By Alexander Thomson, VP, Quantum Metric

The retail banking landscape has changed dramatically over the last two decades, and it’s even clearer after the past two years. Gone are the days of cheque books, deposit envelopes, and heading to your local branch on a regular basis. People’s preferences are rapidly evolving, and a digital-first mindset has become increasingly prevalent – accelerated massively by the global pandemic.

With that in mind, the role of retail banks and how they engage with individuals is also changing. If they’re to attract and retain customers, providing a standout online experience and using data-driven analytics to offer personalised products and services are key.

Other priorities include gaining a deep understanding of their customer base and responding with agility across product design, customer service (CS) and communications. As part of that, vulnerable people are supported and digital leakage reduces.

Only then do traditional banks stand a chance of fostering loyalty and retaining (if not expanding) their slice of the market – a priority given the fierce level of competition from fintechs, tech-savvy challenger banks and neo-banks that are making headway in the industry.

Digital-first banking is here to stay

A recent survey we conducted revealed that 48% of consumers never touch a physical bank. Additionally, the number one factor people consider when choosing a bank is how easy it is to access their accounts via web or mobile.

Meanwhile, the average consumer holds accounts with at least two banks, and 28% have accounts with three or more. Why? People are looking for options to diversify their money and build their wealth. Individuals are also switching if their primary bank doesn’t provide all of the services they require, be it broader ISA options or the ability to purchase cryptocurrency.

The shift to digital and easy access to online accounts coupled with simultaneous banking across multiple institutions puts banks in a precarious position – unless they take appropriate action.

What does that involve? Building loyalty and preventing consumers’ eyes from wandering in the first place by tracking customer frustration and offering a more tailored and streamlined experience.

Finances and mental health

Alongside the rise of digital banking, the link between financial and mental health should also be factored in. Closely tied, more than two in three (67%) say the state of their finances regularly impacts their mental health. Given the challenges we’re currently facing – rising inflation and spiralling living costs – stress and anxiety levels are only likely to increase.

To cope, these vulnerable individuals have become more watchful, with two in five (39%) checking their balances almost every day. For them, a consistent digital experience gives a sense of control, easing their financial angst.

Vulnerable customers in banking

People with other characteristics of vulnerability – physical disabilities, addictions, low resilience, unemployed, limited numeracy skills – also have additional or different banking needs. For example, vulnerable customers are often more risk-tolerant or have reduced processing power and a lack of perspective.

Because of these factors, they may make impulsive or poor financial decisions like falling victim to a scam, and they’re more likely to purchase an inappropriate product. The situation is only exacerbated if a vulnerable individual receives sub-par support from their bank.

For vulnerable customers, good banking outcomes are achieved when their needs are understood and effective responses are implemented. To that end, it’s all about developing websites, apps and digital services that are simple and intuitive. Empathetic and bespoke user experience is also a must, as is removing red tape from CS processes.

It’s the responsibility of banks to recognise a vulnerable person and respond effectively by improving messaging and usability across all touch points, be it mobile, app or desktop. The process should be iterative, with regular assessments analysing whether outcomes for vulnerable consumers are as good as those for others. As part of that, creating a comprehensive policy to support vulnerable customers is crucial.

Customer frustration on the rise

With people more emotionally driven than ever when it comes to their finances, frustration can lead to them leaving – or just abandoning – their bank. Indeed, over half (57%) have closed an account because they encountered poor CS or found an institution with the same offerings that potentially provided a better experience.

Given that 30% of consumers say their biggest problem is finding it hard to resolve issues online, that reiterates the need for banks to become agile organisations that innovate to meet customers’ changing needs – it’s not just about fixing glitches and bugs.

Similarly, considering more than a third of people ring customer service when they face an online banking issue, it’s important to think outside the digital box by arming call centre agents with the right insights and tools to iron out problems quickly.

Digital leakage is a thing

Overall, 72% of our survey respondents contact a call centre or use self-service options like chatbots when they have difficulties finding the information they need to solve problems online. However, instead of seeking help, many give up entirely or move to a different bank – also known as digital leakage. Indeed, our research shows that 19% of people do just that.

People dropping off between an app and actively speaking to the contact centre is undoubtedly an issue, but it’s solvable. By accessing the right data insights, banks can empathise better with their customers and make moves to change the problem, thereby reducing churn.

In an environment where every single customer is both much easier to lose and still relatively expensive to recruit, call centre calls ought to represent red flags. It’s true that sometimes people just want to talk with someone. However, if the reason for the call is a lack of information or an over-complicated process such as avoidable friction in the digital experience, the risk of digital leakage becomes very real, and the chance of a customer going elsewhere grows.

Embedding security precautions

It would be remiss to discuss the responsibilities banks have in the digital-forward world we’re living in without mentioning security. What we’ve seen suggests over a quarter of consumers aren’t taking the right precautions to protect their accounts using a basic username-password combination, and most don’t change their password regularly, if ever. However, when data breaches and fraudulent activity occur, it ultimately reflects poorly on the bank in question – even if it’s the ‘fault’ of the user.

Reinforcing that sentiment is the incorrect widespread belief that banks legally have greater responsibility for vulnerable individuals in the UK than they actually do. With that in mind, intuitively embedding deeper security measures, (two-factor authentication, biometric verification, for example) into the digital experience to protect accounts and help customers better safeguard themselves is paramount.

Changing relationships with money

Digital adoption accelerated by a whopping seven years in 2020, transforming the way people interact with their finances. Today, almost three-quarters view their banking app as the most important on their phone, beating the likes of social media and peer-to-peer payment applications.

Consumers’ interactions with retail banks have changed – they no longer stick with one for life and are more emotionally driven. Now, it’s about the experience banks offer: unless it’s seamless, intuitive, secure, user-friendly and personalised, people will simply go elsewhere.