Each&Other’s Brian Herron suggests that banks’ digital transformation strategies should revisit skills they cultivated back in the bricks-and-mortar branch days.
An endemic lack of ambition over the last decade has left Irish banks vulnerable to new, genuinely customer-focused competitors that are quickly gaining traction among EU early adopters. This new breed of digital-first banks, such as N26, is succeeding in getting people excited about transactional banking.
OK, on the face of it, it might sound ridiculous to expect people to get excited about banking. On the other hand, who would have thought we’d all have such an appreciation for the act of ordering cabs before Hailo appeared?
Customers want financial transactions to be more efficient. And efficiency means that financial institutions can save costs. A simple win-win business case for digital transformation programmes to replace the underlying technological infrastructure. This is a big deal in the Irish financial sector right now. Everyone has a strategy for 2020, everyone wants to be 100pc digital, everyone wants a death to all paper.
The bad news for financial institutions in Ireland is that delivering efficiency alone is not enough. People already expect it. ‘Transact online efficiently!’ is not a powerful rallying call in 2017.
‘Traditional banks generally don’t understand what people actually value, or could value, about banking’
Efficient and better
Banks have already implemented, to greater or lesser extents, online functionality to pay bills and transfer money. But they have not accomplished what digital transformation should really be about: using new technology and user behaviour insights to make something not just more efficient, but legitimately better.
This can only be done if traditional banks offer a valuable customer experience to their users. And that’s going to be difficult because traditional banks generally don’t understand what people actually value, or could value, about banking. (Most regular punters often don’t have a clear idea of what they value about banking either.)
This isn’t some altruistic, ‘Kumbaya’ argument for customer experience for the sake of it. There are inescapable commercial pressures coming down the track.
The introduction of PSD2 – a new set of EU rules designed to encourage more customer mobility between financial institutions – poses a unique threat to incumbent banks. Traditional banks risk becoming nothing more than a dumb pipe for transactions. They’ll provide the underlying infrastructure, but you’ll use Apple Pay to buy things and use Facebook Messenger to settle up with friends after weekends away. Banks will lose the privilege to cross-sell lucrative, debt-based products to their user base because they will not own the customer relationship. Or the valuable transactional data.
The upsides are big. A 2015 McKinsey report claimed banks that use technologies to automate processes and deliver new products for customers could enjoy a net profit uptick of 40pc.
There is also a downside – failure to do so could see profits plummet by 35pc.
What does better look like?
The big question is: in an increasingly commoditised market place where banking options are more varied, fluid and responsive to customer needs, how can traditional banks keep their customers?
My colleague Laurence Veale argues that they need a new, clearly defined purpose. And I agree with him. They also need to restore a genuine relationship with their customer base. And banks actually used to be quite good at the relationship thing.
In our research for banks over the years, we found that people in their fifties and over are nostalgic for face-to-face banking and miss branch interaction. It’s tempting to dismiss this; they’re an older group, they’ll get over it eventually.
But interrogating this data more, you’ll find it’s not rose-tinted bifocals. This older group values anonymity and efficiency just as much as their younger counterparts. They’re happy transacting online and they don’t miss dealing face to face. They’re missing things they can’t articulate fully. A true digital transformation of a service not only implements an efficient digital version of the transaction, it amplifies hidden value that the user wasn’t even aware of.
There is an opportunity to find inspiration for innovation by looking back on what was lost when transactions went online.
The hidden value in branch transactions
Firstly, branches offered a sense of recognition, a feeling that you are a valued customer of an institution, which was often communicated by local staff and built up over years of small interactions. Compare this to an online loan application where you have to post in proof of ID and address – shouldn’t your bank already know this? Banking platforms should recognise users as unique individuals with specific banking requirements and tailor themselves to the customer.
‘The relatively basic rules that govern online transactions were not built to cope with edge cases or complex queries’
Secondly, branches were able to provide context around financial decisions and banking. They could translate ‘bank talk’ into human.
Currently, online platforms find it hard to answer questions like: Why hasn’t a payment cleared? Or where does a specific charge come from? A branch teller could.
An online offering should bring context to another level. For example, if a customer uses a card abroad, they should get an email with advice on minimising foreign exchange charges.
Finally, branches helped customers to problem-solve. The branch would often help you through a difficult loan process, perhaps suggesting a different product or lower loan value that was pre-approved. The relatively basic rules that govern online transactions were not built to cope with edge cases or complex queries.
These three activities were key to building trust and relationships between banks and their customers.
Now that the basic transactional efficiencies are available to the user, a challenge and opportunity facing incumbent banks is to figure out how to translate the hidden functions and nuances of in-branch banking to a digital offering. This includes the things that users didn’t even know they were missing.
By Brian Herron
Brian is a principal designer at Each&Other, a digital transformation and design consultancy that works across sectors and industries, including financial services. Each&Other helps clients to discover what their customers really value and, on the back of that, to deliver great customer experiences.