Personalised connections


Personalised connections

Rethinking Retail Banking

In previous articles, we outlined how the future of retail banking will be driven by a combination of three forces and then considered the sustainable workforce. Here, we examine in more depth another one of the three forces: the importance of personalised connections.

A shift in the banking industry

A Deloitte study recognised a threat to the relationships banks had with their customers. While established banks had come to provide generic, transactional services, new technology entrants were starting to offer greater customer engagement and convenience, through apps that integrated many online services, such as retail, travel booking and banking. With the focus shifting from transaction to experience, banks risked becoming simply the providers of back-end services, and being pushed lower down the value chain.

Although that shift is starting to happen, progress in Europe is slow – primarily because banking is heavily regulated which prevents new technology players entering the market with enough force to gain traction. In many East Asian countries, though, these platforms are beginning to control the market, with financial service providers playing only a background role.

The rise of the fintech

On the customer side, financial services in Europe still fail to inspire much interest. As long as banks continue to offer a competent and functional service, there’s little reason to switch: customer retention is typically based on the absence of a negative experience, rather than a strong positive offering – particularly for day-to-day banking services.

Customer inertia has continued to favour banking, so the sector has had no reason to become more relevant: despite the current cost of living crisis and the need for, say, money-saving suggestions, banks add little such value for the customer beyond giving advance notice of some imminent transactions. However, smaller fintech entrants are starting to offer tailored personal finance insights. Not only do fintech firms know how to do technology, with more up-to-date skills (including both engineering and user experience), but – importantly – they also know what it can now do, to deliver a more meaningful and responsive personal banking journey and add value to the live of their customers.

Furthermore, fintech entrants also recognise the needs of small businesses – such as individual contractors and those with one or two employees – and are now acquiring business banking licences. While established banks have traditionally drawn a sharp divide between personal and business services, fintech entrants recognise that they’re often indistinguishable for small businesses, and can offer a seamless service to those customers.

It’s time to get personal

Moving toward personalised connections requires banks to recognise where real value can be added to customers’ lives. While mortgages or loans are often treated by banks as representing key life events, the reality for most customers involves more long-term, nuanced and complex issues, such as how to escape a spiral of debt, or plan for increasing family or caring costs.

The days are long gone when the staff of a village branch would know its customers personally, and understand their circumstances (and the emotional impact) well enough to offer suitable and timely advice, proactively. Now, however, banks have the potential to gain and offer such insights from their customer data. The main obstacle is one of privacy and consent: customers will allow banks to use their data only if they feel they’ll gain a more personalised service in return. We call this ‘the value exchange’, in which customers could initially trust their banks to use some data in a way that brought useful interventions, leading to greater trust, access to more data, and even more meaningful insights. Despite the merits of the approach, we see few signs of progress – mainly because banks assume their customers will deny them access to that data.

Such insights and interventions might be particularly useful for the most financially vulnerable – a market not traditionally served by banking, even though it could represent half the population (based on a Deloitte Netherlands study). Moreover, this market seems set to grow as financial uncertainty increases, with the move away from employers’ defined-benefit pensions, and debate about the financial viability of state schemes. These represent long-term personal finance concerns more than short-term transaction revenue, so have been somewhat overlooked by banks, but are highly relevant to the more contemporary business values of ‘purpose’ and contribution to society.

Meanwhile, the fintech entrants are able to nudge small behavioural changes that help their customers spend less, spend more wisely, or accumulate wealth. Although they’re subject to the same PSD2 regulations as established banks, and have access to similar data, they know how to use it in a way that provides a more meaningful service for customers, and aren’t afraid to ask consent for using further data.

Focus on purpose, not profit

Inertia has helped banks retain the market, but complacency might help them lose it. Although little has changed in Europe over the past seven years, it’s unlikely it’ll be static for another. And while the competitive landscape is starting to change, so too is the social outlook. Purpose is becoming as important as profit, and banks that can’t deliver a social benefit – such as promoting financial health – risk being consigned to history. Although that might take a decade or more to affect the customer base, it also affects banks’ immediate ability to attract talent, as the best new engineers and designers increasingly favour employers that share their own social values and purpose (considered further in our article on Sustainable Work).

Overall, continued inaction might not affect the customer base for 15 years, but continuing with today’s outdated approach could represent the start of a long, slow fade for banking. Banks that want to become more relevant – and futureproof – must shift their strategic focus, to build a distinctive brand by articulating a clear purpose and social role, develop meaningful interactions with customers, and make better use of customer data to improve insights and decision-making. Fundamentally, this direction requires banks to embrace their real purpose: what do they want to be for their customers and are they really concerned about the financial health of their customers?

Traditional banks could see their place being eroded over the next 10 years, unless they put the customer at the centre of their thinking, put their purpose in the core of their business, and use data to offer them a positive, personalised experience.

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