With COVID-19 still dominating the narrative across the global banking industry, arguably the biggest challenge lenders will face in 2021 is how best to maximise the customer experience amidst such a challenging environment. Indeed, given the low interest rates that have continued to weigh heavily on banks’ net interest income (NII), not to mention the impacts of the lockdown restrictions on banks’ capital, liquidity and loan-loss provision levels, the need to focus on optimising the customer experience from a profitability standpoint is perhaps greater than ever.
A McKinsey report from April only confirmed this view, with the consulting firm’s analysis of 23 publicly traded US banks finding that half of the sample with the highest customer-satisfaction scores delivered returns to shareholders from 2009 to 2019 that were a whopping 55 percent higher than the rest. “Delivering on customer experience will be an integral part of how banks reassert their positive role in society during the coronavirus crisis,” McKinsey noted at the time. “By addressing new customer needs and concerns while improving their own efficiency and effectiveness, banks will be a stabilizing force in a very uncertain environment.” Given the circumstances at present and going forward, this effectively means boosting investment in digitalisation. Even before the outbreak of the virus, banks globally were embarking on mammoth digital-transformation journeys designed to fundamentally transform how they interacted with their customers, change how they delivered products and services to their clients and place much greater emphasis on optimising the overall customer experience.
Indeed, the pandemic has greatly accelerated the need to go digital. Cashless payments, for instance, will likely become the norm as consumers continue to avoid handling cash, risking transmission of the virus. We have also seen a clear trend among customers of taking up digital banking, with even those reluctant to do so prior to the pandemic now accepting its importance and gradually becoming comfortable with digital channels. And through regular engagement with such customers, banks can continue to ease their concerns and enhance their digital experiences during the coming months and years.
The digital channels themselves, meanwhile, will have to be regularly upgraded and enhanced to meet customers’ continuously evolving wants and needs. Mobile apps, in particular, have emerged as the preferred method of banking for many customers. Forrester data from November showed that 52 percent of Italian and 42 percent of French adults using online banking had completed their transactions on a mobile website or app in the previous month. The market-research company reviewed the mobile apps of seven leading retail banks—BBVA (Banco Bilbao Vizcaya Argentaria), BNP Paribas, CaixaBank, Crédit Mutuel, Garanti BBVA, Banca Intesa Sanpaolo and UniCredit in addition to the neobank N26—to measure the apps’ functionality and user experience. The results were very telling: Simply put, mobile experiences impact business results. “A good digital experience is an important factor for European customers choosing a current account provider and a big driver of overall customer experience (CX),” Forrester acknowledged. “Our research shows that CX leaders grow revenue faster than CX laggards, cut costs, reduce risk, and can charge more for their products.”
And there is considerable evidence that the banks’ decisions to boost digitalisation are resulting in much happier customers. According to the data-analytics firm J.D. Power’s “2020 U.S. Retail Banking Advice Satisfaction Study” published just before the pandemic in February, for example, growing customer satisfaction with retail banks’ advice was largely driven by big banks’ digital tools. Overall customer satisfaction with the advice provided by a primary retail bank increased by 14 points to 833 (on a 1,000-point scale) in 2020 from the year before, the study noted, with the bigger banks not only leading in satisfaction with digitally delivered advice such as through websites, mobile apps and e-mails but also with face-to-face advice, which only further underlines the need for human input.
“Great financial advice is a key differentiator for retail banks at a critical moment in time when, according to our research, 41 percent of US bank customers feel unsatisfied with their current financial condition, and 39 percent are not confident they are doing everything they can to meet their long-term goals,” said Bob Neuhaus, vice president of financial services intelligence at J.D. Power. “The fact that banks are finding ways to resonate with customers as they move further along the continuum toward digital as their primary banking channel is encouraging, but banks are going to need to keep innovating to stay competitive in this fast-moving environment.” Such advice is only likely to resonate even more strongly as banks make the transition into a post-COVID world.
Indeed, with the impact of the virus set to impact customers throughout 2021, therefore, banks must be well positioned to accelerate their digital-banking prowess if they are to enhance customer experiences during this time. “This will provide a more personalized and intuitive relationship through all channels,” said Jan Bellens, EY’s (Ernst & Young’s) Global Banking & Capital Markets Sector Leader. Bellens also warned, however, that the human component will still represent a significant and accessible part of the overall customer experience. “Our customer research indicates that empathy and understanding need to be embedded into all interactions with customers. This concern is not so much about whether their point of contact is a screen or a human being, but whether they feel the bank understands their personal situation and is ‘human’ in its treatment.”
That said, many believe that the changes to the ways people bank that have been ushered in by COVID-19 may not be permanent. In EY’s August 2020 Future Consumer Index, which tracked how the pandemic is changing consumer behaviour toward banking, only 24 percent of those surveyed expected banks to operate more digitally in the next 12 to 24 months, and just 16 percent of respondents confirmed that the way they bank will change over the long term because of COVID-19. “It seems you can’t assume customers won’t revert to their previous channel preferences,” Bellens stated at the end of August. “If you want behaviours to stick, even in the current environment, it will be necessary to invest in marketing, to build awareness of the options open to customers, to share the successful experiences of new digital customers, as well as to support vulnerable customers or those that still do not feel at ease using digital channels.”
Such investments are not cheap, however. Banks will undoubtedly face cost restrictions in their pursuit of maximising customer experiences. Indeed, one of the explicit objectives of many banks’ digital transformations prior to COVID-19 was cost reduction. “Banks will need to revisit the optimal channel mix (e.g., in-person, self-serve, omni) and adjust the size of the workforce accordingly in an effort to find cost savings, while maintaining or improving customer experience,” Deloitte observed in May. But banks can expand digital self-service capabilities, which should be less costly than in-branch servicing or phone banking.
In the meantime, helping customers to recover from the pandemic will be at the top of most banks’ priority lists, which in turn means helping them to manage their finances and boost their productive capacity in as seamless a manner as possible. And this will be the case for much of 2021. Again, digitisation will likely play a central role in that process, but there are a variety of measures that banks can take to support their customers, with McKinsey identifying awareness, simplicity, transparency, clear expectations and frequent status updates as the key design principles for serving distressed customers. “Services and experiences that are likely to be increasingly important to consumers in distress include pausing loan payments; enabling customers to restructure existing loans; refinancing home-equity loans to provide near-term liquidity; resetting budgets to reduce spending; providing relocation services associated with new job opportunities,” McKinsey observed, “and, for small businesses, taking advantage of new government programs that have been introduced around the world to increase access to capital (many are likely to be intermediated by banks).”