Can you institutionalise innovation without killing it?
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In the current climate, you’d be forgiven for thinking that digitization was the magic bullet to help banks retain customers and attract new ones. But customer expectations go far beyond having a mobile app and being able to make online payments. In the US, indeed globally, COVID-19 has not only changed the way we transact with banks but increased our demands of them too.
As we head into 2021, there are many tangible things banks can do to better meet consumer needs. But before I expand on these, it’s worth talking about trust. Trust is that great intangible belief which must be earned over time. Banks have a unique relationship with trust in American society. They provide a frontline, essential service but they’re also corporate institutions with huge marketing and profit-making powers. Traditional banks have accumulated trust over hundreds of years and still trade on it, while innovators such as the neobanks have had to start from scratch.
Brand trust comes into its own during times of hardship as has been proved during one of the most difficult years in living memory. While neobank user rates soared, the majority of US customers and small businesses stayed with the top ten banks – and deposited their stimulus checks, unemployment benefits, and emergency business loans with them. The main reason for this is because they were seen as a safe pair of hands. In a PwC survey of 6000 US consumers in May, online or direct banks had the biggest percentage of customers thinking of switching at 26%. Traditional banks and credit unions saw lower rates at 14% and 8% respectively. 5% of those surveyed even admitted that they’d changed their minds about jumping ship because of their bank’s response to the pandemic. Over half of these were from the big four, calling out “trust, personal communication, community outreach, and the stability that comes from size” as reasons for staying put.
If a brand is trustworthy, people are more likely to transact with and stay loyal to it. Every action visible to the public, whether it’s a product launched, service updated, mistake made, complaint handled, or message communicated, impacts that level of trust. So, here are three core areas where I believe banks can better meet consumer expectations and simultaneously acquire and grow their trust.
Sounds obvious, doesn't it? But for years the banking industry was guilty of being sales-led and relying on inertia or a lack of competition to prevent customer attrition. However, the digital revolution and the rise of tech startups have made mainstream players change their modus operandi. With satisfaction ratings now as important as revenue forecasts, one of the easiest ways for a bank to build trust is being truly customer-centric in everything it does. This makes it better prepared to resolve user pain points, design innovative products or services that add value, and personalize the customer experience.
Take the example of Citizens Bank. Faced with physical space and staffing restrictions during the pandemic, they digitized simple tasks in order to transform branches into advice centers. Specially trained advisors could then give face-to-face guidance on more complex processes that couldn’t be self-served, like buying a house or starting a business.
Or Chime, who through close collaboration with its bank partners and using its own capital, gave members early access to much needed money at the start of lockdown. Expanding its SpotMe service, first it ran a pilot to 1000 randomly selected members allowing them to be 'spotted' up to $1,200 well before the government had released their official stimulus checks. Then it rolled out $200 advances to a further 100,000 who met certain eligibility criteria.
The latter is a form of real-time data innovation and relates to a new model of personalization that Merkle's Paul Evers feels more banks should adopt now. It’s "not just a matter of reacting to your customer’s or prospect’s needs based on data, but refreshing that data 'in the moment' so that it is continuously improved to reflect the consumer’s changing and evolving needs”.
The second area with clear room for improvement is in data security and this applies to both traditional banks and their digital-only rivals. In a 2019 Accenture study to 47,000 global consumers, 60% of banking customers claimed they’d be willing to share their data in exchange for lower pricing. But while the banking industry in the US is responsible for holding more customer data than any other, it hasn’t yet mastered data security.
In 2017, 65% of major American banks failed web security testing. While Accenture’s last global cybercrime report showed that the average cost of cybercrime in 2018 was highest in the US at $27.4 million, a 29% year on year increase. More recently, in 2019, research by application security firm ImmuniWeb revealed that 97% of the world's top 100 banks are vulnerable to hacker attacks. In the same survey, the most targeted institutions for phishing campaigns were found to be Bank of America, Wells Fargo, and Citigroup. And in July this year, the FBI investigated a data breach by Dave where over 7 million records were stolen from a partner firm.
There’s no one solution to overcoming this industry-wide issue. But the public is increasingly concerned about how their data is stored and which 3rd parties have access to it. So the banks which continue to put data security procedures and post-data breach communication at the top of their agenda will benefit from more consumer trust in the long term.
The final area I’d like to highlight is around the act of compassion. People see banks as more than just a place to hold money. They expect them to look after their financial well-being too and put purpose over profit, especially now.
One bank leading the charge on this is Varo whose mission is to make communities more ‘financially resilient’. And to back this up, in September, it announced that it has saved Americans over $100 million in overdraft fees over the last year. In March, major lenders such as First National, Ally, Citizens, and PNC, started waiving one or more of their fees for loans, credit cards, and overdrafts.
Meanwhile, the big four made their mark by pledging hundreds of millions of dollars in public aid as well as halting job cuts and giving staff extra benefits like one-off bonuses or access to free counseling. Not to mention their renewed support of UN sustainable development goals and ESG measures (Environmental Social Governance) – emphasized by Bank of America’s $2 billion Equality Progress Sustainable Bond, the first of its kind in the sector.
Of course, these pandemic specific initiatives are admirable, but banks will need to find ways to make such levels of forbearance and compassion continue over the long term to support an American public who desperately need them.
As the industry continues to deal with the ongoing impact of COVID-19, the battle for hearts, minds, and wallets continues too. And that competition can only be a good thing for consumers. Sir Winston Churchill once said, “Never let a good crisis go to waste”. Well, never have those words sounded more apt than now as both the traditional banks and their challenger rivals have the opportunity to step up to the plate.
Somo is a global digital product agency with offices in Charleston, SC; Washington, D.C.; Detroit, MI; as well as London, Bristol, and Medellín.
If your business needs help to overcome its digital challenges, drop me a line at Jack.email@example.com.