By Michal Kissos Hertzog, CEO, Pepper
The tech industry is undoubtedly upping its game when it comes to winning over customers. Facebook this year announced London as its centre to push WhatsApp payments in the UK, as well more recently unveiling plans to enter the crypto market.Meanwhile, Instagram has rolled out a new chat feature and Snapchat continuously updates its roster of filters to reflect contemporary demand. When it comes to convenience, user experience and engagement, these tech firms know how to do it right, mostly because every update, new product, service, or feature introduced, is done so with the consumer’s needs and wants in mind.
Such tech companies have set the tone for banking. Customers today expect the same convenience and engaging experiences from their bank as they do their social media channels or favourite food delivery app. While some banks fulfil and deliver such experiences, many incumbents and even fintechs are yet to offer an all-inclusive service built from a customer-focused business model rather than profit and loss one. In this respect, banks need to start thinking like tech companies to ensure they are providing a service that their customers want and enjoy – one that’s as easy to use as WhatsApp, as fun to use as Facebook and as sociable as Instagram.
When it comes to banking, consumer-first is key
The primary focus for many tech companies is winning consumer screen-time. The reason Netflix’s CEO views Fortnight as its biggest competitor, is because both are focused on engagement with the end-consumer. In the world of financial services, the list of companies providing banking, investment or loan services is vast and all are competing for consumer finances. To reflect contemporary expectations of convenience and on-demand services incumbents need to take the tech approach: consumer-demand first; profit and loss second. In any case, building customer loyalty and satisfaction will ultimately drive profitability for the long-term, even if some costs must be set aside in the short-term.
Our recent Change in Banking report found that almost half (44%) of customers banking with digital-only banks do so because it’s more efficient, allowing them to manage their finances anywhere, anytime, free from restriction of branch opening times. Nearly a quarter (24%) said they do so for greater control over managing their money. Notably, 22% of consumers cut down on spending with a company after a bad digital experience, while 19% terminated their relationships completely.
Tech firms understand these pain points and implement solutions to solve them. For many incumbents, the inability to digitally transform or implement a consumer-first business model that addresses these needs quick enough, due to reasons including clunky legacy systems, means that collaboration with fintechs, while thinking like a tech giant is key to remaining relevant.
Digital to the core, not just a top layer
Many incumbents recognise the sizeable and painful task at hand of matching what the fintechs and tech firms can offer. Instead of updating legacy systems with better, faster and more agile technology, many have taken the ‘out of sight out of mind’ approach and built a digital skin over the top of existing infrastructure. The issue with this is there will be innovation limitations, and firms will always be slower to adapt to ever-changing industry demands.
Our Change in Banking report also found that over half (53%) of decision-makers at retail banks recognised that innovation took longer due to legacy IT systems, while eight in ten (82%) do not think they are innovating quick enough to meet consumer demand. Implementing a digital core is crucial here, for it allows incumbents to adapt to consumer needs and changing regulations, as well as to collaborate better. The costs saved, and the efficiency gained from streamlining process, will ultimately provide firms with the agility to operate like a tech company and outweigh any initial resource expenditure required for core-deep transformation.
Collaboration should not be ignored to become “customer obsessed”
A crucial method for understanding consumer demand and boosting customer engagement, is analysing the relevant data toprove what is and isn’t working. Thanks to the implementation of PSD2 – or Open Banking as it is commonly referred to – consumer data can be put to better use to put the customer first and increase competition. However, banks functioning with complex legacy systems and siloed departments, will always struggle to utilise this data effectively.
Starting from scratch, tech firms built their infrastructures with the customer in mind, meaning they can easily leverage customer data to understand who they are and what they want, to provide a truly personalised, digital experience. Once again, for the traditional banks, collaboration is essential to remain competitive, but there is a lack of willingness across the industry to collaborate or adopt technology they do not own. This is one of the biggest hurdles faced by incumbent banks, but the reality is this is the only way they can truly become “customer obsessed”. Recently Bank Leumi, Canadian Imperial Bank of Commerce (CIBC) and National Australia Bank (NAB) launched an online portal for fintechs driving innovation across the industry. It’s an initiative that will open doors to collaboration with the best tech companies across the world.
According to the report, two in three (66%) decision-makers believe tech giants, such as Google and Amazon, will offer full banking services in the next five years in the UK and attract many customers of banks who want an online-only service. The time is therefore now for banks to follow in the tech giants’ footsteps, and incorporate agile, innovative and consumer-first services in all of their financial products.