As the proliferation of smartphones and internet connectivity reaches the level that you can even find both in remote rural villages in the least developed parts of the world, it should come as no surprise that a lot of industries are facing significant changes. Digital transformation is hitting the financial services sector square between the eyes, creating a distinct shift both in what customers expect of their banking experience and what different institutions can do to meet those expectations.
Naturally, traditional financial institutions like the big banks are one of the players, but they are increasingly facing stiff competition from disruptive fintech applications, in no small part due to the latter’s greater degree of innovation and adaptability. Even so, banks are not out of the race just yet. Despite their differences, both fintech and banks ultimately have the same target: to improve the customer’s experience.
A different kind of service
Traditional banks have traditionally focused on a service-oriented approach to helping their customers. This approach is entirely logical - giving a customer good service in any industry is far more likely to result in them remaining your customer than anything else you can offer. Many people will even willingly pay a slightly higher price if the cheaper option comes with a dreadful customer experience. However, the personal touch that banks have traditionally prioritised is no longer achieving the desired results.
There are various reasons for this shift. The first and most obvious is the reason we have already stated - people are increasingly connected through smartphones and want to be able to handle more and more of their daily business digitally. The ability to fiddle with your finances in any place and at any time is increasing more important than your bank manager asking after the health of your partner and children and knowing them by name.
Additionally, as successful as face-to-face interactions are at improving customer retention, there are so many customers and only so many bank staff, meaning that each interaction takes more and more time. Customers are increasingly unwilling to waste that much time on dealing with a relatively simple transaction when they can handle virtually any important process instantly on their smartphone.
Fintech has been at the forefront of creating solutions to the problems that customers have with their traditional banks. With advances in the relevant technology come more and more services that can be handled entirely digitally. It’s even possible to maintain an approach involving at least a sense of personal interaction with the development of chatbots.
Fintech may have been the first and fastest to respond to this shift, but they have not been the only ones to do so. Banks have been capitalising on the good will they created in the past and have been expanding the ways in which their customers can communicate with them. Many banks now have their own mobile app, allowing their customers to check their balance, transfer funds and, in some cases, even deposit a cheque without needing to step inside a bricks-and-mortar branch.
And yet, while they may be coming at the problem from different directions, that shared goal remains at the core of both approaches: to establish and build a relationship with the customer through a strong foundation of communication. For fintech, that means push notifications, emails and chatbots while banks still rely heavily on getting customers into branches.
For both banks and fintech, the emphasis in their development has been towards self-service. Of course, an issue with this is that customers may not realise exactly how they can optimise their banking without the assistance of an expert in the field. This creates a bit of a dichotomy, though. How do you help your customer without having a close enough personal relationship with them to know what they need?
The solution comes in the form of artificial intelligence (AI), especially in the form of predictive data analysis. By monitoring a customer’s interactions with chatbots as well as what routine banking tasks they conduct, what amounts of money they are moving around and where they are sending it to, an AI can help to optimise the customer’s experience.
In the simplest case, this could be extending a bank’s operating hours by using an AI-controlled chatbot outside of office hours. This maintains the bank’s ability to communicate with its customers, even when human staff are not available to do the communicating. With a bit more programming and creativity, it can be helping to speed up regular transactions by anticipating them and asking the customer if they want to repeat them (with many of the specifics already filled in, to make things much easier). In more advanced cases, it could be recommending additional services they might find useful based on their general banking habits, such as loans, investments and insurance packages.
Inevitably, it’s fintech that has been leading the way in the development of AI in banking. However, with a reported $130 million worth of investment and involvement in the technology in the US by 2026 (with a 28% compound annual growth rate), traditional banks are wisely picking up their act.
Aside from the customer experience improvements offered by AI, working on developing this technology can other benefits for banks. The same predictive algorithms that can detect an opportunity to upsell a customer can also spot an opportunity to protect them against fraud. Citibank has invested into Feedzai, which identifies fraud in real time by monitoring in-person and online banking activity and looking out for unexpected activity.
Helping customers help themselves
In solving the issue with slow service created by a lack of human staff to handle every customer, the banking industry is leaning increasingly towards the idea of self-service. Survey results published by Blumberg Capital have found that most Americans are finding that digital banking solutions have made their financial transactions easier than ever, to the extent that 57 per cent of them believe that traditional institutions will be rendered obsolete within their lifetime.
In fighting to remain relevant, bricks-and-mortar branches have brought in self-service kiosks to help speed up basic transactions, taking some of the pressure off human staff. According to a study by Source Technologies, they’ve been very successful in this, with customers completing transactions 13.5 times faster than before. Allowing personal teller machines to handle basic tasks like issuing and receiving cheques leaves the human tellers to handle more complex issues, meaning that every type of customer gets what they wants faster.
The goal remains the same
Regardless of the approach or the technology involved, both fintech and traditional banks are keeping customer experience at the forefront of their strategies. With customers expecting flexible communication and convenience in every aspect of their lives, financial institutions that fail to adapt to this expectation will find themselves losing customers to those that don’t. Whether that means extending hours of service with the use of AI chatbots or offering self-service options in the form of mobile apps and kiosks, it’s all working towards the digital transformation of the banking sector and helping customers get the support they need as quickly as possible.
While fintech and banks may be coming at the problem from different directions, the one thing they have in common is putting the customer experience first. Which approach will come out on top remains to be seen, though the trends are very definitely leaning more towards mobile banking than branches.
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