Experience-Driven Banking

The rapid advancement of neobanks and the shift towards greater levels of fintech in banking, among other developments in the financial world, have made one thing very clear: customers want an easy life. Those companies that offer a user experience that is blissfully simple while still flexible and personalised tend to be the ones that do well.

This has been true for generations. The development of the credit card, ATMs, internet banking, mobile banking; potentially even the origins of banking itself can be found in the desire to make life easier. However, what makes the digital age different from banking’s medieval origins is just one thing: data.

One size fits nobody

Transactional data is a relatively recent innovation, but one that has been firmly grasped by the fintech industry and has helped shape its success. We have discussed how exactly this data can be applied in previous blog posts, but the short version is that it allows financial firms to tailor their products to their customers by using artificial intelligence (AI) and machine learning to monitor habits and trends.

Rather than using a ‘one-size-fits-all’ mentality to appeal to the majority, inevitably leaving those with niche requirements under-served, banks can see exactly what their customers need and offer a product to meet those needs. Even those that still choose the basic package approach can at least make sure that their packages fit the needs of the majority, rather than a combination of just the most vocal elements and the company’s assumptions of what people want.

Of course, this works to the benefit of both the customer and the bank. It takes relatively little effort to customise a product to the specific needs of the customer, especially with an AI monitoring those needs and the use of the product (for example, the repayments schedule for a loan). The return on that investment of effort is a vastly higher conversion rate for selling those products, which naturally means greater profits. People will be far more likely to buy a product when it perfectly meets their requirements, instead of having to decide between several products that each meet different elements of their needs, but not all of them.

“Dear Customer”

One study has found that a staggering 74 per cent of respondents feel significant frustration when website content is not personalised to them. Getting a message from your bank - indeed, from any company - with the heading “Dear Customer” generally makes people feel like said company does not really care about them. Certainly, it illustrates that they do not care enough to install a simple autofill box to pull the customer’s name from the mailing list and stick it in the greeting. The only thing worse is “Dear Valued Customer”, which only serves to confirm that the company also has no concept of irony.

Suffice it to say that experience-driven banking is as much about the customer enjoying (or, at the very least, not dreading) the experience of meeting their financial needs, as well as finding products and services that specifically meet those needs. In this regard, data is once again essential. It could be something as simple as programming a chatbot to answer common questions outside of banking hours using data that shows what customers frequently search for. At the more complex end, it’s about helping customers to help themselves.

A survey published by Blumberg Capital revealed that the majority of Americans now find digital banking makes most of their essential financial transactions easier than ever, to the extent that 57 per cent of respondents expect to outlive traditional banks. The simple fact that digital banking removes the need to endure the trip to the bricks-and-mortar bank for even quite complex and specific financial needs is the obvious explanation. The old stereotype of depressing, confusing and futile trips to the bank has been replaced thanks to a focus on improving the customer’s experience.

Beyond banking

One way that neobanks have been finding success is through going above and beyond what people expect of a bank. That doesn’t mean offering better interest rates, though that can certainly be a part of it. It’s more about applying fintech services to more day-to-day needs.

Finance does not exist in a vacuum. You do not live your normal life and then deal with finances separately. Finance is an essential part of daily life, from buying your groceries to paying your rent and utility bills to buying and running a new car and preparing for your retirement. However, most traditional banks still provide very few convenient connections between your bank account and the ways you need to employ the money stored within. This is [one of a wide variety of reasons] why cash remains in widespread use, despite the availability of digital alternatives. However, change is on the way.

Those firms that thought more carefully about the experiences of their customers are seeing some significant success. For example, UK property finance platform Hammock provides an end-to-end service for landlords, including banking, rent collection and even help with tax returns. It seems to be working for them as they managed to raise £1 million in seed investment in August 2020.

As we discussed in our post about neobanks, a fintech firm need not necessarily be an actual bank, storing their own reserves of cash. Through the use of APIs, they can simply aggregate products and accounts from other providers, integrating the best bits of each to create a more user-friendly service. FirstHomeCoach does exactly this. As with Hammock, this app serves the lucrative UK property market, in this case supporting first-time buyers. It does so by managing the whole journey from start to finish - from budgeting and saving to moving in.

Key elements of this end-to-end banking experience include managing and automating as much of the process as possible to remove the burden from the customer, maintaining regular customer interaction to put them at their ease and, most importantly, personalised service. As we said above, a “Dear Valued Customer” approach will destroy their trust in you and, in an end-to-end process, trust is crucial.

Challenges

The largest challenge inherent in an experience-driven approach to banking is the fact that each customer’s experience is invariably unique. While targeting a specific customer niche certainly improves the conversion rate, it is potentially challenging to manage as you will end up with as many products as customers. A modular approach helps, to a certain degree, as it is far easier to build unique products from established components. However, this is something of a compromise between individuality and simplicity and incorporates the worst of both worlds.

A further challenge is the simple fact that niches are not always that profitable. According to Statista, the UK property market saw a turnover of £68.1 billion in 2021, so that’s obviously not a concern for the likes of Hammock and FirstTimeCoach. However, the more specific you get in terms of your products, the fewer customers there are to buy them. That said, while each customer’s experience is certainly unique, it is rarely that unique. Everyone has roughly the same set of needs and interests and it’s just the specific details that vary. So long as you balance the cost of your products against the market they are pitched to, some degree of scaling and expansion will generally be possible.