Consumer Banking 3
SO WHERE IS
THE CONSUMER
IN ‘CONSUMER
BANKING’?
BANK CUSTOMERS – CONSUMERS – NEED
TO BE AT THE HEART OF A LOYALTY-BUILDING
ECOSYSTEM. ONE THAT CONSTANTLY
REVIEWS THE MOST EFFECTIVE MODELS FOR
ENCOURAGING AND REWARDING REPEAT
PURCHASES.
Heart of ‘Consumer Banking’
The financial industry may call its retail offer ‘consumer banking’. But how close are banks to embracing the idea of their customers as consumers first and foremost? Research from Capco in the UK and parent company FIS indicates there is still much progress to be made. First base is a firm grasp of what today’s consumers of financial services really want.
DO YOU RECOGNISE ME?
In a word, according to the FIS Consumer Banking PACE Index1,
what consumers really, really want is recognition. The most pronounced area of underperformance is recognition and reward for their business from their primary banking services provider. The Banked British feel undervalued. Our own Capco consumer research picks up on this theme. Two headline examples reinforce the value of being valued.
Example #1. 87% of customers now expect to be rewarded for their credit card expenditure. In fact, they wouldn’t even consider a card that did not offer some sort of loyalty reward scheme.
Example #2. Interest rates on a savings product are ranked as basic expectations. Consumers taking part in our research said they wanted more motivation to save than interest alone. Key attractors included more accessibility of funds and more ‘associated benefits’, such as reward points, discounts, air miles or exclusive access to events.
In no other industry would it be surprising that customers – consumers – need to be at the heart of a loyalty-building ecosystem. One that constantly reviews the most effective models for encouraging and rewarding repeat purchases. Now, banks can no longer function outside such an ecosystem. Alone, the existence of their basic services is not enough to exempt them from the laws of consumer physics: recognition + regular rewards = positive differentiation + consumer uptake + loyal purchase habit.
or leave it’ transactional facility. Some have already become highly proficient. A few are outstanding even. But for too many financial institutions, the idea of a ‘bank customer’ (inherently loyal, unlikely to go elsewhere) still eclipses any notion of a ‘consumer’ (fiercely fought over by competitors, constantly subject to innovative offers, highly likely to change brand if dissatisfied).
Why do banks need to take this key difference between ‘customer’ and ‘consumer’ so seriously? And what can they do practically to put the consumer at the heart of their retail banking offer?
CHANGE IS CONSTANT. CHANGE IS INESCAPABLE. CHANGE
IS HERE AND NOW.
The single biggest demand-side change is this: bank customers are already consumers. They continue to raise their expectations, as they are exposed to a range of consumer experiences in a variety of sectors. Capco research2 confirms bank customers
want more choice and convenience. They no longer view banks as the only places they can safely put savings and manage finances and loans. Traditional banking propositions are increasingly seen as a hygiene factor only. Back office attributes of proven process and security are not enough - on their own - to create competitive front office differentiators.
Simply being a bank was once enough to avoid offering anything more than a secure transactional environment. What happened?
Consumer Banking 5
FIVE FUNDAMENTAL FORCES THAT CHANGED THE RETAIL
BANKING WORLD
1. Lack of Trust. Many banking brands (even some of the world’s most established) have been mistrusted since the 2008 crisis. For many customers, lack of trust has triggered willingness to consider ‘non-traditional’ alternatives. 2. Lowering the Bar to Competitor Entry. From being near
impossible to launch a challenger bank, it has become realistic for competitors to enter the UK retail banking industry. Regulatory encouragement of competition, coupled with technology advances, means a ‘bank from scratch’ is no longer fantasy.
3. The Rise of Customer Choice. Our research underlines that customers want more choice and personal recognition from financial products. They are increasingly used to banking and spending within financial ecosystems that reward with far more than an interest rate on a balance, or a credit facility.
4. Loss of Interest. Low interest rates put savings customers off. They are increasingly aware of the alternatives. And alternatives mean incentives. Who, after comparing interest-rate-only savings products to an account that gives them, say, hotel points is going to choose the bare minimum? 5. The Call Of Convenience. Consumers are demanding ever
greater levels of convenience. They want to manage life’s tasks simultaneously; for example doing their shopping and their banking in the same place at the same time.
In the face of these five fundamental forces, what are the most important practical routes for financial services providers who want to create true consumer-centric banking? We have identified three key pathways: Learning from the Best, Expanding the Ecosystem, and Going it Alone.
LEARNING FROM THE BEST
In a recent survey of the top 120 most trusted brands in the U.S. not one bank was identified. Hotels, however, made up 28% of the list and the travel industry - 11%. Hospitality and travel have
much to teach banking about the delivery of a trusted consumer experience. Market leaders in air travel commit cultural focus and deep resources to excellent and wide-ranging staff training. The idea of picking the job up as you go would be totally alien to them (contrast this approach with the ‘learning in the front line’ still prevalent in many bank branches).
Can the ‘soft skills’ of other service industries really translate into enhanced consumer experience in the more complex world of banking? Yes. Capco recently increased one retail bank’s Net Promoter Score3 by 35 points, simply by advising them to
implement best practice from a leading hotel group. Customers started to be welcomed personally at the door, their coats were taken, they were offered a hot drink and introduced to the branch manager who took them to their appointment. ‘Little touches’ that add up to a transformational impact on the retail banking experience.
EXPANDING THE ECOSYSTEM
Partnering with traditionally non-financial service brands can enable banks to expand their distribution network while offering customers the choice and convenience they want. Leveraging trusted brands and their existing customer base can help in countering the threat from new and non-traditional market entrants. Banks can potentially reach more customers by positioning the trusted brand as the face of the product and proposition, while they concentrate on providing the core banking capability that sits behind it. In this ‘white-labelling’ scenario, both the bank and the non-banking partner do what they do best.
GOING IT ALONE…
A third option is to compete directly with the established players. While completely new brands might find it takes longer to gain momentum and attract new customers, well-established non-banking brands may not experience any such delays.
The challenges are not inconsiderable. But they are certainly not insurmountable. Capco have recently helped successfully launch two challenger banks in the UK. We outline our practical model for building a bank in ten steps in our paper ‘Build your own Bank’.
Bank customers are transforming (arguably, they already have transformed) into financial services consumers. Such deep change presents both the challenge and the opportunity to re-shape the banking proposition. This can be achieved by learning from other industries and by partnering with non-banking brands to diversify distribution while expanding the ecosystem. Is there a ‘do-nothing’ setting? No. If banks fail to acknowledge and then adapt to evolving consumer attitudes, change will continue regardless. BUT … the form it takes will be far less favourable to today’s established players. More and more challenger banks, together with non-traditional market entrants, will disrupt the fundamental concepts of banking as bankers define it today. Tomorrow, the challengers will draw customers away to new propositions and new, more rewarding ways of managing their finances.
For the future to include today’s banks, they will need to embrace the many changes in recognition, reward, product relevance and personal service styles that customer research shows are necessary. Bottom line, they will need to put the consumer at the heart of consumer banking.
1 The FIS Consumer Banking PACE Index™ tracks how financial institutions are performing against customer expectations in nine countries: the United States, United Kingdom, Brazil, Canada, France, Germany, India, Netherlands and Thailand, using data compiled from more than 9,000 banking consumers. Commissioned by FIS, the study was conducted by TNS, one of the world’s largest independent research agencies.
http://closethegaps.fisglobal.com/
2 Survey conducted from November 2014 to January 2015. Demographic: banking services customers aged 25 to 55 attending Capco-facilitated interviews and focus groups.
3 A widely accepted measure that indicates how likely a customer is to recommend a bank to their friends and family on a scale of -100 to +100.
Consumer Banking 7
ABOUT THE AUTHOR
Dan Jones is a Managing Principal at Capco, specialising in retail and digital banking. He is passionate about disrupting financial services for the benefit of the consumer.
ABOUT CAPCO
Capco – an FISTM company – is a global business and technology
consultancy dedicated solely to the financial services industry. We work in this sector only. We recognize and understand the opportunities and the challenges our clients face. We apply focus, insight and determination to consulting, technology and transformation. We overcome complexity. We remove obstacles. We help our clients realize their potential for increasing success. The value we create, the insights we contribute and the skills of our people mean we are more than consultants. We are a true participant in the industry. Together with our clients we are forming the future of finance. We serve our clients from offices in leading financial centers across North America, Europe, Africa and Asia.
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