Three Strategic Recommendations to Meet Today’s Banking Challenges

Imagine finding your “forever house” in the perfect neighborhood. Since you are a loyal customer of Amazing Bank, you head to their branch hoping you can get a mortgage quickly. Ginny, your favorite banker, welcomes you. You tell her about the house. She is very excited for you. Ginny tells you that getting a mortgage with Amazing Bank will be a cinch. 

“We will get you into that house ASAP.” She invites you to her office and begins an interview to get all your information down. “Name?” she asks. “Ginny, you know me!” you protest. She winks at you, and you dutifully answer all her questions despite knowing that she already has many of the answers. 

“That’s all we can do today,” she abruptly tells you. “You have to call this number tomorrow. Give them this reference number and answer their questions.” She hands you a card with some scribbled information on it.

This scenario may sound far-fetched for an in-person interaction, however it’s very similar to the normal experience of applying for a mortgage for many US digital bank customers. Consumers expect that the bank knows who they are – after all, they just logged in – yet they are still required to re-enter basic information. They are also often not allowed to complete the application within the initial session and must go to another channel for additional input.

According to a recent report from Bank Director, only 48% of banks offer an entirely digital deposit account opening experience. The numbers for other products are also low, with 31% of retail loans available fully through digital channels. Meanwhile, a survey conducted by FICO in 2021, found that 71% of US consumers would open a financial account solely online. Taking both surveys together tells you that there is a gap between the experience consumers desire and what banks offer.

Where Are the Gaps Between Banks & Consumers?

Some of the answers to this question are in the results of the Bank Director survey referenced above. For instance:

• By a large margin, most bankers consider their main competition to be local banks and credit unions (56%), followed by big banks (46%). If your main competition are other organizations that aren’t responding to customer needs, then there is no need to meet the demand yourself. Until someone does.
• Fifty seven percent (57%) of bankers believe that branches and digital are equally important. Perhaps bankers have a hard time letting go of the past.
• Bankers agree that they are tooled to effectively serve Baby Boomers (93%) and Gen X (85%) but many don’t believe they are serving Millennials and Gen Z appropriately. Clearly the focus has been on the generations that have accumulated money today, but little focus has been made on taking care of those that will have money tomorrow.
• A large proportion of bankers (41%) responded that their CTO/CIO doesn’t report to the CEO. A majority – 53% – reported that their board didn’t include “an expert in some area of technology, including digital transformation, user experience and/or data analytics.” If leadership doesn’t understand technology, how are banks going to compete against technology-enabled competitors?
• Forty-eight percent (48%) of bankers said that they have “inadequate understanding of how emerging technologies impact our bank,” and a further 45% agree that they are relying on “outdated technology.” Maybe if they ignore technology, it’ll go away? 
• A majority of bankers (54%), say they are allocating sufficient resources to technology and innovation. Only thirty-four percent (34%) agree that spending on technology isn’t sufficient. If they don’t prioritize technology, how are they allocating sufficient resources? 

Recommendations for Banks

To summarize, banks are dealing with a few issues: lack of appropriate leadership, misunderstanding the competition and misunderstanding the customer. How should organizations consider addressing these issues?

Leadership

While understanding finance and risk is important for bank leadership, understanding technology and its impact on consumer behavior has become paramount for any organization in the modern landscape. Bank leadership cannot be populated by CPAs alone, as has been the case for many years. A diverse group of directors are required to drive strategy for a bank and a key component of the board should be members who understand technology and its impact on consumer behavior.

Further, the CTO/CIO is sufficiently important now to be at the same level as all other Chief Officers, reporting directly to the CEO. The thinking that CTO/CIOs are managers of an expense center and are order takers is old-fashioned. The same can be said for CMOs. Both CMO and CTO/CIOs positions are vital to a bank’s strategy and increasingly should be focused on customer experiences and technology facilitation. Having a good understanding of technology at the board and executive levels will allow for appropriate allocation of resources. 

Simply put, banks need to add board leadership that includes people with experience in technology and innovation and ensure that the CTO/CIO and CMO report directly to the CEO.

Competition

With the growth of Banking-as-a-Service (BaaS) platforms, as well as FinTech firms and big tech companies (like Amazon, Google, Apple and Facebook) nibbling at the edges of banks’ business, the competitive picture for banks goes well beyond other financial institutions. Further, customer expectations are driven by their experiences with brands in all other industries, not just the banking domain.

In a recent study by Insider Intelligence, one organization ranked higher for trust in banking than banks. Consumers were asked what organizations they trust to provide banking services, and PayPal, the payments-focused FinTech, ranked number one at 42.2%, placing them higher than primary banks or credit unions (41.9%). If banks aren’t focused on other entrants besides banks, they are misjudging the market. 

It's imperative that banks start tracking and following leading brands throughout industries related to banking, particularly FinTech, big tech and consumer brands. 

Customers

Banks continue to assert that they understand the consumer because they are consumers themselves. They also assert that they are customer focused. As noted in an earlier blog on customer-centricity, merely saying that an organization is customer-centric and having a pithy tagline doesn’t make it so.  

The main reason to survey customers is to understand their needs and wants. Without this understanding, banks cannot understand the true needs of the customer when building new products, services, processes or experiences. However, modern customer surveying goes well beyond an annual or semi-annual customer satisfaction (CSAT) survey that banks have traditionally used to take the pulse of their customers. Some modern practices that banks should incorporate in their customer studies should include:

• Observing how customers interact with products, services and experiences. Even with a small sample of customers, this can yield insights far more useful than the results from hundreds of traditional CSAT surveys. 
• When conducting surveys, ask open-ended questions. It may take longer to compile results, but responses will be richer. 
• Focus on the average neutral customer. There is a tendency to focus on a minority of numbers at both ends of the customer satisfaction spectrum. However, organizations should aim to understand and improve what the majority of customers experience.
• Approach feedback with an open mind. Organizations sometimes become defensive and ignore feedback that can improve even the best performing product or experience.

Ultimately, bankers should be asking more questions and carefully listening to the responses they get from their customers.  

The Next Steps for Banks

Being a banking executive in the 2020’s is not an easy job. There are many challenges that come from the day-to-day management of a modern financial services company. The most important ones come from dealing with an ever-evolving operational environment, including changing customer expectations, competition from brands in other industries and the emerging technology that drives it all. Addressing these areas will result in banks approaching their customers, markets and environment in a way that allows them to be competitive in the long run.