This year's the Digital Banking Report from Jim Marous is a record-setting 106 pages based on a crowd-sourced panel of 100+ financial services influencers combined with the results from a global research study of financial institutions. It identifies the key trends and strategies that will have the greatest impact during 2018.
The report says the top three trends for financial services firms in 2018 will be to remove friction from the customer journey, the improved use of data and advanced analytics and refinements in multichannel delivery. Their strategic priorities were slightly different — to improve the digital customer experience, better leverage customer insights and reduce costs.
Marous, who is also co-publisher of the Financial Brand, said the trends were the same as last year, except for one trend — testing and use of blockchain technology.
“The fact that the list of trends identified by the financial services industry has remained relatively consistent could be a symptom of a greater problem. The banking industry is moving much too slow, and legacy firms are failing to differentiate themselves.”
It could also mean that the banks are focused on their own issues — streamlining processes, reducing costs, and using data to pitch more products more accurately to consumers — creating a faster horse rather than developing something customers want, such as an automobile.
Missing among all the technical talk to AI, APIs, machine learning, big data and analytics was any sense of the customer, especially any sense of the customer as an active agent, or a larger view of the purpose of financial services in an individual’s life. My feeling, reading the report, is that banks and other financial institutions (FIs) are scrambling for better ways to push products at customers.
Marous notes that according to Forrester, “In a market where one-third of all customers say, ‘all banks are basically the same,’ it would make sense for executives and their teams to obsess over how to differentiate. Unfortunately, 2018 will look more like a digital arms race between warring incumbents than a year in which firms find new ways to specialize and create value for customers.”
The report says that banks are working on building trust.
“Financial services organizations are working hard to improve transparency and increase financial education that will benefit the consumer. This includes unbiased shopping tools, budgeting software, proactive product recommendations based on stated financial goals and a focus on long-term relationship.”
The report is short on specifics here, and the huge settlements against leading U.S. banks certainly suggests they are often not serving the best interests of their customers. Last year Javelin Strategy & Research looked at trust in banks and gave top ranking to Navy Federal Credit Union, USAA and Regions Bank.
What makes a bank a trusted financial provider? Shoving credit card offers into mailboxes, building profits on NSF fees and steering investment customers into high cost, under-performing in-house mutual funds don't help.
Mark Schwanhausser, director of digital banking at Javelin, has said building trust could be as simple as providing prompts to save through online, mobile or phone when a customer contacts the bank. The bank could encourage a customer to build an emergency fund and when that is sufficient, suggest investments. Instead, many banks seem to encourage customers to spend — proposing credit cards and home equity loans.
Except for niche players like Simple and Moven, which help customers understand their spending and budget for goals like a house or vacation, that concern for the customer’s, as opposed to the bank’s, financial success seems rare.
The report quotes Jim Van Dyke, CEO and founder of Futurion said this can change by moving more information to the consumer.
“2018 will bring more capabilities for shifting more control of one’s finances from banks, merchants, or processors to the end-user. These highly intuitive, trust-creating controls will ultimately drive higher spend, loyalty, and trust, with lower misuse.”
Missing here is any information on where the higher spend, not to mention loyalty, will be.
Chatbots or online calculators are probably still a few years away from providing intelligent advice, but a moment’s reflection shows where the problems will occur.
“Alexa, I just got a $500 raise. Am I better off putting it into a larger mortgage payment or into an IRA?”
“Put $300 into your IRA so you don’t get bumped into a higher tax bracket, and use $200 to pay off the principal in your mortgage faster. And congratulations on the rise and the plans to improve your savings.”
Okay, our customer has a checking account with Bank of America, a mortgage with Quicken Loans and an IRA with Schwab. Who is going to host this advice engine? Maybe Credit Karma, or Amazon or Google.
One of the more intriguing comments in the report was from Craig McLaughlin, president of Extractable, a San Francisco-based digital strategy and UX design agency, who said conversational commerce is the way of the future.
“The frontlines in the battle for the new customer will shift in 2018. Tomorrow’s conversational commerce, AI, and big data will transform the Facebooks, Amazons, Googles, and Apples of the world into the key gateways for new customers.”
The term conversational commerce apparently was created by Chris Messina of Uber and suggests two-sided participation. That’s a big shift from using technology to learn about a customer and then present a selection of products.
Marous is concerned that bankers still don’t understand the change occurring around them.
“The industry is deluged with research on the importance of branches. Study after study proclaims that consumers want branch access and they don’t want their favorite branch closed. While there are indications that physical locations still are needed, the importance of banking branches in relation to digital capabilities has seen a continuous decline.”
Banks face a danger of defining their business in terms of past practices souped up with fancy new technology like AI and machine learning. They could take a lesson from design thinking and ask what customers want, or need, not simply what is good for the bank.
While banks are competing with each other, tech giants are expanding their business. Bain noted that: “Many of the tech giants possess the ingredients of success: digital prowess, large customer bases, organizations well versed in improving the customer experience, and ample leeway to extend their corporate brands into banking.”
More concerning, added Marous, “some of these firms are generating a level of trust previously reserved only for traditional banks and credit unions. As a result, an increasing percentage of consumers are willing to use financial products offered by these non-traditional firms – especially where the experience is superior to that offered by legacy organizations.
