Banking has been in a perfect storm for the best part of a decade now. The excesses that led to the financial crisis, the burden of greater regulation and the steady stream of revelations about illegal or unethical behaviour have all but obliterated customer trust. And now, the digital revolution is fundamentally challenging the financial services business model.
Margins are under pressure, customers are more informed and more demanding, and innovations like peer-to-peer lending are bypassing the banking industry altogether. New entrants to the market are offering payments services online, unhampered by the baggage borne by the banks, whether that’s under-invested IT systems or customer scepticism.
On the other hand, in some respects banking is ahead of the digital wave. Unlike many consumer goods this is a product that can be wholly digitised. A vast number of people now bank electronically, especially the younger generation. In fact, many of these consumers choose their bank solely on the basis of the quality of its online and mobile offering, and associated benefits like text updates. It’s now all the more imperative that these services are efficient, easy-to-use, and absolutely secure.
But mobile and internet banking services are only the start. Digital makes it possible to tap into completely new sources of value, both for the bank and its customers. In some cases this might require new strategic partnerships with other players, though banks in general have traditionally been wary of taking such an approach in case it dilutes the relationships with their customers. In some respects they’re right: research shows that consumers are far more likely to buy additional services from their primary banking provider, though there is now a greater willingness to switch providers than there has been in the past.
The challenge for the banks is to exploit the potential of digital to develop deeper relationships with their customers, and to use the wealth of data available to them to offer far more targeted and personalised services. Indeed, there is probably no other industry where the need is so great – or the opportunity so significant – to put the customer at the heart of the business.
Today’s more demanding customer...