In the mid-1990s, predicting that technology would transform banks protected by regulation and incumbency, Bill Gates declared, “Banks are dinosaurs, they can be bypassed.” Banks have avoided extinction, but in order to stay relevant, they need to innovate, harness digital disruption, and completely re-imagine their role in the customer experience. This shift in cultural mindset, especially for some of the older workforce, can be quite challenging.
The relationship that customers have with their bank, and with their finances, has changed over the past five decades. Financial institutions have been able to greatly increase the scale and sophistication of their services. Customers rely less and less on branches for their banking needs, preferring digital options instead—ATMs, on-line chat, mobile devices, and Internet banking. These advancements are considered to have enhanced customers’ banking experiences, but, at what point have we gone over the digital disruption “tipping point” and see a change in the fundamental banking business?
In a troubling trend, regional and mid-tier banks across the U.S. have fallen behind the largest national banks in mobile—according to 2016 U.S. Mobile Banking Functionality Benchmark. Only a year ago none of the big banks ranked at the top, however, this year Bank of America and Wells Fargo earned the highest scores, followed by Chase, US Bank, and Citi. Likewise, J.D. Power’s 2016 U.S. Retail Banking Customer Satisfaction Study noted that for the first time ever the largest six banks had taken the lead in customer satisfaction, largely through better customer-facing technology.
What Can Smaller Banks Do?
The focus on the consumer is primarily due to the impact of the smartphone’s ability to deliver an improved customer experience on a personalized level. But despite a competitive landscape, smaller banks with a digital focus are better positioned for success in the digital age.
As the quest for customers continues, the keys to success for smaller banks’ will be the ability to fully integrate digital into their business, and increasing personalized services to customers. This means going beyond digital capability per se, and enabling digitalization across the organization by reengineering business processes that foster innovation, with a core focus on the customer.
Don’t Lose the Personal Touch
Community and regional banks have traditionally prided themselves on providing a personalized service. Now, big banks are making significant improvements in all digital categories, and as long as they do a better job serving their customers, the market will continue to support them. How customers feel about a bank’s digital offerings could affect their views of other banking services—from fees to face-to-face encounters.
A 2014 Gallup survey showed that regional and small banks did a better job serving customers, making them feel they are on their side. As customer interactions continue to grow through digital channels, these banks need to invest in converting this level of personal touch to their digital platforms; banks that do a good job with digital and personalization win with millennials (e.g. Ally Financial).
Winning the Battle for Millennials
Millennials are the fastest-growing customer segment for banks. Financial institutions of all sizes are doing their best to attract and retain their business, as they are a generation expected to inherit unprecedented wealth. According to Accenture, more than $30 trillion in assets is expected to change hands from baby boomers to their children and grandchildren over the next 40 years. And these individuals aren’t familiar with going to branches—they don’t see why they have to see a “person” to get their business done, and don’t understand why business needs to be conducted with paper.
Being able to meet the demands of this emerging customer base, means investing in technology: mobile check deposit, peer-to-peer payment services, features like fingerprint recognition and mobile and online banking tools that speed up and take the pain out of day-to-day banking transactions.
Encourage Customers to Migrate from Branches to Digital
To remain competitive in today’s world, banks also need to prioritize teaching their customers the new technologies, and step up their efforts to encourage mobile adoption. Many older consumers require active guidance and information from banks about using mobile apps. By accelerating the migration of customers from high-cost branches to self-service mobile and online alternatives, banks stand to reap huge benefits.
Big banks’ advantage in technology is not new. What is new is how essential technology has become to everything we do, and banking is not an exception. According to McKinsey, “over 30% of financial services revenues could be displaced as a result of digital disruption.” With the country’s largest banks achieving faster in the increasingly important mobile channel, laggards will be putting their business at risk.
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