The rise of open banking means that traditional banks face some difficult choices. They can choose to become a back-end utility, losing their connection to the customer. They can collaborate with a tech partner in order to benefit from their capabilities and reach a new audience. Or they can strive to compete on their own against the FinTechs trying to steal away their share of the market.
Embracing back-end utility status may require less risk and effort than the other two routes but the rewards are also few. Being a utility limits growth. Once that relationship with the customer is lost, it’s extremely difficult and costly to get back.
Partnering with a big tech brand is another option but collaboration between companies who may be competitors is a tricky balancing act. Those who give away too much control may find their tech partner running away with their customers, leaving the bank sliding into utility status. It’s a possibility not lost on the banks; after announcing a partnership with Google to provide smart checking accounts through Google Pay, Chief Executive of Citigroup Michael Corbat commented that Citigroup is ‘very conscious around not being the dumb utility’ and the bank have attempted to downplay Google’s role, unwilling to give them too much power.
The third option is perhaps the bravest but could also see banks reap the biggest rewards. Although new FinTech brands have some clear advantages, unhampered by legacy computer systems or outdated company culture, traditional players have advantages too. They have a trusted heritage and level of expertise that has seen them survive through hundreds of years of change. If they can combine this expertise with a new commitment to excellence in customer experience powered by cutting-edge technology they may just secure their success for many decades to come.
But it’s going to require rapid and radical transformation. If traditional banks don’t act fast, they may find that customers gradually slip away, attracted first by a single digital product but then switching more and more of their financial custom. Consider Monzo, who began with an innovative pre-paid card that attracted a large, young customer base, and then expanded into current accounts and loans. Challenger banks may start small, but no large bank should let that fact lull them into a false sense of security.
Making smart use of data to power hyper-personalisation
With the rise of open banking the most fundamental element in the drive towards a better customer experience is not just access to data, it’s the smart use of it to drive a new level of personalisation. It’s a huge challenge with most banks requiring a radical level of transformation, but the need for increased personalisation is widely recognised across the industry. 76% of banking executives believing that it has a ‘major’ or ‘strong’ effect on relationship building according to an Epsilon survey.
Because of their existing customer relationships, banks have access to vast amounts of data that has allowed them to provide a basic level of personalisation for decades. The problem is having the analytical tools to make the most of it. Often data is so siloed, fragmented and duplicated across the business that it’s not possible to create what’s really needed: a 360-degree view of the customer that allows for nuanced, real-time responses. Banks need the technology to translate data into real-time insights that will in turn create unique moments for each individual customer, with every touchpoint addressed and every interaction memorable. It’s a problem that needs to be solved if banks are to understand customers at a deeper level and provide the individual, tailored, in-the-moment responses that they are increasingly coming to expect.
By using artificial intelligence and machine learning to unlock data and anticipate customer needs as well as responding to their current situation, banks can empower themselves to provide an almost supernatural level of service, a kind of hyper-personalisation with unique notifications, information and special offers that appear at the very moment called for.
These could be big life events like a house move or starting a family, or smaller ones like planning a weekend away. The trick will be consistency and the ability to get it right on an emotional level as well as a transactional one, providing service that is exceptionally convenient without seeming too intrusive or salesy. The resulting faster and better financial decision-making will benefit not just the customer but also the bank, increasingly loyalty and boosting revenue.
In the banking world, particularly in FinTech, some take the view that banking’s destiny is as a utility. But that is by no means inevitable and while customers will expect fast, frictionless services as a given, it’s the meaningful, personalised experiences wrapped around those functions which will differentiate businesses and create long-term success.
So if they want a role bigger than that of a utility, it’s time for traditional banks to accelerate transformation, to fight back against the FinTechs by offering the kind of truly personalised service that banking was built on hundreds of years ago, now powered by technology and provided at scale. Perhaps only in the digital age has there been this potential to anticipate and respond to customers’ needs in-the-moment, but there’s something about that ability which somehow feels very, very human.