CapGemini: Fintechs create a turning point for banks - Anirban Bose

As fintech firms continue to challenge banks in the modern market, Anirban Bose, head of global banking and financial services at Capgemini, delves into the company's World Retail Banking Report to find out to what effect customer experience and digital technology can complement each other.

Banks are operating in challenging times. Growing competitive pressures from fintech firms, rising costs of regulatory compliance, low interest rates and sluggish economic recovery are all taking a toll on profitability. Having embraced and invested in digital technologies, they have developed a roadmap for driving innovation to enhance customer experience levels, create competitive differentiation and improve operational efficiencies. But all this may not be enough.

Capgemini recently launched the World Retail Banking Report (WRBR) 2016 with Efma and, according to the research, banks have improved customer experience levels by investing in digital technologies. However, they have not achieved commensurate improvement in profitable customer behaviours (for example, the likelihood of them staying, referring or purchase another product). Globally, customers with positive experiences were found to have increased from 48 to 55%, but customers' likelihood to stay with their bank increased by only 1.4 percentage points and they still represent less than 60% of the survey participants.

Fintech inroads make a compelling case for improving customer experience

While the failure to significantly improve profitable customer behaviour may be disappointing to traditional banks, the new competition from fintech firms is of greater concern. With no legacy systems or costly physical infrastructures to support, the more agile fintech firms are selectively targeting market segments such as payments, peer-to-peer lending and investment services.

Close to two thirds of customers across the globe already use products and services from fintechs (see figure, opposite). Customers believe fintechs are easier to use, provide faster service and a good experience. This rising appeal of fintech firms can also have a significant impact on the customers' loyalty towards their primary bank if they feel the fintech experience is better than the experience with their bank. Case in point: only 38.4% of customers said they would refer/recommend their bank to their friends, but over 40.0% more customers said they were likely to refer their fintech firm (54.9%) instead of their bank.

This is an important warning sign for banks, potentially leading to increased customer attrition, lower customer referrals, and a possible decrease in the propensity of their customers to purchase additional products from them - constraining their ability to improve their top line and bottom line. It presents a compelling case for banks to improve their customers' experience throughout the service-transaction(s) journey, given fintech competitors are already meeting customer needs and setting the standard for these customer experiences.

For now, banks still have the advantage of customer trust

Although customer trust and established relationships are still the strength of traditional banks, the advantage may disappear if they struggle to differentiate their services in this environment of rising customer expectations. The good news: 54.5% of customers have complete trust in their primary bank compared with 30.8% who have complete trust in their fintech firm. If, however, the responses of customers who "somewhat trust" the gap between banks and fintech firms is also considered, this narrows to just 3.5%. Fintech firms are making progress towards closing this 'trust' gap.

The path to superior customer experience

It's not easy to offer superior customer experience, but as these WRBR 2016 findings illustrate, it is essential to provide it. With rising customer expectations and new competitive threats, customer experience management is now a strategic priority. Banks can focus on the following five objectives to achieve the goal and provide a superior customer experience, consistently:

  • Understand the customer: banks should build mechanisms to capture customer feedback on an ongoing basis. Also, banks can work on customer-segmentation strategies to address specific customer pain points, as the 'one-size-fits-all' experience is no longer adequate. A shift from product-centric to customer-centric systems design is of critical importance.
  • Leverage technology: banks need to leverage analytical tools to manage customer experience more effectively. Analytics can provide a powerful capability to derive specific and actionable insights from customers' behaviour. Along with internal data, banks can leverage social-media platforms to interact more intimately with customers, providing more personalised experience through these increasingly popular channels.
  • Drive innovation: rising customer expectations and competition from fintech firms requires banks to compete by providing innovative products and services to the customers. Banks need to 'up their game' by providing more than just basic services and exploring innovative ways of serving customers' latent needs, which can provide additional impetus to the delivery of a superior customer experience.
  • Simplify processes: banks need to simplify their internal processes in order to improve their response time and ensure that the customer journey is smooth. New, easier-to-use systems and processes need to be developed. Reducing a two-click process to one click can make a difference to the customer experience.
  • Enable cultural change: the human element is still fundamental to delivering a superior customer experience. Banks need to undergo a cultural change, embracing customer centricity to differentiate themselves and compete successfully. Although executive buy-in and sponsorships are important, empowering employees - providing them with the necessary training and support - will be the key to success. Employee adoption ensures that change is sustainable and becomes integral to the organisation's culture.

Competitive differentiation: a key success factor

As the industry undergoes this extended period of accelerated change and rising competitive threats, banks need to focus on customer experience to drive competitive differentiation. They need to take a more granular view of the customer's journey, identifying and understanding their pain points and expectations. A comprehensive strategy needs to be formulated that includes a roadmap for each organisation that empowers employees with best practices for enhancing the customer experience. While technology can be a great enabler of change, people are the essential resource required to embed customer-centric values within the organisation.

Anirban Bose, head of global banking and financial services at Capgemini.