Banks have come a long way since the financial crisis. In the aftermath of the crash, industry leaders had to balance both rebuilding profitability and trust with shareholder interests with strict regulatory oversight.
Given the highly competitive space in the industry, banks now more than ever need to put value on meeting customer needs and expectations. It's not enough to tailor to the traditional banking customer base.
In recent years, banking customers have diversified in age and expectations; banks must adapt to them with the way they reach out and communicate. It wouldn't be a stretch to say that the banking industry has grown and evolved more than most through the last few years.
The Battle for Customer Satisfaction
The battle banks have to wage today is largely over how customers see them. According to the 2017 American Customer Satisfaction Index; courtesy and helpfulness of bank staff, as well speed of financial transactions, are ranked higher on customer experience benchmarks. Now, banking products come lower on the list of customers’ priorities.
In short, customers today care more about how banks treat them. No matter how good or effective a product is, an unhappy or dissatisfied customer may not want (or be able) to separate the negative experience from a good product.
It also worth noting that customers are much more informed today than they were even a year ago. Given the highly competitive business environment banks operate in mean that customers have much more options. In turn, that means that customers can switch and transfer to a competitor at the drop of a hat.
Three trends that will define the future of the banking industry
1. The Millennial factor
The short of it is that millennials aren’t very impressed with banks. According to the American Bankers’ Association (ABA), 71% of millennials would “rather go to the dentist than listen to what banks are saying.” This is significant, given that ABA also says that by 2020, millennials will comprise around 40% of the consumer base.
Banks have largely mastered catering to the traditional, older market. But newer, younger customers want more. It’s important for banks to start thinking outside the box. A new direction and strategy is warranted. They need to remember that alienating millennials today means alienating future customers.
2. Mobile banking
Nearly half of respondents in a 2016 survey by Nielsen said that they checked their account balance or paid a bill through their mobile device. More than a third them said that they engaged in one or more mobile fund transfers in the past 6 months. The number that expects to do the same in the next 6 months rose by 6%. More and more people are using their mobile devices for what used to be major transactions.
Mobile is the future. All signs indicate a preference for banking on the go. While physical branches are still very much a needed fixture for a successful banking business, banks should not miss out on the potential revenue waiting in an effective mobile banking, as well as in cost-savings from more efficient operations.
In a previous post, we addressed how Wells Fargo expanded their mobile banking capabilities by allowing customers to use their banking app as a debit card at the ATM. This simple convenience can ease the annoyance of having to return home to get your card, or simply allow for peace of mind while traveling.
3. Trust and Security
Given the circumstances that led to the financial crisis, it’s understandable why many still distrust the banking system. The bank-related scandals, scams and hacking seen on the news surely doesn’t help either. A 2017 report from J.D. Power cite data security as one of the top priorities for users of mobile banking apps.
Also contingent on customer perception is the adoption of banks' mobile and digital services, according to the Federal Reserve's 2016 Survey of Consumers’ Use of Mobile Financial Services. And with only around 44% of bank customers expressing that their online information is "very secure" and 32% of bank customers saying that they trust mobile banking, there is obviously vast room for improvement in terms of making banking brands more synonymous with security.
This means that banks that display applications and services that meet the security demands of customers will have the upper hand over competitors. More secure banking services also mean less lawsuits and legal troubles down the road.
Accepting the Changing Times
Many of the traditional ways of profit generation for banks simply aren’t as effective today as they were before. However, other opportunities to earn income have appeared in their stead. Banks need to keep up with the rapid evolution in customer behavior and its relationship with technological advancements so they can adapt their own business strategy, and thrive.
Banks need to be more mindful of customer needs. Instead of the old “take it or leave it” approach, customer behavior now drives how companies will evolve and grow. This happens through thoroughly reviewing and understanding how the new generation of customers think. A proactive approach to security is also needed. Finally, banks need to use the most recent and preferred channels of engagement. This is not only for communication but also for utilizing banking services. This way, banks can find ways to improve service to their customers while also reducing costs and increasing profitability.