08 May How customer experience will dictate the winners in banking

The collision of the global banking industry and FinTech players is like an Avengers Movie – full of pyrotechnics and special effects but underwritten by a simple human story.

I want to share with you how customer experience will be the $134 trillion battleground for the future of banking. I hope to explain how we got here and what you can do about it.

A brave new world

Technology has changed dramatically in my lifetime. Think about the seismic shift in how we live and work over the last twenty years. Customer experiences and expectations have accelerated by 10x, and service providers need to catch up.

TIME CHANGE IN CUSTOMER EXPECTATIONS 1999-2019

Waiting for a ride.
Taxi (30 mins) – Uber (3 mins)

Sending a note.
Fax (3 mins) – Text Msg (3 sec)

Finding information.
Library (1 day) – Google (1 sec)

Banking has changed significantly over the same period. Opening a bank account used to take over a week, as we would wait for letters and make a few branch visits, but now I can open an account in less than ten minutes.

The new normal

All this technology-driven change has significantly reshaped what we expect from service providers. We demand information in real-time, and our services need to happen ‘today’!

Let’s use an example of how Amazon is reshaping our lives and entire business industries. They recently announced that 1-day shipping for their 95 million Prime members would be free. This speed of delivery, for free, was unimaginable only a few years ago.

Amazon is the leading factor in changing customer expectations. 27 major e-commerce retailers now have free 2-day shipping. This effect is called ‘Expectations Transfer’. So if you’re a traditional bank or a FinTech startup – you’re now competing with Apple and Amazon.

“As the technological barriers to entry lower, you’ll see more and more tech companies like Google and Amazon trying to act like a bank”

Cooper Smith, Gartner L2 Director of Amazon IQ Research.

The war on cash

Cash is dead. If you need proof, look at Sweden. In Sweden, cash accounts represent two percent of all transactions. Cash transactions are predicted to account for just half a percent by 2020.

Moreover, this all makes sense for the consumer – cashless payments are far more convenient. The bank wins too because electronic transactions can be 10x cheaper than analog alternatives.

It’s not just the banks that are getting into the action. CB Insights announced that Venture capital-backed financial tech companies raised an enormous $39 billion in investment capital last year. That’s more than 120% increase over the previous year.

Fast-growing Fintech’s are digital natives. This characteristic means all that machine learning and design thinking embody feeds a cashless paradigm.

The banking game has changed

Mobile applications are the home ground of digital banking. JD Power found 7/10 Americans are using their banking apps monthly and 1/6 say they’d switch for a better experience.

We are now firmly in the Banking 2.0 era.

Banking 1.0
Having an AVERAGE website and web app was considered GREAT.

Banking 2.0
Having a GREAT website and app is AVERAGE.

With customers now won and lost in the app store, we are witness to the first signs of trouble for incumbent banks. The cost of switching is getting lower, sending banks into a game of customer churn. Otherwise, known as the ‘Leaky Bucket Effect’.

The leading services that cause bank switching are the usual suspects: Bill Pay, mobile payments, budgeting, Loan app, and Alexa integration. These are no longer nice-to-haves. Banking 2.0 has ushered in a new set of customer expectations.

So how do we create better customer experiences?

Find the problem solution fit

The path to a bright future in banking starts with the customer. So the key word here is empathy. When we design new banking products and services, we need to solve problems for the end user. This approach goes far beyond the traditional definition of the customer in terms of banking language such as assets and liabilities.

Let’s get practical here – what big problem do banking customers experience? This question introduces a three-part methodology that’s perfect for digital banking.

The product fit method

1. Problem Solution Fit
2. Product Market Fit
3. Distribution Conversion Fit

The best way to define the Problem Solution Fit is to use the Value Proposition Canvas. At the center of the canvas is the idea of user pains and gains. These frustrations and needs relate to jobs or tasks the customer is trying to accomplish. They are trying to budget the month, pay a bill, go on a vacation.

A great example of my pains not being relieved is my bank. They are a large international bank that provides no budget tool on their website or app. They have also blocked third-party access to my data, so Mint.com will not automatically sync with my account.

My only option is to download and upload data between the two services manually. This time-wasting circus for a simple budget now means hours of work for me. Additionally, I have no real-time access to my budgets. For example, I can’t answer in real-time how much do I have left on restaurants budget?

To put this into context, scan the finance category in the iOS and Android app stores and you’ll see less than 5% of the publishers are banks. We all need to balance the budget every month, and yet banks have allowed hundreds of competitor apps to do that job instead.

Discover is the No. 1 app on Magnify Money’s rankings of finance apps. Here’s what’s interesting – in just a few taps Discover customers can:

• freeze their account
• report a card lost or stolen
• live chat with a Discover representative
• see a snapshot of their account without logging in to the app

Discover iPad users can organize purchases into categories for tracking and analyzing – you know! – a budget.

Test product market fit

The next stage of the Product Fit Method ensures we have a feasible product. Said differently, the app is reliable when we launch it.

The crazy thing here is that finance websites and apps spend too much time offline. One in four online banking users (25%) have experienced banking systems failures in the past year, according to new research by Consumer Intelligence.

So how do we build a feasible and robust product that does not crash?

The answer is to test with consumers under real conditions. Build a Minimum Viable Product (MVP) that sits on enterprise servers, with applications and real data. So next time you’re launching a new banking app, avoid the pitfalls of a waterfall approach – get agile and build an MVP and test with your customers before launch version 1.0.

Distribution Conversion Fit

The last part of the journey to building better customer banking experiences is advocacy. Here’s what one Fintech CMO said about advocacy.

“The growth for most finance brands moving forward is going to come from organic growth, such as word-of-mouth, referrals, and reputation,” she says. “That loyalty, trust, and advocacy are going to be the number one thing setting a brand apart in the finance category moving forward. We see that at Stockspot.”

Stockspot’s CMO, Melanie Novacan

Let’s break down this advocacy piece of the puzzle. What underlies this conversation is the ability of a banking or finance service to attract customers at an affordable rate.

All brands have the choice to invest paid and owned media. However, no matter how much a company spends on paid media and content it will never fix the wrong product. Moreover, users don’t advocate about inferior products. The opposite – they issue dire warnings.

The difference in marketing ROI is not paid or owned media. It is the single attribute of earned media. Said differently, advocacy and sharing of your story make the difference.

If customers recruit other customers, then magic happens. When new customers arrive at a service via family and friends, they already trust the service via the recommendation. This process means they sign up more frequently and much faster. Here’s the real kicker – they cost far less to acquire than those customers generated by advertising.

The most significant opportunity to trigger more advocacy for banking products is making better products. In the second place, is the opportunity to incentivize conversation, sharing, and recruitment through network effects.

Vanguard, Uber, and Airbnb all employ the system design of more value being created the more users join the service. We call this value a Network Effect. Now think about finance and banking. Why doesn’t my interest rate drop with my bank when I introduce my bank to a new customer?

First things first

For incumbent banks and Fintech’s – there’s plenty of work to do on meeting the needs of customers. Innovation in banking starts with acknowledging that Amazon is setting the customer expectations – not your local competitor bank.

As long as you address the pains and gains of users, you’ll be on a fast track to success. Capture the essential idea in an MVP and make sure you have a story worth sharing.