By Gavin Mee, Senior Vice President and Head of UK, “Salesforce”
Today, interactive technologies are empowering brands of all sizes and industries to deliver seamless, multi-channel customer journeys. I’m sure you’re familiar with services like Amazon Go, Nike iD and even the Starbucks ordering app and its rewards scheme. These brands are delivering new and improved omni-channel models to meet a seismic shift in customer expectation over the last few years. Our research into customer experience shows that 77% of UK consumers agree they now expect companies to provide a consistent experience wherever they engage.
It’s no longer enough for brands to provide a good experience in-store – this has to be matched on online, mobile and social channels. In short, customer experience has become one of the key barometers of success and therefore the pressure is on businesses to stay ahead of the curve, by focusing on a personalised customer-centric approach
This is no different in the retail banking sector. We’re starting to see UK banks take a more holistic approach to customer service – blending the physical experience with online and mobile. But while they’re making great strides in improving their customer experience, banks certainly can’t afford to rest easy. Competition is heating up. In recent years, a wave of agile disruptors have been shaking up the market.
Many of these alternatives to traditional banks, such as Atom Bank, have designed their services exclusively for mobile. While no one can deny that an intuitive and smooth mobile banking experience is vital today, research also suggests that we still value the in-branch experience, particularly when customers require something more than a simple transaction. This offers more traditional retail banks a great opportunity to add value and maintain competitive advantage. For example, with customers using multiple channels to access services, cloud technology is enabling banks to unlock and understand data from each interaction, including the valued in-branch experience. By joining these dots, banks can offer a far more tailored service to customers.
This personalised, tailored service boils down to understanding the best approach, for each customer and situation. Older customers, for instance, may be more reliant on a combination of in-branch and telephone banking rather than using than IM or webchat. On the other hand a younger, digitally-savvy audience is more likely to prefer engaging their bank via an app for routine transactions and in-person for more complex requests. As you can see, a ‘one-size-fits-all’ service approach certainly doesn’t work for retail banks as different audience segments have unique needs.
Technology plays an important role in helping banks achieve a more customer-centric approach, designed to boost trust, convenience and security. Integrating cloud, social and mobile technologies enables banks to engage customers at any time, from any device and in new, personalised ways. Through understanding the individual preferences of each customer, they can ensure they are offering them a truly 1-to-1 experience. By breaking down the siloes between each channel, and harnessing the resulting customer data, banks will ensure that engagement is meaningful at each touch point. This applies online and in-branch.
This approach offers another clear benefit – as well as meeting today’s customer expectations, it is helping to future proof banking business models. How? By understanding evolving needs and delivering a first-class service today, banks are able to build on customer loyalty. This is particularly relevant to younger customers who are fully tapped into modern technology and will drive the way all businesses operate in the future. While these younger customers have less financial responsibilities today, this will change as they grow older. Banks who cater to their needs and build trust across all channels now, are unlocking decades’ worth of potential loyalty from this digital-native group.
What’s clear to me today is that the banks who are listening to their customers are becoming leaders in the industry – and younger customers are beating a path to their doors faster than ever before. For banks that have been slower to adapt, now really is the time to look to technology to create a more joined up, seamless experience if they want to compete with the disruptive fintech firms biting at their heels. For traditional banks that already have a strong footprint, achieving this ‘holy grail’ of a connected experience – on any channel and at any time – will be the secret to their success.
A quarter of banking customers noted an improvement in customer service over lockdown, research shows
SAS research reveals that banks offered an improved customer experience during lockdown
This represents some good news for banks in an extremely challenging time, with 59% of customers also saying they’d pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.
The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of banking customers using a digital service or app has grown by 11%, adding to an existing 58% who were already digital customers. Over half (53%) of new users plan to continue using these digital services permanently moving forward.
Brian Holden, Director, Financial Services at SAS UK & Ireland, said:
“It’s notable that in times of need customers value being able to communicate with their bank and place an even higher value on good customer service. A rise in the number of digital customers means banks can now reach a wider audience online, leveraging AI and analytics to offer a more personalised experience.
“There is work to be done, though. Even greater personalisation is needed if banks are to win over the 12% of customers who felt banking services deteriorated over lockdown. And this personalisation will need to get right down to a segment of one to properly reflect the unique circumstances some individuals now find themselves in due to the pandemic.”
While the number of digital users grew over lockdown, there is still a quarter (24%) of the banking customer base that have chosen not to make the switch to digital services.
Meanwhile, failure to offer a consistently satisfactory customer experience could prove costly for banks, with a third (33%) of customers claiming that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service, so this just underlines how much retail banks can win or lose in these difficult times.
For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer?
Swedish Bank Stress Tests in Line with Recent Rating Actions
The Swedish Financial Supervisory Authority’s (FSA) latest stress test results show major Swedish banks’ robust ability to absorb credit losses. The results support Fitch Ratings’ view that short-term risks have abated in recent months, and are in line with Fitch’s assessment of major Swedish banks’ capitalisation at ‘aa-‘, which was a factor when Fitch removed the ratings of Handelsbanken, Nordea (not covered by the FSA’s stress test) and SEB from Rating Watch Negative in September.
The FSA estimated about SEK130 billion of credit losses over 2020-2022 for the three largest banks (Swedbank, Handelsbanken and SEB) under its stress test. This represents about 220bp of their loans, or about 70bp annually. However, the banks’ pre-impairment profitability in the stress test could absorb credit losses of up to about 110bp of loans annually. Fitch’s baseline expectation is for credit losses below 20bp of loans in 2020 and 8bp-12bp in 2021.
Capital remained strong under the stress test. The average common equity Tier 1 (CET1) ratio fell by only 2.8pp (1.9pp if banks did not pay dividends) from 17.6% at end-June 2020. The capital decline was not driven by credit losses, which could be absorbed by pre-impairment profitability, but by risk-weighted asset inflation.
The three banks’ 3Q20 results showed that capital has been resilient despite the coronavirus crisis. The banks had a CET1 capital surplus over regulatory minimums, including buffers, of almost SEK100 billion (excluding about SEK33 billion earmarked for dividends). SEB had a CET1 ratio of 19.4% at end-September, Handelsbanken’s was 17.8% and Swedbank’s 16.8%.
The SEK130 billion credit losses under the latest stress test are lower than under the FSA’s spring 2020 stress test (SEK145 billion), which also covered a shorter period of two years. However, they are still larger than the actual losses incurred by the three banks during the 2008-2010 crisis. This is despite tightened underwriting standards by the three banks in recent years, including, in the case of SEB and Swedbank, in the Baltics, the source of most of their loan impairment charges in the previous crisis.
In its baseline economic forecasts, the FSA assumes a harsher shock to Sweden’s GDP in 2020 and 2021 (-6.9% and 1%, respectively) than Fitch’s baseline (-4% and 3.4%), although it assumes a similar recovery by end-2022. It also assumes real estate price corrections, which appears particularly conservative in light of a 11% housing property price increase over January to November 2020.
The ratings of Handelsbanken (AA), Nordea (AA-) and SEB (AA-) are on Negative Outlook due to medium-term risks to our baseline scenario. The rating of Swedbank (A+) is on Stable Outlook, reflecting significant headroom at the current rating level following a one-notch downgrade in April due to shortcomings in anti-money laundering risk controls.
Future success for banks will be driven by balancing physical and digital services
Digital acceleration due to COVID-19 has not eliminated the need for bank branches
Faster service (23%), smaller queues (26%) and longer opening hours (31%) are among customers’ biggest asks of their bank branch, new research from Diebold Nixdorf today reveals. But with 41% consumers saying they would be comfortable to engage with all banking services via an app, it is vital that banks respond to the full spectrum of customer needs – balancing and evolving their offerings on multiple fronts.
A third (35%) of customers say they will always want access to physical, in-branch banking services in some capacity and one in ten (10%) consumers will never bank predominantly online in the future. This demonstrates that there remains an important role for the services a branch provides. This role, however, continues to shift away from purely transactional banking:
A quarter (26%) value face-to-face advice when it comes to their banking needs
One in five (18%) seek advice on different products
17% want to speak to the staff or other customers.
Matt Phillips, Diebold Nixdorf vice president, head of financial services UK & Ireland, said: “The majority of banks have spent the last decade focusing on their digital strategies and investing in improving – or establishing – their online customer experience. However, the data shows that there is still an essential role for physical branches. Banks now increasingly face the challenge of continuing to provide customers with access to a range of physical and as well as digital services, giving them the flexibility to choose the best service for them at any given moment in time.”
When looking beyond the impact of COVID-19, planned branch visits by customers are expected to rebound to 28%, following a dip to 11% during lockdown. And when asked about the new services they’d like to see inside their bank, sixteen percent of respondents said more self-service machines would improve their in-branch experience.
Matt Phillips continues: “In a world that is fast evolving and where the future is digital, there’s no doubt that high street banks must, and are, responding to the needs of highly digital customers. But not every customer requirement is digital. There is still a strong need for physical bank branches and the interaction and services they offer, and striking this balance between physical and digital is where the industry must come together to provide solutions. For example, building a strong, leave-behind strategy is something we’re seeing across the board when banks have to close branches, ensuring customers have access to self-service machines to complete all their transactional needs.”
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