By Torgunn Ringsjø, Director of Products and Recurring Services at 4most

Historically, banking relationships were built on physical presence with a fixed location on the high street and established, personalised interactions between the consumer and their local branch.  Digitalisation combined with changing legislation within the banking sector, has since led to a shift, both in terms of how those relationships are created and nurtured, but also how customers can take control of their credit relationships with lenders.

The digital landscape has widened the options for consumers who are now empowered to choose their banking providers on a ‘needs’ basis rather than using the same bank for everything. The challenge for lenders is to clearly define their role, including how the customer sees them, and what that requires of them to successfully achieve that aim.

Online comparison sites are one of the most obvious examples of the changes to customer’s lives. These sites have resulted in greater availability of information and more transparency across the banking sector. They have removed from incumbent banks, a key aspect of where traditional banking had more control and influence over what a customer saw as the options to meet their needs – as well as the critical data asymmetry that such interactions create. Now, smaller banks, credit unions and building societies can attract customers outside of traditional branch locations on a more competitive footing, comparable with larger banks. The switching of bank accounts and services has also become much easier since the rise of digital banking, making account opening swift and less complex for consumers than in previous years.

Visibility and clarity for a fairer experience

Advances in back-end technology supports lenders to make quicker and more consistent decisions in line with their risk appetite, supported by validated third party data including credit bureaux, which has greatly extended the ability to understand the risks more accurately and provide the right options, including for self-service and 24-hour capabilities.

The shift towards digitisation has had a huge impact on banks in terms of retaining customers long term and staying competitive. Whereas previously many people would stick with the same bank throughout most of their lives, customers today expect more from their banks, and many are moving away from mainstream banking (universal lenders that had previously dominated the market), towards more innovative challenger banks to meet certain needs within a more modular approach to banking.

There is a way to go in this transition, particularly to see if new entrants can achieve a deeper and sustainable relationship with their customers, but their rate of customer acquisition and impressive customer satisfaction levels cannot be ignored. This has impacted consumer choice in a positive way and resulted in more competitive offerings.

Regulatory requirements have also led to changes in how banks operate and in turn, how consumers are treated.  Guidance around how information is provided to customers gives greater clarity to what they are buying and what they can expect, while lenders are clearer around penalties for breaches.  These changes driven by the regulators, combined with technical advances, have created a more personalised, bespoke service for the consumer, offering a greater range of products, whilst maintaining focus on treating customers fairly. Lenders who can confirm good outcomes for their customers more easily and robustly, will fare better in an environment that values firms who are looking to treat customers well.

For banks, today’s business is all about the customer journey and lenders are recognising that they need to improve that experience.  The challenge is that banks, particularly incumbents, are heavily laden with layers of governance, oversight and legacy systems that often slow down the pace and agility expected of them. Customers on the other hand have become used to digital progress in their daily lives and the goal posts have moved in terms of what they expect.

For instance, when applying for a personal loan, consumers expect to receive an instant decision on their application and to have the funds made available to them within a very short period of time. Ultimately the journey they are looking for is accessible, smooth, fast paced and dynamic. Finding the right balance between convenience and frictional forces such as risk and safety will be key. Smart use of data and use of modelling to provide automated solutions is the way forward.

Automation without intervention

The immediacy of the digital world is driving consumer demand for more streamlined and automated processes in banking.  Consumers expect to be able to access services at the touch of a button via their mobile phone without manual intervention or needing to speak to a physical person, which removes the traditional element of the personal connection to a bank manager.  As such, retaining good customers has to be one of the biggest challenges for mainstream banks.

Products and personalised choice, 24/7 banking availability through mobile devices, quick decisions on lending, competitive pricing, social platform presence and more, is becoming the norm. To compete, banks need to adapt and be one step ahead to remain the go-to source for banking services, by delivering the customer experience expected from the moment a customer has a need, all the way through the customer life cycle.

Data collection has also changed drastically; gone are the days of in-person meetings with the local bank manager to complete reams of time-consuming paperwork manually.  For customers, there is nothing worse than feeling like you are being strung along, only to find out you are not eligible or have been declined for credit. In the current climate it is in the best interests of the lender and their customers to know who their target market is and what is needed to ensure a product is fit for purpose for that demographic.

Without investment in automation and integration of richer data sources, lenders will fall behind competitors as the shift towards more digitised and instant services continues. Availability and take-up of new technologies make it easier for lenders to be more agile and respond quickly to market trends.  As a result, consumers are offered products that are better suited to their needs and financial situation, and in turn improves the overall customer experience.

With responsible lending, and more data protection legislation, there has been a shift towards seeing data as an asset. Consumers now have much more leverage in regard to how their data is used. By giving consumers the option of sharing information to support their application through new technology, (such as open banking, that enables calculation of detailed income, expenditure and ultimately affordability), lenders can make more accurate and efficient decisions and those with the best data and means for using it, can make significant strides.

In addition to the acquisition of new customers, data sharing technology can also support with customer engagement in more complex scenarios where there is a need to consider financial difficulty and customer vulnerability, by being able to utilise data responsibly in a way that meets the needs of the customer.

Consumer choice and awareness

Whilst affordability and price are key drivers for consumer decisions, other factors could potentially leave lenders at risk of losing good business.  Consumers are looking for choice and a slick digital experience. Any experiences which impact their perception of what this should be, such as time-consuming data capture, request for more information, or manual underwriting, may result in the potential customer walking away from more affordable products if they can get access to the right products more quickly elsewhere.

Consumers are becoming more conscious that a poor experience early on may indicate a greater likelihood of negative experiences over the life of the product and will actively seek out a better experience.  As an example, consumers applying for credit online who are then diverted to a branch or postal application to submit documentation, may look elsewhere for the fully digital journey they sought in the first place.

Few people will relish the experience of long call-centre waits or a physical need to attend the branch. Likewise, aspects such as sustainability policies, employee and customer satisfaction ratings (which are easily comparable online), means consumers are becoming more savvy about the banking choices they make, in line with what matters to them personally. Equally, banks have a responsibility to ensure they are transparent about whether their products will be of value and deliver the right outcomes for each customer.

Better decisioning

It is not just the points of interaction contact between customer and lender that can make a difference. Improving the underlying decisioning process will also help banks to enhance customer relationships and improve the onboarding process. This can be achieved through increased speed of decisions and with smoother and more sophisticated decisioning processes.  This will result in more tailored, personalised products that both meet the needs of the consumer and are risk appropriate for the lender.  Currently, the end-to-end process can be a frictional journey, but it is possible for banks to design better and more integrated processes to make the experience more positive.

Banks must be able to communicate with customers at every step of the way, conversations can be fast paced, but keeping customers continually informed of what stage their application is at and expected journey times is critical to the customer experience and will contribute to the improvement of the journey.

Additional pillars in the back end decisioning journey might include improved technologies, analytical advances, richer data sources and integration of a well-defined process and strategy.

Processes should seamlessly connect, and banks need to consider implementing technology that supports the whole customer journey, from acquisition, onboarding, customer management, collections and recoveries, through to sales and marketing, risk management and strategy.  The performance of the decision tools used for processes like credit applications also need to be continually monitored and validated against evolving market factors, customer expectations and experience. By doing so and when used to their full potential, decisioning tools can transform the way banks manage the performance of their portfolios, whilst at the same time enhancing the customer experience.

The future journey

Over the next five years at least, consumer demand will result in more changes to how banking is operated, from the impact of AI regulation to the FCA’s proposed Consumer Duty and data ownership.  Expectations from customers will continue to evolve creating further demand for a simpler, real-time experience with no barriers to accessibility via digital channels. Customers will continue to be informed about new banking products, due to increasing competition and increasing exposure via social channels so lenders will need to be ready to respond.

Personalisation of products will continue to dominate the banking sector, and lenders need to make sure they not only offer a range of products, but that the products they are offering represent real value and benefit to their customers. This will become increasingly important over the next few years.

Artificial Intelligence will be a big factor in the future of banking, enabling banks to harness a range of unstructured data sources such as the tone of the conversation and emotional cues that lenders should be using to have better conversations with their customers.  Lenders who do not move forward with these advances in technology or keep up with market trends, will quickly get left behind in the race to create the perfect customer journey.

About 4most 

4most is the UK’s largest credit risk consultancy and is recognised globally, as one of the most dynamic and successful risk consulting firms. Specialising in all areas of credit risk, analytics and regulation in the financial services sector. 4most was named in the Financial Times – as one of Europe’s Fastest Growing Companies in 2019 and 2020 and has been listed multiple times as a Sunday Times Fast Track 100 company.