December 23, 2016
Although the value of fraudulent activities in online banking is expected to reach $7 billion by 2020, the focus on digital channels in banking has been only increasing as banks are facing competition from challengers and are looking to cut costs of physical infrastructure maintenance.
DBS estimates that financial institutions that are not able to adopt a digital model may see a drop in ROE by ~18% over a five-year timeframe. However, retail banks that are able to reinvent themselves could see a substantial increase in ROE, around 18%, largely driven by the lower cost of serving customers and the efficiencies they will reap.
To meet customers' digital wants and needs – and to save money – many banks are aggressively expanding digital channels. But so far, this is not going smoothly; customers are not abandoning physical channels. Although banks are offering more channels, they are not realizing desired outcomes such as reduced costs and higher customer engagement, experts from Gallup note.
Recognition of changing consumer behavior and preferences led financial institutions to the development of practices that would allow a smooth transition to digital channels, ensuring a seamless experience. At the end of October, Gallup published results of a study (with continuation) outlining six strategies financial institutions could use to ensure a smooth transition to digital channels.
ATMs stand at the borderline of physical and digital banking experiences and can be a starting point for introduction and promotion of digital channels. Leveraging ATMs to gradually introduce customers to the use of digital services could be especially useful for customers who are primarily branch users.
To point customers to ATMs, kiosks and other digital resources, banks should provide targeted awareness-building activities and education, including walking customers through the process when necessary. This tactic not only reduces the need for future human interaction but also helps customers feel more comfortable with online and mobile banking, experts explained.
Mobile devices are playing a critical role in everyday life – they are used for communication, shopping and consuming financial services (the number of smartphone users worldwide is predicted to be over 2.5 billion by 2019). In fact, some estimates predict that more than one in three people in the world will be using smartphones within the next two years and, by 2019, almost 200 billion transactions a year will be made via mobile phones and tablets.
One of the largest banks in the country, Bank of America, has been putting effort to understand modern trends in banking behavior of Americans and found that >62% of Americans cite digital as their primary method of banking. For comparison, in 2015 the number was 51% – quite a considerable difference.
However, banks don't always take advantage of the digital channel – especially when it comes to targeting customers who are not tech-savvy and providing mobile options beyond basic banking, experts suggest, offering several ways to improve usability and functionality:
Even though the emphasis on digital channels seems to be the natural course of action for financial institutions, the personal touch will remain an important element of consuming financial services.
Our customers still want to visit us, Jonathan Velline, Wells Fargo’s Head of ATM and Store Strategy, told Reuters in an interview. They’re still coming to our stores and our ATMs at pretty consistent rates.
Banks should approach digital account openings as an opportunity to complement digital banking with personal interaction by providing options for personal service via chat, video or phone.
Even tech-savvy customers want to have the option to interact with a human worker to ask questions and get a personal consultation with a setup. Personal touch also provides an opportunity for an immediate sale as well as cross-selling and upselling.
The quality of service should always remain the highest priority regardless of the channel – and banking customers want the convenience of access to multiple channels (most customers prefer multiple channels, with a majority using at least four). When customers engage with their institutions through a preferred channel and receive a quality service, their overall satisfaction improves significantly. As a result, these engaged customers spend more money and are more likely to stay with their bank.
Moreover, customers' satisfaction with a channel matters most to engagement. Banks that leave customers "very satisfied" with channel experiences realize the greatest gains in customer engagement. The study found that when customers are "very satisfied" with their branch experiences, almost half (48%) are fully engaged even when they prefer a different channel.
The best-case scenario for banks is to perfectly match customers' preferences and provide highly satisfying experiences. Doing so with branches boosts engagement to 57%. The finding also holds true in the most-frequently used digital channel: online banking. If customers are "very satisfied" with their online banking experiences, half (50%) are fully engaged even when they prefer a different channel.
Cutting down on branches and emphasis on digital banking experience is not an automatic cost saver. The study found that 75% of customers visited a branch and 48% spoke to call center representatives in the past six months. In addition, 48% of American banking customers would only consider using a bank that offered physical branches.
A large part of bank customers highly value physical branches and personal touch (38% would only choose a bank with branches), which means that expensive digital expansions may not always lead to higher customer engagement or cost reduction for banks. In fact, the study suggests, the costs can increase if banks need to maintain their branch network and upgrade their technology to support a giant omnichannel infrastructure at the same time.
Instead of trying to force digital onto branch-preferring customers, banks should optimize their efforts by focusing on perfect channel execution. Recognizing this, some banks – including larger institutions – are emphasizing five-star experiences in existing channels and enhanced customer relationships.
This "optichannel" strategy focuses on superior service, especially through personal channels, over digital development. To these banks, branch experiences are pivotal; some are even employing targeted branch expansion. Gallup data suggest that this satisfaction-centric strategy is not only an opportunity for differentiation in the marketplace but also a powerful driver of customer engagement.
In lieu with the necessity to bring existing channels execution to perfection and focusing on the quality of service, the study suggests that banks should ensure a superior experience in existing channels before launching additional ones.
With increased customer expectations and serious competitive and marketplace pressures, banks may feel the need to deliver all services in all channels, especially digital. However, mediocre performance in additional channels will only hurt banks.
To engage customers, banks should ensure they are providing highly satisfying customer experiences within existing channels. Then, after taking their time to ensure they achieve flawless service, banks can offer additional channels.
Jumping into whatever is trending will not ensure relevance and engagement; it's better to get things right and offer a flawless experience within existing channels rather than provide an average-quality service across a myriad of channels.