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Traditional Banks Threatened by Diminishing Customer Loyalty

Solution: Creating the Enterprise of Tomorrow through Hyper-personalization, Legacy Transformation, Open Banking 

By Amit Dua, President & Global Head of Client Facing Group, SunTec Group  

Harry Gordon Selfridge, who founded Selfridge’s department store in London more than a century ago, is given credit for the saying “the customer is always right.” He instilled the mantra in his employees and built a hugely successful business by personalizing the retail buying experience of his customers.

Today, the term “customer service” is regarded by many consumers as an oxymoron. Customers still want and expect a personalized experience. Yet, everyone has a story of a bad experience trying to correct an error on a bank statement or question a suspicious transaction on a credit card (some even do a rudimentary cost-benefit analysis of the time they expect to waste in calling the customer service department: is it worth an hour on hold to fix a $5 error?)

Bad experiences lead to diminishing customer loyalty to brands. Add to this, the entry of BigTechs like Amazon, Apple, Google,etc (who in fact are known for their customer-centricity) foraying into the banking industry along with the many agile& nimble FinTechs that can disrupt the last mile payments  and other functions, the current banking market scenario is quite interesting.  According to Business Insider, 73 percent of US consumers are open to considering a new brand in at least one shopping category – “This doesn’t mean that consumers are constantly looking to abandon the brands they’re loyal to, but it does suggest brands are always at risk of losing customers.” Many businesses have resorted to loyalty programs offering rebates, prizes, etc. in often-desperate attempts to keep their customers from defecting.

In the retail banking sector, traditional banks have spent billions of dollars over the past decade on online banking, mobile deposits, bill payment platforms, instant money transfer systems and more. At the same time, businesses like Transferwise, PayPal, Venmo and others are chipping away at traditional banking. As a result, digital transformation for many banks has become more reactive as high-tech, non-bank competitors emerge.

The fundamental problem: traditional banks are siloed

The challenges facing banks today are much deeper than finding the right technology to enable digital transformation. Traditional banks must focus on the synergy between their often-siloed, front-end channels, such as mobile, app or web and their often-forgotten middle and back-end systems. This is easier sketched on a whiteboard than achieved to the satisfaction of today’s bank customers.

The middle and back-office transaction processing systems are critical to banks, serving as the backbone of the entire organization. They have been built over many years with a combination of systems and applications. These middle and back-office layers are where the banks’ business logic, financial products, core processes, metadata and many other business-related assets are stored in its core systems. It is within these layers that banks run their auditing, monitoring for risk and compliance, as well as their business decision algorithms. Given the critical nature of the day-to-day operations of a bank, the growing complexity and size of these layers make transformational change an extremely risky endeavour. Customer experiences with banks are separated, often hard to streamline.

Meanwhile, bank customers want customized products to follow their journeys and meet their specific needs. For example, a bank’s customer wants a holistic a home-buying experience versus shopping for a mortgage, hiring a lawyer, setting up utility services and/or finding contractors for needed improvements. Cookie cutter products will no longer cut it. Banks need to move up their customers’ perceived value chains or they risk their customers moving elsewhere.

The solution: Banks must modernize and hyperpersonalize

The solution does not need to be infinitely complex. Deploying a digital core middle layer allows orchestration across the silos within the bank. This eliminates any disconnect to the back-office layer, without a fundamental overhaul of the entire system. This headache-free transformation provides the agility required for modern banking by progressively transitioning the business logic out from the complex legacy core to the middle digital core layer. It also has the advantage of letting banks run digital transformation at the pace that best suits their customers.

A big opportunity for banks to achieve profitable digital transformation is through the concept of “Open Banking.” Banks have often viewed new government regulation with a deep skepticism. Now, however, perhaps the most technologically significant regulation is emerging in open banking regulations like PSD2 for Europe, similar regulations in the UK and Hong Kong, and upcoming ones in Australia and Singapore. These new regulations look to fundamentally disrupt banking by requiring banks to open their customer data and payments infrastructure to third parties. Traditional banks’ most valuable asset, customer data, is now available for all to see. Where once this was proprietary bank information, now the customers and competitors can assess its value too.

Open banking challenges traditional banks to “hyperpersonalize” the customer experience. Banks can now offer products and services from external ecosystem partners who complement existing offerings, thereby enhancing the holistic experience for the customer. For traditional banks, open banking is a blessing and a curse. What it takes with one hand, it gives back with the other – but only for banks willing to innovate to retain the customers they know and have a larger wallet share of those customers’ transactions.


In today’s banking environment, a lack of agility is the recipe for dissatisfaction and bank customer churn. There is a better way. To build the bank of tomorrow, banks need to start by being digital native and the safest way to be do that is by moving all the business logic and product variation design into the middle layer. This frees up the core back-end product processor systems from the weight of storing multiple products and allows the front-end to be adaptable. It actually enables banks to hyperpersonalize the customer experience and move along with technology updates without actually being disrupted.

Customers are not difficult to please if a trusted brand offers them a relevant and well-packaged range of core offerings. Offering anything less allows more innovative competitors to steal the day. This is the new frontline of banking.

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