With the onset of competitors seeking to carve out market share in virtually every line of business within retail banking, traditional banks need to consider both long-term strategies and short-term adaptations.
For a long-term strategy, we suggest that banks transform how the customer thinks about a retail bank. Such institutions must focus on a broad range of underlying needs in order to become the “Center of the Customer’s Financial Health.” Just as a healthy lifestyle consists of diet, exercise and regular visits to a doctor, a healthy financial lifestyle includes sound financial advice that extends beyond just budgeting and saving.
The motivating idea is that banks have the opportunity to be known as the place that consumers go for a financial health check-up, and the first place to turn during a life transition or a personal crisis. By gaining a true understanding of their customers’ financial situation, banks can make themselves indispensable partners to their customers’ personal and business lives.
This approach requires customers to have a different mindset about their bank. They no longer need a bank with a transaction-focused mode of operations. Instead, the bank of the future has to be a trusted resource to which people turn when they’re contemplating life changes or coping with an unexpected situation. This new business model is a growth model with a recurring revenue stream that has profit opportunities for financial institutions with connections into a digital world.
In the short term, we recommend that banks develop a set of six essential core competencies to enable this transition. These competencies give banks the flexibility and speed to respond to changes in the marketplace, while at the same time creating the technical architecture required to support the bank’s future as the “Center of the Customer’s Financial Health:”
Be ready to co-create innovative solutions. In the hyper-connected economy, banks will no longer be capable – or expected – to build entire solutions on their own. That’s why we recommend that banks deploy legacy technology behind a standard set of application program interfaces (APIs) that can be deployed internally within a bank across channels. Using those APIs as a starting point, banks can share those APIs and work with external partners to co-create innovative new solutions that lead the industry.
Capture total lifecycle knowledge of the customer. In order to evaluate and improve the financial health of a customer, banks will need to aggregate customers’ information from various providers. A comprehensive customer relationship management (CRM) solution will encompass customer profiles, records of banking transactions and other user-supplied data from outside the traditional confines of core banking systems.
Uncover trends using analytics. In order to provide solid advice, banks will have to be leaders in analyzing and understanding customer behavior across a population. Strong capabilities in analytics will offer banks a way to improve customer profiles and market segmentation, toward the ultimate goal of predicting consumer needs and serving them as trusted advisors.
Provide personalized advice. While it may be possible to automatically generate advice, it takes the human touch to get someone to follow that advice. That’s one area where banks have an important role to play in the future, as the point of contact between automated systems and the mass market. Banks can prepare by building flexible content management systems to create libraries of content that can be shared with customers as appropriate for any given situation.
Guide the customer journey. Banks should be able to detect trigger events in the customer lifecycle and guide them toward the appropriate resources within the institution. From an operational standpoint, this can be accomplished using a digital marketing platform. These tools allow marketers to segment customers according to common profiles, and then launch targeted messaging for relevant products and services.
Support omnichannel access. The combination of devices that customers use to communicate with a bank should have little bearing upon their underlying financial health. Accordingly, as long as those channels can be adequately secured, banks should be prepared to deal with their customers no matter which devices or operating systems they use. The fundamental step banks should take is to separate the presentation layer from business logic, thus ensuring fast adaptation to new devices and operating systems.
By focusing on these core competencies today, banks will be ready to make the transformation to become the Center of the Customer’s Financial Health tomorrow. This approach to banking represents the strongest way to maintain a retail presence capable of withstanding the fast growth of digital solutions in financial services.
Moreover, we believe that a bank that operates as such a center will be strengthened by the continued growth of the non-bank fintech sector. That is, the more services and options that are available in the marketplace, the greater role there will be for consultative bankers that can match the right products and solutions to a given client’s financial needs. With this approach, banks can stop fighting the technology upstarts and redirect the building energy in the fintech marketplace toward their own objectives.