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The need for retail banks to pay more than lip service to customer experience

By Christopher Colley, Principal, Customer Experience (VP) – Europe, Middle East and Africa, Medallia
Customer centricity is not an area that retail banks have often had to concern themselves with. Yes, as a concept it is written about and spoken of in annual reports, but the reality is that most banks have done little ‘doing’ about it.

However, the tide is turning. Customers are demanding more, as their expectation levels transcend psychological and procedural barriers to switching providers, based on their experiences in other sectors. A further contributing factor is the maturation of market disruptors, like Monzo, who are changing the face of the sector, adding new competition. Whatever the reason, there is a realisation in the sector that the golden bubble around customer loyalty is about to pop. So how can the industry adapt?

 The changing rules of attraction around customer loyalty

Christopher Colley
Christopher Colley

In contrast to other industries, in consumer banking, conventional wisdom has it that when a customer opens their first account, by and large they’ll remain a customer for life. For decades, acquisition strategies employed by the banks – visiting local schools, offers for undergraduates, etc. – have borne fruit. After all, how many of us remember the branded merch we received during our first interaction with a bank while still at school? And, I’d hazard a guess that that brand went on to become your primary provider.

Other factors have further contributed to ensuring a captive audience. Once, a bank’s location on the high street was of primary importance to customers, proximity being a deciding factor in customer engagement. Today, app-only banking models – such as those designed by Tide, Monzo and Starling – are gaining in importance, successfully capturing market through ease of use and the attractiveness of managing your finances through your phone. This change is noticeable. In fact a study found that while 42 percent of Generation Z customers and 37 percent of millennials listed app management in their top three reasons for selecting a bank, only 10 percent of overall customers named location. As tomorrow’s consumers increasingly look to their banks to meet them wherever they are, the old rules of attraction and indeed retention are breaking down.

Why experience matters

Whether app-only or more traditional bricks-and-mortar setup, a lot depends on the experience that customers have with their bank. We all have stories to tell of long queues, late appointments and failed online processes, which hardly cover the industry in glory. In fact, a 2018 study by Medallia and Ipsos found that just seven percent of UK banking customers felt their experience had exceeded expectations over the past year. Contrast this with 19 percent in the USA.

The figures speak for themselves and beg the question – “Why are banks such laggards, especially in the UK?”

At first glance, it seems inexplicable. After all, the links between CX and business results are well-documented. Take the ‘Likelihood to recommend’ survey question that we so frequently get asked. The potential for financial impact is self-evident: if you treat customers well, they’ll be more likely to stick with you and tell their friends.

Differentiating in a new market paradigm

But it’s more than just common sense; there are hard data to back it up too. Farmers Insurance, for instance, attribute its CX investments with driving a three-point improvement in retention over three years, equivalent to $500 million annually in incremental revenue.

As this example shows – there is value in financial services organisations changing their approach to CX. Here’s why:

 Good news on CX travels fast – the Medallia-Ipsos research found that 40 percent of a bank’s customers would tell their friends and family after a positive experience. That’s 40 percent of a bank’s customer base happy to work as an extension of its marketing division – for free – helping to bring down cost of customer acquisition.

A good experience results in upselling opportunities – the same research found that as many as 18 percent said a positive experience would cause them to start using their bank more – a sizeable audience ripe for cross-sell. Why should banks, of all organisations, be so lackadaisical about trying to capitalise on this financial linkage?

 Customer inertia may be a thing of the past – great at attracting new customers, banks have been terrible at servicing existing ones – and it hasn’t mattered because those customers don’t churn. Even seven-day switching has failed to disrupt that paradigm. However, those days may be over. The Medallia-Ipsos research found that, today, 13 percent of UK customers will switch banks if their expectations are not met. While that’s a smaller proportion than the cross-industry average of 64 percent, still it remains far from negligible. And it should be a wakeup call for the big UK banks.

 A good journey drives loyalty – if the current economic climate tells us anything, it is that in times of uncertainty, customers need to feel that they matter. By listening to the signals from your customers and responding proactively to their concerns, you can deliver a great customer journey and build long term loyalty.

Who is doing it well?

It’s clear that a degree of complacency remains in the banking industry, where CX is generally treated as a tick-box exercise, rather than being seen as an opportunity to drive meaningful change. While most of the big banks have a CX programme in place, too often it’s merely a case of sending out surveys. And surveys aren’t the answer.

The industry would do well to take note of our American counterparts. Bank of America (BofA) for instance – has recognised how brands such as Apple and Airbnb shape today’s customer expectations. As such, its recent innovations include a digital debit card, plus a ‘save’ feature for online product applications that enables BofA to reduce cart abandonment by reaching out to customers who don’t complete in a single sitting. Culturally, BofA has grasped the value of embedding a customer focus at every level. CX doesn’t live and die within the BofA Marketing team; more than 30,000 BofA colleagues are actively involved in reviewing and responding to customer signals daily.

To make this a reality, BofA has armed its team with the right tools to allow them to understand the true picture of CX. Technology can provide a solution – but to succeed, it needs to be coupled with the strategic vision to move beyond mere surveys, as well as the courage to stand up and say, “this is worth investing in.”

 How can we replicate the model?

In addition to the tips laid out in Medallia’s whitepaper, The 4 Pillars of CX Excellence for Banking, below are my five recommendations for next-level execution.

  1. Prioritise the investment in CX

Whilst balancing efficiency with investment is a necessary part of business, approach cautiously with CX. Deprioritising investments here can have a negative knock-on effect on your brand. To make sure CX projects retain their investment foothold, ensure that the execs in charge of the purse strings understand the financial benefits of maintaining investment in this area – lower cost to serve, reduced acquisition costs, greater share of wallet and improved retention being just some top-level highlights.

  1. Look atthe signals across your organisation

With customers increasingly fatigued by surveys, financial organisations need to look at alternative ways of taking the pulse of their customer base. Today’s organisations need to look at all the channels that customers use and gather the signals from each of them. Looking at WhatsApp, Facebook Messenger, SMS, social media, etc. is essential if they are to get a true picture of CX.

  1. Act in the moment

Today’s customer isn’t used to waiting – they want what they want, when they want it, on whatever device they choose to buy it. The same goes for their interactions with brands. If they have a poor experience, waiting 24-48 hours before responding won’t wash with the customer. Take the signals that customers are leaving and act on them straight away, ‘in the moment’. Use the opportunity to start a dialogue and engage with your customer, building a long-term relationship.

  1. Connect the whole company to the customer

Companies leading the march in CX make sure that customer centricity is top-of-mind for the whole company, not just the employees on the front line. To create a fuller customer experience it is essential that employees across the organisation – from the back-office to the front lines – understand the customer so that they can better empathise with customers’ journeys and create better programmes to meet their expectations.

  1. Understand the connection between your employee and your customer

It stands to reason that a happier employee is more likely to exude the values important to your brand. It is hardly a new concept, but important to remember nonetheless. Engaged employees are more likely to manifest customer-focused behaviours that lead to bottom-line impact.

The benefits of good CX are well documented and customer appetite is certainly there for change for the better. The banking sector is clearly evolving, and many are making strides to evolve in line with customer expectations. More can and should be done though, so that CX is no longer a tick box exercise but rather a fundamental part of business operations.