The financial services sector is sailing into choppy waters, writes Michiel Lely, vice-president, business strategy group: EMEA at Verint Systems.
Traditional players are threatened by a wave of disruptive change within the industry and also competition from companies outside it. At the same time, there is a rising tide of demand from consumers for more convenient digital services and better data security. At risk of being swamped, many industry stalwarts are re-evaluating their business models, but have yet to find the answer.
It’s clear that the banks need to engage with their customers in a different way. This requires them to adopt an omni-channel strategy and review the skills at their disposal. My firm’s research suggests that such efforts are being made. But, as the tempest rages, how can these businesses improve relationships with valuable customers, earn their loyalty and prevent them from jumping ship?
The industry is being disrupted from all angles. As companies such as Apple enter the market with products including the Wallet app, brands that consumers have related to on a completely different level are suddenly having an impact on financial services. Some banks have received severe criticism from consumers for their tardiness in adopting these new technologies. In one notable case, the customers of Barclays took to Twitter in numbers to vent their displeasure at its prolonged lack of support for the Apple Pay contactless payment system. (The bank eventually adopted the service in April 2016, several months after many of its UK rivals.)
Other new players that are rocking the establishment’s boat include digital challenger bank Mondo; low-cost money-transfer and forex services Transferwise and WeSwap; and peer-to-peer lending websites such as Zopa, Funding Circle and RateSetter.
Historically, switching to a new financial services provider would have been about as pleasant as walking the plank. As recently as a year ago, the Competition and Markets Authority revealed that only 3 per cent of bank customers in the UK had ever switched their main current account to another provider, while 81 per cent had never bothered even looking at other options.
But, now that the industry’s regulators are breaking down the barriers that deterred bank customers from switching, people are starting to realise how much easier it is for them to move their accounts elsewhere. Equally, online price comparison services such as uSwitch, GoCompare and Compare The Market are making it easier for consumers to change their providers.
To respond effectively to all these threats, the industry’s stalwarts need to ask their customers what services they want and how they can deliver these. While consumers continue to thirst for innovative new products and services, their chief concern is data security. Global research by my firm has found that only 43% of consumers trust banks to keep their personal details safe. The equivalent results for insurers and credit card providers are 10% and 7% respectively. These figures are actually favourable compared with that of the utilities sector (3%), but they are clearly far from where they should be.
The study has also found that banks are by far the most likely to shed customers as a result of mistakes: 22% of consumers would switch to another provider for this reason. Banks could lose an even greater share of the market as it becomes easier for their customers to obtain value-added financial services elsewhere. Another concern for the banks is that, as consumers become more demanding, the definition of “mistake” will broaden.
Financial services providers are working hard to instil faith among consumers, but there is still a long way to go. Given the nature of their business and the sensitivity of the data they handle, companies across the industry should strive to give consumers far better service. As data plays an increasingly integral role in every interaction, it’s vital that organisations are clear about how they use their customers’ information and keep it safe.
Surfing with confidence
One way in which financial services providers are trying to improve the lives of their customers is through new technologies and communication platforms. But adopting the latest IT for adoption’s sake is probably the worst mistake an organisation can make. Adding new systems and processes can represent a huge upheaval. Embarking on such a voyage without a clear plan is like letting one of the pirates of the Caribbean take the helm of a 21st-century cruise liner.
As more and more banking transactions are conducted online, there is an overriding need to protect customers’ data with several layers of authentication. On the other hand, internet banking needs to be as user-friendly as possible. Banks have to work harder to manage the potentially crippling risk of fraud and its consequences without compromising the customer experience.
Some organisations are turning to advanced biometrics to tackle this problem. The latest technology is able to identify a customer simply by recognising his or her voice. This has the potential to reduce call times, deter fraudsters and make life easier for customers, who wouldn’t have to remember the typical assortment of passwords and PINs.
To stand a better chance of survival, banks need to put their customers first and give them exactly what they need. They must employ the right people with the right skills to implement this strategy and apply the right technology in the right way. If they fail to do this, they will continue to sail into the teeth of a storm.