As more and more consumers continue to turn to Fintech disruptors in areas that were traditionally the province of banks, financial institutions are finding it increasingly difficult to differentiate themselves in the market. Already in 2015, majority of banking customers said that they would prefer to use their mobile phone to their physical wallet.
This is just one of many statistics illustrating the gradual phaseout of traditional financial methods in favour of digital alternatives. But what's interesting is that in many ways, the traditional banking sector has misdiagnosed the problem as one of technology.
In truth, consumers really don't care about the technology itself; they care about the experience they get using it.
Defining Customer Experience Properly
It's not just a trivial difference. Fintech adoption is already at 33% in the US because it is providing better customer experiences for many traditional banking functions such as lending, payments, and personal finance. Banks are definitely paying attention to these numbers, but are very often misinterpreting what they mean. The message many seem to receive is that lower costs and faster transactions are the only factors in a customer’s decision.
However, while these micro trends certainly do matter, they aren’t exclusive.
Banks looking to adapt need to understand the full picture of why customer experience is the new competitive advantage at the macro level. Finance is one of the most intimate things people undertake. Cost and speed alone wouldn't be enough to lure so much of the market to Fintech if customers didn't also feel like they were getting a better overall institutional experience as well.
What Are The Competitive Advantages of Customer Experience?
With that in mind, here are three big picture competitive advantages that customer experience can offer to banks:
Today's banking customers have certain expectations when it comes to their finances. One of the key factors of trust in banking institutions identified by IBM is that banks be “able to help [the customer] achieve their goals”.
If a customer discovers that a financial institution doesn't have the technologies that they expect, they immediately begin to question why. They also wonder how such institutions can be expected to meet their needs both now and in the future.
The lack of trust that comes with non-adoption of technologies is a huge hurdle for banks is a poor customer experience that is very difficult, if not entirely impossible, to overcome. Yet despite the disastrous effects of non-adoption on trust, many banks remain obstinate.
Banks must have a ready answer to the customer question “how are you going to solve my problem?” If they don’t they instantly lose credibility.
Positive customer experiences also serve as one of the most potent tools for driving engagement with a financial institution. Research shows that the overall superior customer experiences offered by the Fintech market makes more than half of consumers more likely to recommend Fintech over banks to friends and family.
This level of personalized recommendations is extremely difficult for banks to overcome since word-of-mouth is consistently shown to be the most potent type of referral. Since overcoming this generalized perception is extremely difficult, banks need to take the customer experience they offer seriously in order to driving engagement for their specific brand.
Positive customer experiences not only engender trust, they also command loyalty. People generally don't like to change their financial institutions if they can help it. Banks that follow up on the promise of their marketing and sales messaging with excellent customer experiences will often have a customer over the long-term.
This is why retention is one of the biggest revenue generators for banks. In fact, revenues from returning customers is a significant source of revenue for nearly three-quarters of payment and transfer companies.
Bottom Line: Understand Where Competitive Advantages Come From
Given the impact that customer experiences have on the competitive advantage of banks, mistakes to get it right are high. While it can be tempting to focus on the cost and speed of transitions, this is a mistake. These are critical parts of a customer experience strategy — but they are only one part of it.
A customer centric approach that is not merely transactional, but also grounded in traditional institutional goals of trust, engagement and retention cannot be ignored.