As banks look for new revenue opportunities, they have to focus on existing customers because new ones are hard to come by. But even trying to increase business with the existing base is a big challenge because banks have made interaction with customers too complicated and frustrating.
Traditionally, banks have focused too much on product, subjecting customers to multiple-step processes to complete transactions and to switch between multiple products. If they have any hope of increasing their share of wallet with existing customers, banks have to embrace a customer centric-model.
This will require looking inward at processes and organization redesign to make interaction with banks more user-friendly. Banks also must learn to leverage technology developments such as mobility, big data, real-time analytics and omnichannel capabilities to deliver personalized, dynamic and unified services to their customers.
Today’s Banking Realities
Banking is a fragmented market, with local and regional institutions vying against multinational banks for much of the same customer base. They also face increasing pressure from online and peer-to-peer services such as Paypal, Google Wallet and WePay.
After the 2008 crisis, which brought several large financial institutions to their knees, homeownership is down, dampening demand for mortgages, and customers have eschewed “too big to fail” institutions in favor of local banks, where tellers often greet customers by name.
Customers realize they have multiple banking options, often selecting different institutions for different services. A customer with a credit card from a multinational may keep savings and checking accounts locally. Attracted by competitive interest rates, the same customer may apply for a loan or mortgage with a regional bank – or even an online institution.
In general, people today are more cautious and selective with their money, opting to consolidate accounts and carry less plastic. Folks who used to carry five or six credit cards now have only one or two in their wallets.
Easy Internet access to financial information and the explosion of mobile technology have led to savvier banking customers. People want to access their accounts however they choose, be it through a smartphone, fixed Internet, a call center or a local branch. Depending where a customer is at any given time, he or she may use one or the other contact channel, or a combination. So far, banks have been slow in understanding and accommodating these preferences and patterns.
In fact, banks have done a poor job of keeping up with evolving customer needs and technology. For instance, if a customer starts a transaction online and then decides to call the bank, he will likely be forced to restart the transaction because the bank lacks the technology to make the switch seamlessly. When multiple steps are required for something like investigating an unprocessed check, the experience can be frustrating and time-consuming.
With tighter regulations, banks are now spending 35-40 percent of their expenditure on governance, risk and compliance. This coupled with high maintenance costs on legacy applications, makes it very difficult for banks to find the money to make these changes. The siloed organization design in larger banks further compounds the problem, as many of these initiatives require an organization-wide buy in and top-down resolve. Banks have to make this happen beyond lip service.
On the other hand, the regional and mid-tier banks are much better prepared to embrace these changes and may lead the pack in the near future.
Change Is Inevitable
To increase their share of wallet with customers, banks must address three fundamental areas: organization, processes and technology.
Because banks are organized by product line, they are myopic to business opportunities and complicate transactions for customers. They need to organize themselves by customer segment, targeting them with multiple-product packages that take into account each segment’s specific needs and priorities.
Bank transactions are also too product-focused, making it difficult for customers to switch from one type of transaction to another. Processes must be redesigned to handle multiple product lines as opposed to a single product or service.
Banks should issue customers a single ID for all accounts and create a dynamic single profile of the customer used by all parts of the Bank from front to middle to back office.
To implement these changes, banks need technology that facilitates collaboration and integration. With the right systems in place, the front and back office can work together to streamline processes and improve the customer experience. An “omni-teller” approach would give customers a 360-view across all of their products—whether it is a checking account, a credit card or a car loan—through whichever channel they choose, be it mobile devices, the fixed Internet or the local branch.
Customers should be able to access all of their accounts, and quickly switch between, through a single view. If a customer walks into a branch after starting a transaction with a mobile device, a teller should have access to a system showing where it was left off so she can take over seamlessly.
Making changes should be simple and quick; currently a change of address takes up to five days. The change is printed in the back office, then forwarded though various departments operating as silos. Banks need to get better at delivering personalized, dynamic services, and one way to accomplish this is by collecting and analyzing big data. Traditionally, banks have had a static view of customers, but with access to data from social media, weblogs and Twitter feeds, they can get a more comprehensive, personal view of individual customers.
Two-way contact through these channels can teach banks about customer likes and dislikes – and milestones in their lives. For instance, when a customer posts online that her son is graduating high school, this would be a good time to approach her with student loan options.
It will take several years for banks to implement the necessary changes to become customer-centric. They need to assess their operations, identify what needs to change, and then implement the changes and the systems to support them. They will have to test and validate everything before they can take full advantage of the new approach. However, once they crack the code on how to deliver a better experience to customers, they will position themselves to seize phenomenal opportunities to engage with customers. Ultimately, that translates to higher revenues.
Arun Varadarajan, Head of BFS Client Services at iGATE