Felicia Rosenzweig, Partner at Prophet.
It’s a challenging time for UK retail banks. Beyond all the economic, political and regulatory issues, competition is cut-throat and comes from every direction, including a multitude of other banks (local and multi-national), other types of financial institutions, innumerable fintechs, and even other parts of the bank.
With so much pressure to attract new customers and hold on to current ones, there is a great temptation to focus on the equivalent of shiny objects that may influence certain behaviour, e.g., paid referrals, incremental twists on products, but these are short-term fixes for a much bigger problem.
Banks need to fundamentally rethink (and maybe even craft for the first time) a needs-based value proposition and activate a comprehensive omni-channel strategy that engages customers and prospects on their terms. Without a broad-based, integrated approach, banks are destined to play a costly and inefficient game in which customers won’t formlasting relationships and will leave.
Most retail banks today are product first – cash and savings accounts, payments, loans, and mortgages -with all of these presented a la carte, often via a website menu bar. This is fine in itself – most people seek banking products when they need them – but banks don’t seem very interested in providing value to customers; instead, they are visibly orientated around two things: communicating product features and protecting themselves. This suggests to customers that they’re pretty much an afterthought.
For example, the process of applying for a mortgage,regardless of whether the customer already has a relationship with thebank, is a series of hurdles to jump. Unlike sport, however, when you know how many hurdles there are, and how high they are, there is no such transparency in traditional retail banks. Customers are expected to prove that they are worthy of the banks’ services, and processesare seeminglydesigned to favour negative responses. This forces customers to seek out options beyond their banks (e.g., other banks, fintechs) and weakens already tenuous relationships.Customers are more likely to get the services they need elsewhere, and they are also more likely to move their cash and other accountswhen they see good deals and/or time windows open (e.g., remortgaging).
While competitor banksmay advertise otherwise, they are just as apt to make it hard for customers to access the desired services, with the same, “what’s in it for us?” executional mentality. Most fintechs, however, have something quite different in mind. In the spirit of disruptive technology, they have designed their offerings to be welcoming, simple and easy to use; in effect, they have recoupledbanking products with theexperiences that enable them, and they overtly act in ways that create multi-dimensional value for customers (e.g., convenience, security, cost savings).
Fintechs manage to be service-orientated without being people-intensive; with most banks, the service orientation is so poor that customers find themselves desperately navigating an IVR system to get to a person that might help them. Fintechs use design thinking to put the human experience first; banks increasingly put their own risk management at the forefront. Fundamentally, fintechs focus on resolving customer pain points, while the banks are creating these pain points in the first place.
It’s time for a rethink by the retail banks that goes further and deeper than investing in the most promising fintechs. Retail banks should take a big step back and look at their websites, apps, branches and call centres. They should consider whether the product features they focus on are coming at the right time in the decision-making process. They should ask themselves if they are addressing customer’s human needs or just flogging offers. They should assess how their business hours fit into an always-on world. They should be honest about whether their approach to omnichannel goes beyond a shared customer database across channels.
Until the banks address these questions and others like them, they may be comforting themselves with the notion that the fintechs are mono-players and most don’t have critical mass, yet. But this is missing the point, as what many of the fintechs get right is customer-centricity. In every industry, customers can tell when they are being put first, and time and again, they have proven that they prefer providers that show that they are listening and value their business. If that’s not enough incentive, HM Treasury’s conservative 2015 estimate of £6.6b in UK fintech revenue should be.