Digital disruption has reshaped almost every industry in recent years, but one which has been among those slowest to change is financial services.
In part, this is down to consumer demands. In other industries, such as retail, consumer pressure has driven brands online and forced them to transform the way they serve and engage their customers. But in financial services, consumer pressure has been less demanding. Many customers have still wanted face-to-face interaction with their banks.
Many banks have also seemed willing to embrace this lack of urgency for more sophisticated digital services, perhaps because it has allowed them to defer the task of unravelling critical legacy systems and trying to modernise ageing infrastructure and high levels of manual process, based on paperwork and forms.
Furthermore, the success of established banks was something of a self-fulfilling prophecy. People have always needed banks, whether they liked it or not.
But now banks are coming under pressure to transform, because consumers have more choice and more opportunities to break with their old banks. Innovative fintech start-ups are eating into their business from beneath, and disruptive brands such as Amazon are threatening to crash into their business from above.
These threats to the future of traditional banks are also exacerbated by consumer attitudes, shaped unfavourably by events since the financial crisis of 2007 that have left them looking like ‘the bad guys’ of global business, disliked by many consumers, particularly the much-discussed ‘millennials’. As younger generations wrestle with an economy where the odds can seem stacked against them ever owning a home, or escaping from student debts, the banks have squarely been placed on the ‘them’ side of ‘us and them’ tribal divisions.
The need for social trust
Banks have always enjoyed a cognitive trust among consumers. Most people know they will look after our money and do what we pay them to do. But what they have struggled to establish is a social trust which carries a lot of currency among more digitally-minded consumers who live their lives on the internet and whose opinions are often shaped by the polarising, emotive discourses they are a part of online.
In response to this, banks must rebuild relationships with consumers and establish their relevance.
The creation of better digital services needs to be at the heart of that push for relevance and must establish a thread of consistency through all touch-points between a bank and its customers, both online and offline.
Banks need to create more personalised services and deliver on customer expectations of speed and ease of use.
The good news is that many are already doing so. They are learning to make smarter use of their data and embrace technologies such as AI and machine learning to speed up the back-end of their business and empower the front-end to be more customer friendly. They are using digital document management to modernise and speed up their processes and make it easier to analyse meaningful data.
As they transform and digitalise their businesses, banks also need to be take advantage of greater agility to provide customers with more flexible, more personalised products that they can easily manage.
There is no such thing as a typical banking customer any more. The idea that we work from 18 or 21 until we retire at 65, and along the way we buy a house, several cars and start a family at 30, is no longer relevant. Our lives have changed and people rarely conform to the traditional stereotypes of past generations. Consumers need products and services which acknowledge that fact with flexibility and personalisation.
Finally, banks need to recognise they will never finish transforming.
Transformation does not have a finish line or an end point. It will always be ongoing. The changes we have seen in consumer expectations and behaviour in recent years are not a blip. Change will be constant as technology evolves and disruption continues.
At the moment, the transformation most banks are undertaking is a digital transformation, to create services that are relevant to modern customers. But this will be ongoing and will need to be complementary to other transformations from customer service to reviewing and renewing products, as well as evolving business culture to ensure they are not only maintaining services which are relevant to consumers, but also a brand that consumers want to do business with.