Insights|Digital Transformation in Banking Is Key to Winning the Customer Experience Battle

Digital Transformation in Banking Is Key to Winning the Customer Experience Battle

FinTechs have disrupted the traditional financial services model, but despite the competition, banks can still attract and win customers by embracing digital business transformation.

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by Matt Fry June 9, 2020 - 6 MIN READ

Traditional banks are often portrayed as dinosaurs struggling with soon-to-be-extinct legacy systems and processes while digitally agile FinTechs race off into the distance with a big piece of conventional banks’ market share.

However, this analogy is not entirely true. While many well-established U.S. banks are behind their competitors technologically, this hasn’t stopped them from being just as innovative as the latest generation of FinTechs, which have risen to prominence in the past 10 years.

All banks offer telephone and online banking and thanks to investment in artificial intelligence (AI) and Robotic Process Automation (RPA), services and processes that used to take days or even weeks now take a matter of minutes.

However, most of these products, offerings and services exist within banks in comparative isolation. This situation is exposing banks to competition, as it limits the types of relationships they can create with their customers.

Trapped in a transactional relationship

Even with the addition of more channels and touchpoints, 79% of U.S. consumers view their relationship with traditional financial institutions as purely transactional, according to Accenture research. And this consumer sentiment is being felt at a time when FinTechs are moving into the mainstream with a focus on customer relationships that is more reflective of consumer expectations and on par with other industries, like retail and travel.

To be clear, the level of disruption that technology and changing consumer trends is bringing to financial services is actually more profound than that felt by retail; affecting the end-to-end customer experience (CX).

Today, every aspect of financial services can now fully exist in a digital space, unlike in retail, where despite the powerful innovation of Amazon or Apple, a package still needs to be delivered to a physical location at an agreed moment in time to complete the customer journey.

Breaking down information silos

FinTechs have been quick to leverage innovation to dissolve real world challenges – and with no physical distribution network (i.e. branches), have been able to do this from day one. Banks have responded to the threat with digital products and services of their own, but a customer experience gap persists because as innovative as banks are being, the new offerings are more often than not trapped in silos.

This siloed approach dates back to the 1970s, where conventional wisdom stated banks that wanted to optimize their share price needed to stop thinking in terms of service provision. They needed to realize they were, in fact, the creators and packagers of products competing in a market. Therefore, to succeed, banks needed to apply a marketing approach to their business operations.

As a result, individual Lines of Business (LOBs) were created to focus on marketing and selling individual products and to meet individual targets, with no information sharing or communication between departments.

A silo mentality too

In turn, this leads to a siloed mindset. Teams become small-minded, isolated and focused on their LOBs rather than being able to take a holistic view of an organization and long-term goals.

For a crash course in why having isolated teams plus data and information silos in any company is a competitive disadvantage and why in a financial institution it’s a potential recipe for disaster, look no further than the 2008 global financial crisis. If one part of the business doesn’t know what another part of the business is invested in, it can’t understand the risk until that risk becomes a reality.

Why is customer experience so important in banking?

Customer experience in banking is a key differentiator. Banking in the U.S. is a commoditized service, with the latest data showing 91% of the adult population already has a bank account. Likewise, all major banks today offer roughly the same range of services and do so at very similar price points. Therefore, there’s no way to stand out in terms of value for money or depth of offering in the long term, at least.

Traditional banks understand it’s time to address this shortfall and start building connections with customers based on those customer needs rather than on sales targets. Separate studies from McKinsey and Qualtrics both underline the return on investment an improvement in customer experience will deliver. McKinsey data shows a direct correlation between Customer Satisfaction Score (CSAT) and deposit growth, while according to Qualtrics’ calculations, a financial institution that can successfully increase overall customer experience metrics by 10% would see its revenues grow by 27.5% over three years.

Why are banks struggling to deliver a winning customer experience?

Banks are struggling to become more customer-centric in part because of the aforementioned disconnected nature of their business. A recent Digital Banking Report study showed that outdated technology (49%) and siloed systems (48%) were the biggest challenges facing U.S. banking executives looking to close the customer experience gap. Of course, one is a symptom of the other and together they lead to the third biggest problem (cited by 42% of respondents): a complete inability to build a 360°, historical view of the customer.

This explains why, according to Gallup research, just 17% of U.S. consumers describe themselves as extremely happy with the banking channels they’re currently using. The top complaint is a lack of consistency. For instance, 48% of respondents pointed out it was impossible to open a bank account solely through a digital channel.

Nevertheless, banks are more committed than ever to meet customers on their terms and to transition from selling products to offering the services that customers need, when they need them.

Digital transformation in banking 

Many regional and national banks have been attempting to transform their approach since the financial crisis in 2008. While for the financial titans, 2018 was a crucial year as it was the first where the overwhelming majority of the world’s largest global banks publicly pledged, either via shareholder meetings or within the pages of their annual reports to undertake a CX-focused digital transformation.

So, most banking giants are taking a transformational journey. Accenture calculates that the world’s top 150 commercial and retail banks (by market cap) are currently spending a combined $300 billion annually on digital initiatives. However, research suggests consumers are not convinced that this investment is paying dividends in terms of their CX.

A Kony Inc study of digital transformation initiatives across several verticals including banking found just 25% of U.S. consumers polled felt their current bank was delivering an improved customer experience due to digital transformation, while 63% said the experience felt below that of or was struggling to keep pace with those offered by other companies.

Why banks need to get digital transformation right

The research also highlights that institutions are struggling with the definition of digital transformation in banking. Those that treat the exercise as a way to save costs or improve internal processes are not going to see a real return on investment. Kony found that 68% of the digital transformation initiatives studied were business process focused, compared to 28% that were driven by the customer experience.

This is the primary reason why 70% of digital transformation in banking projects fail. They lack the requisite customer focus. Yet even when they are initiated with the right intentions and tied to customer outcomes, all too often, a transformation fails to take hold, comes up short or ends up running rapidly over budget while under-delivering.

What does digital transformation really mean?

No two transformations are alike – every route to a long-term digital goal requires a unique journey. However, there are several steps banks need to take and milestones to pass, regardless of their existing digital capabilities, to successfully deliver on customer expectations that are rapidly being reshaped by FinTechs.

The first step is to understand exactly what a digital business transformation entails. Digital transformation in finance is about moving away from existing systems, processes and procedures and towards new digital tools that move your business closer to its customers. It’s all-encompassing – and touches everything from management structure and business culture to staff training and education, as well as the existing technology stack.

However, a transformation is not a cure-all for a subpar customer experience. Yet, if properly undertaken, it will give you the foundation on which to build a winning CX.

Leadership must lead by example

As already mentioned, a genuine transformation means genuine change; it will redefine a bank’s core functions so it needs to be sponsored by and actively endorsed at executive level. The organization’s top people need to embody transformation, which can mean reassessing their approach to management and reporting. Transformation is a cultural shift and it’s the c-suite’s role to achieve stakeholder buy-in and get existing teams ready and willing to move to new ways of doing things.

Create cross-functional teams

Next is building out the teams that are going to drive these initiatives – cross-functional teams populated with customer-facing as well as IT experts.  It’s crucial to establish a 360° understanding of each step needed to reach the goal; creating and empowering these teams is key in breaking down operational silos once and for all.

Some industry experts liken cross-functional teams to creating an agile can-do startup attitude within the business. However, this organizational structure will need actionable goals or targets.

Employ external experts

Even with the most motivated of multi-disciplined teams working towards the ultimate transformative target, banks that succeed are those that look beyond their own business boundaries for support, guidance and best practice.

From helping define the transformation roadmap and its speed of implementation, to developing training and upskilling for the workforce, as well as helping to triage existing IT infrastructure, there are benefits in partnering with experts who understand the key challenges of successful transformation and who can demonstrate thought leadership in customer experience.

Banking and financial institutions today are facing immense pressure from ever-increasing customer expectations and FinTech trends – and embracing digital transformation is key to staying ahead of the competition. For more insights into the future of banking and financial services, download Best Practice Guide Delivering Best-in-Class Customer Experience in Banking and Financial Services.

Matt Fry
written by Matt Fry VP, Customer Experience (CX) Strategy at Sitel Group
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