What drives customer centricity in banking?

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Through Louise KohlSenior Director, Banking, UK & Ireland, Diebold Nixdorf

The banking industry has changed significantly in recent years. I’ve seen banks overhaul strategies supported by legacy systems that no longer work for the modern customer. At the same time, consumer behavior has changed dramatically, accelerated by the global pandemic. Challenger banks have catapulted themselves into the limelight, attracting a multitude of clients looking for innovative products and solutions, with their fresh approach capturing the hearts and minds of younger generations.

At the heart of all these changes is the customer and the growing demand for solutions, products and services that are specifically tailored to their individual needs. As customer experience continues to drive change in the banking industry, it will be influenced to some extent by what brands do in other industries, such as banking. B. retail, do with their services. From fashion sites to supermarkets, customer centricity plays a central role in growth strategies. While personalization varies from industry to industry, a philosophical shift is occurring.

Alongside changing consumer behavior and the rise of challenger banks, digitization through data is playing a crucial role in the changes taking place. Each of these three drivers contributes to a more dynamic market for consumers and banks alike – let’s examine each in detail.

Digitization through data

Digitization and the enabling of digital customer journeys are crucial for banking strategies. Centuries-old systems in traditional banks have left many behind in the transition to a more connected world. This evolution focuses on a broader shift in strategy, but a key element is consumer centricity and learning from consumer data to understand what the next two, five, and even ten years must be like.

Gathering data is a big part of a digital strategy, but it can be a complex subject. On the one hand, the more data organizations have about you and your life, the better services they can (theoretically) offer. On the other hand, there are myriad issues and major ethical debates associated with data sharing, privacy, and the availability of that data.

However, banks are gaining better control over securely and effectively collecting the data customers are happy to share, which has been helped in part by regulatory governance, such as regulations supporting open banking. However, collecting data is only one piece of the puzzle, and the challenge is making the most of that information. The actual evolution of data-driven digitization creates a multi-layered approach to drive an intelligence-based service offering.

Away from traditional “product-based” offers towards customized and personalized solutions is the way forward. Delivering contextualized solutions that resonate with consumers and make a significant difference in their daily lives will accelerate those longer-lasting relationships and ultimately lay the foundation for loyalty and trust. After all, the consumer expects a more meaningful service in exchange for access to their data.

We see the potential for some examples to come to fruition as data allows for a clearer understanding of what people want. For example, in the mortgage space, there is likely to be a move away from standardized interest-oriented offerings to a place where banks are considering offering mortgages that more closely reflect today’s societal makeup, such as intergenerational mortgages. This underscores how a customer-centric focus is not only changing the path of digitization, but also the underlying approach to the product offerings behind this next-generation innovation.

consumer behavior

As previously mentioned, data will play a huge role in the future of banking, ensuring consumers are at the heart of any strategy – but just as important is ensuring we understand customers’ emotional needs, and data can’t always do that afford that more nuanced information. These nuances are better understood by delving into consumer needs and behaviors and how they are evolving.

Customer expectations for the way they want to interact with their bank or financial services provider are changing rapidly due to the pandemic and other major societal shifts. Now more than ever, customers expect to be seen by the bank they are with. Making day-to-day banking safe, easy and personalized is crucial, alongside understanding and supporting the bigger picture for each individual – whether it’s supporting life’s financial goals or aligning services with the wider economy.

We are currently in an economic environment where many households are feeling the pressure and trying to carefully balance wages falling at the fastest rate Britain has seen in two decades, with rising costs driving up the price of everything from fuel to food products. Understanding how this will affect individuals emotionally will allow them to feel supported during difficult times. Even simple actions like providing information, saving tips, or assistance with financial life skills can create outstanding customer service during more challenging times. I believe that it is precisely during these times that deep and lasting relationships can be built by acting with the best of intentions and adopting a genuine customer focus.

Challenger Banks

The latest trend driving consumer-centric banking is the emergence of the “challenger bank” and the healthy competition it creates. Challenger banks have become famous in recent years, and with good reason. What they offer is often a more innovative, faster moving and agile approach to banking – which of course creates the opportunity for a consumer-centric approach.

The rise of such banks has largely to do with capitalizing on changes in society and consumer behavior that have yet to infiltrate the banking experience. These include the popularity of smartphones and the availability of data on the go, a shift towards trusted digital retail experiences that require less physical interaction, and finally more dispersed societies looking to engage in new places. The COVID-19 pandemic has prompted consumers to switch to digital solutions. A McKinsey survey of 20,000 European consumers showed that digital adoption in Europe has increased from 81 percent to 95 percent as a result of the COVID-19 crisis – a rise that would have taken two to three years in most industries at pre-pandemic growth rates.

The growth of challenger banks is well documented, but in some cases all that glitters is not gold. A balance has yet to be struck between innovation and profitability, something traditional banks have navigated the landscape for centuries. Though light-footed and nimble, the path to sustained profitability can often be more difficult for challenger banks. New products and services may be inherently more customer-centric, but assessing their contribution to the bank’s long-term success is also crucial – to highlight the delicate balance between innovation and profitability.

As we move through the next phase of banking transformation, I believe that by focusing on the customer, the industry can make great strides. Customer focus and understanding will come to the fore, and leveraging data – while combined with a deeper emotional understanding – will play a key role in success. Banks need to use what they learn to drive innovation in products and services in a way that supports customers who are experiencing the tougher sides of our cyclical economy. Now really is the time for the banking industry to really put the customer at the center of everything they do.

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