Commercializing digital: Helping customers reach their goals

Very few banks have capitalized on understanding customer needs, for now

The most common hesitation we hear around digital transformation is the fear that the bank will lose the ability to have meaningful interactions with customers and miss the opportunity to cross-sell in the branch environment. The problem is that customers, especially younger ones, are already digital first and open to looking at alternatives.

The greatest gap within digital banking today is the ability to identify customer needs and surface relevant products to address them. Simply having a journey for a customer to open another account or product is not enough. Digital banking platforms remain woefully under-commercialized, which is a big issue as they are now the primary touchpoint with customers. Indeed, a digital transformation strategy that does not at its core involve a transformation of how we sell will fall short.

Underlying this lack of commercialization is the fact that many organizations (especially outside of tier 1 institutions) still see online banking or banking apps as servicing channels that simply contain the products that the customer holds. They are yet to shift their digital strategy to treat apps and sites as engagement tools first and functional servicing solutions second.

The risk for the banks that choose not to double-down on winning engagement is disintermediation. Third parties and non-bank providers have the potential to get in between the bank and the customer. Open Banking in the UK is designed to do just this: look no further than products like Apple Card (with Goldman Sachs sitting in the background) or Citi’s upcoming Plex account that will exclusively be distributed and serviced via Google Pay, to see how banking products can quickly be pushed to the background.

In short, if banks do not sell to their customers, someone else will. However, there are actions banks can do now to mitigate that risk.

Firstly, they need to look at how they can capture the needs of customers. There are two core ways to do this; through using the customer’s data or through using a tool or journey where the customer can define their objectives.

Using customer data either to target product promotions or, even better, personalize the messaging around products is going to be a critical area of development in the coming years. We will see organizations using behavioural insights to position products in a relevant and timely fashion to customers.

We see institutions like US Bank doing this today (through their partnership with Personetics), but really the best examples come from non-bank players. Credit score apps like Credit Karma (US) and ClearScore (UK) use the customer’s credit file and other data to create highly personalized messaging. For example, if a user has debt across multiple credit cards Credit Karma will display how much could be saved by getting a debt consolidation loan. It’s this kind of capability that banks will need to replicate.

To do this effectively though they will need to capture more data – both transaction data via open banking or account aggregation and other information like credit file data. An area we expect to see a lot of activity in the next 12 months in the US is in account aggregation for exactly this reason.

In terms of solutions that help customers define their goals and needs, the standout solution we have today from banks is Bank of America’s Life Planner solution. The tool lets users set their key life goals (eg going to college or buying a home) and then takes them on a curated journey through content, calculators, money management tools, and, ultimately, product journeys. Beyond this the best solutions for establishing and tracking goals come from investment solutions like Wealthfront.

Once banks have an effective mechanism through which to understand what customers need, it will be necessary to offer a product that services it effectively.

New mindsets

The challenge here is that most banks still operate as balance sheets. They take deposits and lend money, via a standardized set of established and highly siloed financial products. So, alongside a lack of development of digital cross-sell capability there is also a real lack of genuine product innovation.

This lack of development should be worrying for banks given the backdrop of radically shifting customer needs and an ever-growing range of alternative products being offered. Indeed, banks have done little to diversify their propositions. This means when challengers take aim at certain niches – like neobanks offering free overdrafts (in the US), free international card payments (in the UK), or BNPL solutions providing an alternative to credit cards – banks often finding themselves having to follow these brands and sacrificing a revenue stream in the process.

That said, more progressive incumbents recognize the need to become platform players – that is monetizing engagement and surfacing the right product to the right customer when they need it. The product itself might well not be one of their “traditional” solutions nor a financial product at all.

Therefore we see a growing number of banks outside the US and UK looking to offer “lifestyle banking.” In other words, selling customers non-financial products via digital banking platforms, with some sort of incentive or promise of an easier experience. This trend could not be better exemplified than in Revolut’s recent launch of its Stays solution, but it should be acknowledged that this practice of selling non-financial products has its roots in Asian markets, where it is well established.

While most banks are unlikely to adopt a truly open or marketplace approach to how they work to address diverging customer needs, some acceptance that third-party product will likely be key to keeping pace is going to be critical.

When we talk about product, we need to have a slightly broader concept in mind than what most banks have today. We should not treat products and digital capabilities as two distinct things – in fact the lines are increasingly blurred. The best examples are tools that do automatic savings based on the users spending activity, like Acorns (US) or Plum (UK). These tools read user transaction and balance data, initiate payments and store money in a savings or investment account. Financial products enriched with digital capabilities allow innovators to create novel propositions that can service needs differently.

Detailing the exact needs of customers and how various products can be aligned to those needs is a big task. Most banks will adopt (as they so often do) a watch and follow approach. See what the challengers and fintechs do and what works for them, and then copy if they can. This will suffice but will certainly come with giving up some ground to more innovative players in the market.

Digital platforms might be under-commercialized today, but we can expect real shifts in the next 12 to 24 months. There has been a clear uptick in interest around digital money management, insights, and cross-selling among our users, which normally indicates we are going to see some fresh solutions being brought forward on both sides of the Atlantic very soon. Watch this space.

Chris Ward
Principal consultant, London
chris.ward@curinos.com
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