U.S. banks must embrace digital reinvention

By | 3 minute read | February 10, 2020

For the past decade, return on equity provided by banks has been flat and far below historical averages. Profits and revenue are stagnant. Banks must innovate and reinvent to find new ways to grow.

The path to success is driven by placing focus on prospects and customers — and forging new value propositions for customers. Financial institutions must embrace digital reinvention and grow their customer base by expanding their footprint and broadening their reach.

But expansion alone isn’t enough. There must be a highly compelling reason to acquire a new account, an account that drives revenue and profit for the bank.

This requires rethinking shared value, moving far beyond the traditional reliance on keeping customers’ money safe, lending and borrowing, and providing superficial “financial wellness” insights that have become the inadequate staple of many financial institutions. Banks must focus on creating an integrated experience strategy across the enterprise.

Creating value for customers

According to IBM research, 65% of global CEOs surveyed believe that the overall business landscape is shifting from a product-centric focus to an experience-centric one.

While most banks have not been bastions of exemplary customer experiences, the good news is that customers place significant trust in banks. This gives them an opportunity to provide value-added services centered on the consumer’s finances — one of the most personal, private and guarded elements of people’s lives.

Creating a compelling customer experience in the era of digital banking goes beyond providing interfaces that are easy to use and understand. Frictionless digital experience is certainly important, but truly no more than table stakes. The core of creating differentiated and high value experiences for customers is to offer true personalization.

Sixty-eight percent of customers say that personalization encourages them to buy products or services from their existing bank. Personalized experiences should include advice and offers from the bank that create individualized value for customers beyond understanding their finances. These value-added offers must demonstrate how the bank can help drive better outcomes.

Many banks are beginning to understand personalization, and the industry is ripe with examples. Here are two instances that bring the possibilities to life:

  1. Enabling an outcome for a customer. Imagine helping a customer who needs a car. Yes, that customer needs an auto loan, but first, she must find the right car and also acquire the appropriate auto insurance. A bank can create value by helping this customer realize her goal of getting a car first and foremost, instead of focusing on the auto loan.The bank can accomplish this by partnering with an existing service to help find a car, offering insurance for the car through a subsidiary of the bank or another partner, and finally providing the auto loan. This idea of bundled services to serve the customer’s total needs greatly improves the overall customer experience and provides differentiated value.
  2. Valuing the customer for who she is. Banks hold an immense amount of data on their customers, and they are receiving permission to access customers’ external personal data with increased frequency. Access to this trove of information allows banks to better understand individual customers and more effectively personalize their offerings.So when a customer applies for a new credit card or loan, for example, banks can offer her personalized pricing options for the associated fee or interest rate. This 360-degree customer view allows financial institutions to accurately estimate individual costs based on her past history and future purchase potential, rather than just a credit score.Further, a bank can create bundled offers for multiple products and services at the right price points and enable speedy onboarding in a matter of seconds for any add-on accounts. These efforts can lead to an increase in the number of accounts per customer, improved profitability and lower risk for the bank.

The landscape is shifting rapidly. Banks must reinvent their approach to creating customer value or risk a dark future.