The future of retail banking is better defined than most traditional financial services executives want to admit. One key element: Consumers expect insights to be used to provide exceptionally personalized experiences. Non-traditional firms grasp this and are pushing the limits on delivery of solutions. To thrive in this environment, banks and credit unions must re-imagine their roles.
On the positive side, financial institutions still have scale, financial capital, regulatory support, brand recognition, customer data, distribution networks and, despite past issues, a reasonable level of customer trust.
Counterbalancing that, banks and credit unions are mostly slow, predictable, political, risk and change averse, and mostly still reliant on legacy technologies from 30+ years ago.
Competitively, that’s a less-than-perfect position to be in, given our fast-changing world. Here are three trends buffeting the industry:
1. Next-generation customers. Millennials and iGen (those who have grown up with a smartphone) have very different views on most things compared to their parents. Importantly, they are more individualistic and less forgiving of brands that don’t deliver. Accenture’s North America consumer banking survey revealed that 18% of Millennial consumers switched their primary bank within the past 12 months — compared to 10% of customers aged 35–54 and 3% of people 55 and older.
2. The regulatory environment. Post-crash financial regulations require increased transparency and greater compliance, creating huge overhead for banks and credit unions. This regulatory overhead — still massive despite recent rollbacks — has suppressed margins and further slowed decision-making. On the plus side it has served to keep some potential competitors, such as telecom networks, out of mainstream financial services.
3. Digital Technology. Fintechs and “techfins” (Amazon, Apple, Facebook, Google, and Chinese giant, Alibaba) are increasingly targeting financial services. Some so-called “challenger banks” (Starling, Monzo, Varo) have not yet really challenged to a significant degree, but can’t be taken lightly.
Many fintech firms pick off low hanging fruit. For instance, Revolut in the U.K. (and arriving soon in the U.S.) provides highly convenient, mobile-friendly spot-rate foreign exchange, to better serve unbanked and underbanked households. The big techfin companies offer financial products direct to their own vast networks of customers.
What makes this particularly dangerous for traditional banks and credit unions is that next-generation consumer expectations have been set by these big technology companies, and many fintechs, that offer highly personalized services and intuitive user experiences across all devices.
A New Competitive Landscape Emerges
How can traditional financial institutions build on their positives and re-frame the challenges into opportunities?
While they are agile, most fintech firms are relatively small and focused on a single service. They are also lightly regulated under e-money compliance guidelines. To offer a full range of services requires financial muscle, country-by-country regulation and deep customer insights.
The big tech firms, on the other hand, might cause more problems for traditional banking providers — with new kinds of internet finance not seen before. If you have the technology, the customer data, and the reach of a Silicon Valley giant, you can reinvent entire categories.
From this disruptive mix, a new competitive landscape is emerging, with the best fintech firms carving out profitable niches and nibbling away at what were once highly profitable core banking services. Meanwhile, techfin players may enter the market with new platforms for payments, investments and even p2p lending, while traditional banks struggle to appeal to the next generation of customers.
Collaboration is a natural way for banks and fintech firms to leverage each other’s strengths, although culture is always going to be a challenge when an agile innovator comes together with a slow-moving incumbent. Perhaps a more successful approach would be for banks to distribute some fintech products or partner with them to recruit their next generation customers (children, students, unbanked).
Personalization is The New Core Competency
It goes without saying that while the financial sector’s competitors have changed, so too have their customers. As tech-savvy Millennials overtake Baby Boomers as the largest segment of the population, brands need to create interactive and engaging user experiences.
Many financial industry disruptors are applying award-winning creativity and user experience design to bring their own brands to life. In response, incumbent financial institutions must up their game and deliver world-class digital services to meet the needs of digital consumers as well.
Predictive and hyper-personalized user experiences – available when, where and how customers want – have to shift beyond being a ‘value-added’ feature and become core functionality. For instance, in a world of instant transactions, consumers will expect to manage their entire financial portfolios from their phones in real-time. These same consumers will also want to access humans when needed, on the same devices.
Tap The Power of Insight
Data is banking’s most underutilized asset. Financial institutions of all sizes need to stop using data only for internal purposes and to use it to enhance external experiences. This is essential as banks and credit unions enter a new era where data pushes all companies to find, extract, refine and monetize insights and applicable solutions.
As this shift progresses, banking organizations must think and act more like technology companies, using real-time information to anticipate consumers’ needs and make the best offers in the exact moment of optimum benefit. Products and services should be tailored to each individual’s specific requirement on a proactive basis.
Importantly, all of this is already happening, so there is no hanging back to wait and see.
Preparing For The Certain Future
So, how do banks and credit unions achieve this transformation? In broad terms, there needs to be a shift in emphasis from physical distribution to ultra-personalized digital solutions. Once this new vision is defined, a re-imagined brand purpose is required to explain why the organization deserves to partner with consumers.
The vision and immediate mission must align with the brand purpose, with a clear value proposition communicated to consumers. In a real-time connected world, if your purpose is not defined and articulated with clarity, it will be impossible to achieve your strategic goals.
A disciplined branding methodology can engage and motivate leadership teams in a rigorous process of reinvention that can be hugely valuable during periods of transformational change. Tomorrow’s strong financial services brands will need to foster more disruptive thinking and create innovation cultures, something that is at odds with the ways that made them successful in the past.
For the last few years, most financial services companies have focused on digitization and removing pain points in the customer journey. Both important. But to drive future growth, more disruptive thinking will be required, with a focus on ideas, propositions and stories. Banks and credit unions need to re-imagine a future where they can become consumer experts, leveraging their insights drawn from deep data to improve the customer experience and deliver hyper-personalized financial services in real-time.
Bottom line, the banking organization of the future needs a differentiated brand purpose that resonates with Millennials and iGens.