By Chris Vinnicombe, VP Financial Services at Acxiom
In industries across the economy, we've seen a marked shift towards digital transformation, and a collective desire for change. The pandemic has forced businesses to make changes in a matter of weeks or months they might have otherwise had lined up for years.
The financial services industry was already undergoing significant changes before the pandemic, as digital technologies and mobile platforms become more common. The push towards remote working and the closure of physical branches has helped drive normalisation of digital banking tools, and a drop off in the use of cash. Research from cash machine network, LINK, found that during the first COVID-19 lockdown, the number of transactions at UK ATMs fell by as much as 68%. Customers spent less but also turned to digital tools to conduct transactions – a fifth explained that they used online banking more often than before.
For businesses and individuals alike, access to credit is keeping many afloat as the economic fallout from the pandemic continues to be felt. Over 46 billion pounds of government-backed loans have been approved to help businesses, alongside help for individuals like mortgage payment holidays.
Banks and lenders are vital in supporting a path towards growth and recovery. At such a testing time, understanding and listening to customer needs is particularly important for financial firms. 70% agree banks will play an important role in helping people in a recession, according to Acxiom research. That trust has served banks well for many years, but with upstart fintech brands emerging on the scene – many of which are equally if not more accessible, particularly to younger customers – the traditional players must take these threats seriously. Working the existing customer data they have to hand will be crucial in stepping up the personalisation they are able to offer with their services.
Different sections of the population have felt very different financial impacts from the pandemic. For the more fortunate who have maintained their income, a decrease in social spending has seen more put away savings and pay off debts. With the hospitality sector so heavily restricted, card transactions have fallen steeply. May 2020 saw them collapse 44.7% year-on-year. Outstanding balances on credit cards made their largest monthly fall in a decade in April 2020.
Acxiom's research has highlighted the stark differences in the financial impact of the pandemic on people. While 2% of those in the highest income bracket have lost their income, more than four times as many in the lowest income bracket have lost theirs.
With such disruption, a deep understanding and empathy of the customer remains paramount.
There's also a dichotomy in the behaviour of customers post-pandemic – some have eagerly adopted digital tools for banking, while some remain keen to return to analogue ways of life and cash. Transactions must be seamless, positive experiences across the board for all types of customers. No matter how it's carried out, transacting money is a key process of life and banks as service providers have a significant role to maintain accessibility and familiarity for the most isolated and reluctant to make the switch to new tools or mobile apps at all.
A trusted advisor
To meet the needs of this divided customer base, financial institutions must provide guidance and choice. For that guidance to be relevant, there needs to be recognition of the fact that different age groups within society can have vastly different attitudes and feelings around financial advice. 41% of respondents aged 18-24 in the Acxiom study said a lack of understanding of who or what to look for is stopping them from seeking advice, for example, with 31% saying they find it confusing.
With many in this age group willing to share their financial information and interested in tracking their financial health, there's a big opportunity for banks to make use of this wealth of customer data. Banks that do so can not only provide more advice, but also boost their services in a way that is useful and starts to build trust and loyalty.
Many of the upstart fintech brands are ahead of established banks with this but although they're a step ahead here, it is by no means a complete transition, when only 15% of customers consider a fintech brand to be their "main" account. Legacy financial institutions have an opportunity to leverage their image as trusted advisors to give this advice and personalisation extra weight.
Functions and features
Once set up, many people are reluctant to switch banks readily. Habit, inertia and perceived offering keeps many attached to the same brand they've used for years. But with legislation in recent years enabling the transfer of money to new players more easily, as well as making it simpler to switch and transfer customer data, established banks can't afford to rest on their laurels. They need to bring in new technology, such as AI-powered personalisation, a more capable mobile offering, or more seamless security with voice or biometrics. Many of the newer fintech brands can already offer this.
Customer centricity has never been more important. By understanding customers and their wants and needs, firms will equip themselves to be the trusted financial advisors that are critical at this time. Fintech brands have disrupted the industry and the customers that are using these services have a new appreciation of what the combination of technology and banking can offer them. This renewed customer-centric approach to banking is on the rise and all players, big or small, old or new, can't afford to ignore it.
The pandemic has disrupted the economy on a level unsurpassed for many generations. As the gradual rebuilding starts, financial institutions must remember what customers need from them, and orient themselves to provide it as seamlessly as possible.