In banking today, the advice of Theodore Levitt (an American economist) holds true: people don’t want a quarter inch drill, they want a quarter inch hole. Banks must solve a problem not sell a product. To do this, they need to be customer-centric, understand the customer journey and the different touch points, and offer customer experiences not products.
Then there are the new kids on the block – Atom, Metro and Starling Bank, as well as the tech giant pretenders such as PayPal and ApplePay. Each of these organisations put the customer front and centre in their business model. The results are impressive. If PayPal were a bank, it would be the sixth largest in Europe. In the US, at the end of 2016 ApplePay was accepted by more than 35% of retailers – just over two years after its launch.
Start-up, established bank, or pretender – they all use digital technology to champion the customer and drive their businesses. It’s about making banking a safer, faster and better experience, and for the bank itself, more profitable.
At UK-based start-up, Starling Bank, founder and chief executive Anne Boden believes success lies in harnessing digital innovation not only to offer anytime and anywhere banking, but to also help customers address their real concerns and give them practical tools to manage their money.
From research, Starling found that many customers had trouble managing monthly finances, spending up to the limit and enduring an endless juggle to pay essential bills. Using digital technology, Starling gives real-time balances, helping customers know exactly what their account standing is. What is more, the bank can tell customers what is due to be paid before the next pay cheque comes in so that they can plan and make better budgeting decisions.
But digital can have a downside. N26, a digital-only bank founded in Germany with customers in 17 countries, believes that while digital customers are more engaged, they have higher expectations too. To meet these, digital banks must offer fast, high levels of service. Opening an N26 bank account, for example, takes just eight minutes via video link; customers receive real-time push notifications about transactions so that they can block any fraudulent activity; lost and mislaid cards can be blocked instantly – and unblocked when they are found. Customer numbers show that N26 seems to be getting it right. In just one year, the bank’s customer base tripled to 300,000.
These kinds of services are being offered today and customers are lapping them up. Looking ahead, service levels and add-on services are going to be even more important. Banking will become ambient – with virtual reality, voice control, artificial intelligence and augmented reality having a huge impact, helping to make the user experience richer, more efficient, more effective and more convenient.
Voice control, for example, will allow customers to talk to their phones, link calendars, check account balance details and shop, all in one. Know it’s your mother’s birthday soon but not sure exactly when? Ask your diary; get the date; find a local florist; choose some flowers; look up her address; check your balance to see if you can afford them; upgrade the bouquet because you have more than you thought; pay; get a receipt; know they’ve been sent; get your new balance. All by talking to your phone.
Then there’s virtual reality. Banks could set up a virtual meeting where a customer’s total assets and commitments are clearly outlined. Advisers can come in to offer suggestions about making the income and assets sweat according to the customer’s risk appetite. Does it make sense to release some equity in a house to invest in a higher yielding product? Would buying a cheaper insurance policy with a higher excess rate make more sense, as the customers’ claims are historically low? Not only would the bank be offering advice, the connections and inter-relationships between the bank and third-parties mean that the organisation would be able to influence any decisions. Streamlined and effective – how easy is that?
But a bank can, and should, go further. Data is rapidly becoming a key asset, but banks need good technology to collect, label and leverage it. For example, a bank could collect data on a payment – to whom the payment was sent, when, and where. It might even know why by checking against a diary. Is it a birthday present? Was it more than has been spent before? Is it a regular payment but more than before? All that data should be tagged to build up a picture of the customer, for instance how much he or she spends on birthdays each year. By adding 3% for annual inflation the bank can then create a birthday present budget, along with reminders of what was bought and the date of the birthday. This can all be fed into a monthly budget, with advice on how to make sure each month is balanced.
It all goes back to Levitt’s quarter inch hole philosophy. Consumers aren’t necessarily looking for a bank – they’re looking for services that make life better and easier. And increasingly, they want those services to run in the background.
Banking technology is already delivering better experiences for consumers – and helping banks become more profitable at the same time. It’s a win-win. But we’re only just at the beginning of the digital banking revolution. Based on the current trajectory, it’s safe to assume that customers will continue to demand better, more convenient banking, driving that revolution on. Get your virtual reality goggles ready, let’s see where this revolution takes us.