New ‘disruptive’ technologies and in particular social media have significantly changed the way that customers communicate not only with one another but also with businesses. Customers are no longer just the consumers of financial services; the platforms provided by social media mean that they are now also reviewers, idea generators, advisers, advocates and potentially detractors and saboteurs.
Generation Y is most strongly associated with this rapid uptake of social media, and this “digitally savvy” generation is also an increasingly important market segment. They and their families will, after all, be the main buyers of financial services in the next 20 years and beyond. According to research from TCS, Generation Y consumers already make up 50% of mobile banking users and yet 61% of financial organisations are still not offering sophisticated mobile services.
This generation fully expects social media to be an integrated part of a company’s customer service strategy, whether it is a retailer or a financial services organisation. As such, in the not-so-distant future, financial organisations and their staff will need to interact in a very different way with their customers and their social media strategies will need to be adapted if they are to succeed.
Traditionally financial services companies have been slower to implement customer engagement strategies compared to other industries. In part, this is due to a lack of requirement – customer retention has not been a significant concern for financial organisations as inertia has been high. Up until recent regulation was implemented it has always been perceived as difficult and complicated for people to change banks, something that is fairly unique to the industry. This has now changed, and research shows that 51% of banking customers may move in the next six months.
In addition to regulatory changes, new providers making in-roads into the financial services industry are increasing the pressure for traditional financial organisations to change. Companies that are ‘fluent’ in digital communication and analytics – for example, P2P lending, digital payments and insurance telematics, and online retail companies – are looking to take a share of the market. With 71% of financial services professionals saying that they expect mobile and telecoms companies to win market share from banks it is clear that this threat to the established players is very real.
It is therefore increasingly important for financial services companies and advisors to address the obstacles that are preventing them from implementing a successful digital strategy. Already, companies that are digitally mature generate 9% more revenue than those that are not, according to research from TCS. Despite this, fewer than five percent of financial organisations can today be considered to be fully digitally mature. Furthermore, just 23% of financial services companies have progressed their digital strategies beyond pilot stage and 45% of survey respondents said their organisations do not have a clear and well-defined digital strategy.
Research shows that the challenges facing the industry can differ considerably. For instance, retail banks’ biggest concern is the restrictions placed on investing in digital due to new regulations on capital requirements which affects the sums available for investment in replacing ageing legacy systems. In contrast, corporate and commercial banks are generally more digitally mature but cite skills shortages as their greatest obstacle. Investment firms feel inhibited by a culture of conservatism whilst insurers highlight fragmented processes as the main barrier for achieving digital maturity.
The good news is that most financial services companies are doing some level of social listening and customer support through mainstream platforms such as Facebook and Twitter, as well as adopting new methods of engaging customers. A good example of this is Nationwide, which is using social media to allow customers to influence key decisions. Its customers can vote on which charities Nationwide donates to every month and the bank provides vouchers as a way of thanking its customers for their engagement. As a result, Nationwide has strengthened its customer relationships.
These listening strategies can be extremely valuable but they do also bring challenges; in particular the need to manage ever growing volumes of data – and then turn that data into actionable insights. Banks should be using this data, both structured and unstructured, to build a more complete and useful picture of the customer. There is, however, polarity in how much the industry is spending on big data, with a minority of companies making huge investments while the majority are investing very little in this area.
Of course, the investment has to be part of a wider strategy that works for the business. The research reveals a disparity here, with those companies with the biggest projected returns on big data using it for different purposes from those with the lowest projected return on investment. As a result, we are seeing a few industry pioneers leading the way in big data. For example, Movenbank has been using a social wellness score in conjunction with the standard credit rating to determine credit worthiness. This is a good example of an organisation using social data that is available to them in an innovative and unique way. The data provides viable insights into a customer’s background, and is used to build a more complete picture of the individual.
Ultimately there is no ‘one size fits all’ solution for financial organisations and, although the social media landscape is rapidly changing, we are seeing some successful examples of financial organisations creating and facilitating an innovative culture by using social media platforms; some have even used social media to crowdsource ideas and suggestions for enhancements to existing products and offerings. Barclaycard, for example, launched a product called Barclaycard Ring, which is a crowdsourced community pioneered credit card. The ‘crowd’ is made up of the users of the card and they can make decisions about the product itself and benefit directly from the profits of the organisation. This is a great example of an organisation embracing the new roles that social media has provided the customer – allowing them to influence and make decisions – and creating an innovative and creative solution to appeal to its growing pool of Generation Y customers.
The right combination of the key components of digital, social, mobile, cloud and big data is, of course, critical to the successful implementation of a digital strategy, however, one aspect that is often overlooked is making sure your digital solutions are integrated into the wider business strategy. It is important to define clearly what the business wants to achieve before starting to introduce solutions.
As social and digital channels continue to grow in influence, there can be no doubt that the connected customer will continue to demand newer, more convenient services and engagement models. It is, therefore, vital that financial advisors focus on becoming more engaging, agile, insight driven, innovative and collaborative in order to meet the developing needs of customers and partners, now and in the future.
*Digital Roadmap Towards Digital Maturity Research from TCS and Destination Digital: The Future of Retail Financial Services Research from TCS referenced throughout