According to the ‘JD Power 2014 US Retail Banking Satisfaction Study’1 released in May 2014, customer satisfaction with banks is at a record high, increasing to 785 this year as compared to 763 in 2013. This is attributed to banks making an effort to improve experiences for customers, reduce their problems and create an understanding of fee structures. The survey polled the responses of 80,000 customers of 130 banks, and was based on six factors: account information, channel activity, facility, fee, product offering and problem resolution.
The study pointed out that mid-size banks should focus on meeting the demands of their customers. It further stated that affluent customers were the least satisfied segment, and the opportunity to create personalized experiences for them is immense.
Despite recovery from the financial crisis, bankers are still facing challenges due to evolving customer expectations and regulatory changes. In order to augment business growth, retail banks have to gain a thorough understanding of their customers and focus on new technologies. Some of the key trends in the retail banking domain are described below.
Key Trends in the US Retail Banking Domain
Leveraging Online Channels of Communication:
As digital media shapes the fortunes of other industry verticals, it is gaining importance in the banking sector as well. According to the Accenture report ‘A Critical Balancing Act: US Retail Banking in the Digital Era’2, out of 2,001 US retail banking customers in 2013, 43% expected their banks to invest in and develop the online banking stream; 20% wanted a similar investment in mobile banking and 7% in social media.Banks in the US are looking at ways in which they can leverage digital channels to grow their businesses. For instance, Bank of America has a presence on several platforms, including Vine, LinkedIn, Facebook and Google+. On YouTube, the bank provides customers with videos that explain certain concepts, such as what co-signing a loan means. On Twitter, if a customer posts a query or makes a complaint, he or she is quickly moved to a direct messaging environment where a secure authentication process is initiated to resolve the problem.
Mobile Banking on the Rise:
Neobanks, which offer retail banking services without any physical locations, utilize online and mobile technologies to provide simple and streamlined low-cost banking services to customers. Take the example of Moven, which gives customers feedback on their daily spending instantly through their mobile application. Facebook friends can also be paid through the app.Like these upcoming alternative models of banking, traditional banks too have realized the potential of mobile connectivity. Besides offering free and secure apps, banks like May Bank and US Bank offer image banking or remote deposit capture to customers. This facility allows them to scan checks on their smartphones, and deposit them without having to go to the physical bank or ATM.
Using Technology Innovations:
Advancements in technology are making innovations possible in the banking sector as well. The Teller Assist interactive ATMs of Bank of America provide real-time video chat facility for customers. Without having to use an ATM card, customers can perform a transaction just by placing their driver’s license on a scanner attached to the ATM machine. Their identity is then verified by the teller through video chat. With this innovation, customers can also speak to a teller for special transactions, such as withdrawing money in certain denominations.Technology is also enabling the development of environment-friendly services. TD bank, for instance, offers ‘Green Machine’ ATMs, which are backed by wind power. These ATMs promote envelope-free deposit capabilities.
Leveraging Data and Analytics:
Financial institutions are using big data for a number of reasons, such as monitoring customer journeys to understand attrition rates and purchase decisions, determining lending credit risks, and ascertaining product pricing and profitability, among various others. For instance, Forbes reports that KeyBank employed analytics to evaluate its staffing needs and optimize its branch footprint, leading to an annual savings of USD 35 million.Much like in the retail sector, data and analytics can also play a role in providing bank customers with personalized offers and experiences. In fact, according to a Gallup poll of 9,000 US banking customers in 2013, 66% of fully-engaged customers felt that the offers made to them were very general; 41% of them reported that the offers were annoying; 53% already had the product with the bank. This study is indicative of the opportunity that lies in personalization
Innovating New Business and Operating models:
BAI.org predicts that banks will have two types of branches in the future: small ones which are technology-heavy, light on staff, and with a low-cost structure, and a small number of larger, expensive branches with full-service employees.Wells Fargo has been already testing the former model. The ‘Accenture Banking 2020’3 whitepaper also throws light on some other business models that banks can use, such as combining their front/back office operations with other banks to reduce costs; following a white label strategy, where they can offer front/back office products or services under a different brand name; or adopting a product expansion strategy where they can offer non-traditional products in branches or online to increase customer traffic.
Mergers and Acquisitions (M&A):
In April 2014, NewBridge Bancorp completed its merger with Capstone Bank. It was put forward that this merger would benefit clients by giving them a gamut of banking services – spanning traditional retail banking, commercial banking, mortgage banking, wealth management and private banking services. According to the Deloitte ‘Top 10 Issues for Banking M&A in 2014’4 report, while M&A activity in the banking sector will remain below pre-crisis levels, there are indications that it could increase from the figures that were posted in the past few years. Banks of different sizes could have M&As on their agendas for various reasons: larger banks aiming to rejig their product portfolio and geographical footprint; regional and mid-sized banks targeting asset growth; smaller banks looking to scale up, among others.
Reinventing Fee Structures:
Some banks have started looking at optimizing fee structures, in a bid to ensure that their revenue surpasses the cost of serving customers. For instance, Union Bank’s ‘Build Your Own Checking Account’ model enables customers to pay for additional services as per their requirement, giving them greater flexibility and giving the bank an added source of income. A Kurt Salmon white paper titled ‘Reinventing Retail Banking in the US’5 makes the following suggestions to arrive at the right pricing strategy: current market maturity, market share, IT impact, bank commercial strategy and customer price perception. After determining these aspects, bankers can align their pricing strategy with business objectives.
Deploying Automation Systems:
In March 2014, Americanbanker.com reported that Golden Pacific Bancorp had established a fully automated loan platform, for applications, underwriting and origination. This would reduce the time taken to process Small Business Administration-backed loans and make them a worthwhile avenue for the bank. An article on Mckinsey.com recommends automation as a significant opportunity for retail banks. With improvements in their IT architecture, banks can generate an increase of more than 50% in employee productivity and customer service.
Unlocking the Potential of the Mass Affluent Segment:
While banks do offer programs for the mass affluent segment, a few have realized the potential of this group and are taking steps to build their business even further. JP Morgan Chase bank, for example, offers the ‘Private Client Program’ for their affluent customers. The bank has redesigned its office spaces to create more than 3,000 private client offices and 400 conference rooms. All these branch spaces are luxurious, where customers can meet advisors and discuss their investments.
Key Areas where Outsourcing can Benefit Banks:
As is evident from these nine trends, providing superior customer service, leveraging technology and streamlining operations will play an important role in driving growth in the banking sector. Several banks have benefitted by outsourcing functions that are not core to their business to focus on critical domains, and optimize costs and productivity.
Some of the business requirements as seen in the above-mentioned trends that can be outsourced are:
- Customer Care: For round-the-clock and agile customer service, banks can outsource contact center operations to an experienced provider, who will support consumers across channels like phone, email, social media and mobile. Some outsourcing providers with expertise in customer care also have the capability to cross-sell and up-sell products, that will help generate additional revenue.
- IT Services: IT will play a critical role in powering the growth of retail banks. To make the most of the opportunity, banks can outsource their IT requirements, related to development of applications for the cloud, web, mobile or on-premise software, to an experienced IT service provider.
- Back Office Business Processes: The processing of customer information and forms requires considerable time and effort. Even in cases where this process can be automated, manual intervention is necessary to validate the indexed data and correct it in places where the system makes an error or fails in detection. Outsourcing back office business processes to an expert BPO provider will enable bank employees to focus on mission-critical tasks, while quality outputs are delivered through the outsourced process.
In December 2013 and January 2014, The Economist asked 242 senior banking executives around the world about the factors that will have a great impact on retail banking by 2020. The survey, titled ‘How regulation, client expectations and technology are transforming retail banking’6, revealed that 38% believed that changing customer behavior and trends would play a significant role in their transformation, and 31% predicted the credit would go to new technologies.
Thus, as described in the above-mentioned trends, banks need to focus on ways and means to improve customer experiences and capitalize on technological advancements. By adopting a future-ready approach, they can adapt to a dynamic business environment, to not just survive, but thrive.