customer engagement through predictive analytics and skills-based routing, and empower employees to act in customers' best interests. Firms can also implement enterprisewide voice-of-the-customer programs to help capture and act on customer perceptions.
This focus on customer centricity will help increase engagement, enhance loyalty, and foster trust, thereby retaining existing customers and acquiring new ones—all while managing the current disruption in banking and repairing the industry's diminishing reputation.