Is your mobile banking app causing more harm than good?

How to get the right digital strategy in place if you are a smaller bank

Without the right digital strategy, small and midsize banks risk ceding built-in advantages to larger competitors. Below is a step-by-step guide on how to successfully move into the digital realm and retain customer engagement (and sales).

Mobile banking has become an imperative for retail bankers looking to keep pace with the industry and satisfy customers’ needs. It also benefits banks by reducing retail transaction costs. However, there are potential downsides to mobile banking if implemented without a coherent customer engagement strategy. And, based on recent industry data, we may be seeing the beginnings of this phenomenon.

Removing friction or reducing engagement?
Today, mobile financial activity across all industries is mostly transactional. Businesses built around foot traffic and routine purchase transactions – for example, convenience stores and quick-serve restaurants – enjoy mobile’s ability to take friction out of payments. This is beneficial for customers and also creates opportunities for businesses to improve the experience related to their core offerings.

But what if transactions are secondary to your customer value proposition, primarily a convenience you provide as part of an overall relationship? If your business is built on trusted, consultative, personal relationships with customers – such as banks, insurance companies, and financial investment firms – moving transactions to mobile without a well-developed engagement strategy can reduce or even eliminate formerly consultative interactions with customers.

For banks specifically, migrating customers to self-service channels gets them out of the branches and cuts variable costs but potentially at the expense of customer engagement.

Less engagement equals fewer sales, which reduces profitability and increases pressure to close branches. As more customers migrate to mobile and draw down transactional activity in branches, more branches close, further diminishing a bank’s ability to engage with customers.

A recent study from Bain & Company showed that over the past two years, US banks managed to cut routine branch transactions per customer from about 3-1/2 each quarter to 2-2/3rds, while the number of sales/service interactions remained flat. If a bank’s mobile channel fails to take up the sales slack, it begins to resemble a death spiral with mobile as the enabler.

Big banks build engagement into digital channels
The big banks understand this and have the resources to execute digital strategies that foster customer engagement in self-service channels.

The same Bain study showed JP Morgan Chase (JPMC) not only growing sales interactions in mobile but in its branches as well. One consequence of this performance is JPMC’s loyalty position in the western US improving from 25th to second in just three years.

Earlier this year, the three largest banks reported that 17.7–23.8% of their customers are now active mobile banking users, with the percentage of users growing rapidly. Not coincidentally, Wells Fargo and Bank of America – like JPMC – are also successfully recapturing sales opportunities in self-service channels as they migrate transactions out of the branch.

This advantage in digital execution is beginning to show up in measures of customer satisfaction. JD Power’s most recent retail banking study showed customer satisfaction with big banks rising for the sixth consecutive year, while midsize banks lost ground. Digital is a big part of this trend, according to Paul McAdam, JD Power’s senior director of banking services: “We clearly see that this customer satisfaction leaders in retail banking excel by hitting the sweet spot of providing a great digital experience backed by personal service.”

Small and midsize FIs can leverage built-in advantages
When it comes to digital customer engagement, it is possible for small and midsize banks to compete and even leapfrog the larger institutions.

Small and midsize institutions know best how to engage with customers, and applying that know-how methodically to current digital assets can yield immediate and long-term improvements – even with limited resources and disparate systems from multiple vendors.

This can be accomplished by aligning features in digital channels where practical, harmonising the user experience across channels, going further with social platforms (read the Avidia Bank case study here), and formalising digital incentives and loyalty efforts.

First: Take an inventory of your retail channels and conduct a gap analysis of features and functions from one channel to another. The gaps create dissonance for your customers as they engage with you across channels. Not all gaps need to be addressed: for example, ATMs are not likely suited for new account openings, but mobile is. Likewise, online and tablet banking may be better than the smartphone for some money management features where greater screen real estate is beneficial.

Develop short- and long-term plans to close the gaps wherever feasible to provide a cohesive experience, regardless of the channel.

Second: Compare the user interface, workflows, and overall experience for like features and functions across channels. Similar to gaps, forcing customers to learn different ways to accomplish the same task is all friction.

Develop short- and long-term plans to harmonise the experience from channel to channel. Something as simple as consistent colours and fonts make the customer feel at home whether they go online or walk up to a branch kiosk.

Are screen menu options for checking balances, transferring funds, or making deposits in the same order on your ATMs and in your mobile apps? Don’t underestimate the positive effect consistency has on customers.

Have a plan to build on these simple changes by working with your vendors to align workflows when adding or updating capabilities.

Now for the hard part: Implement social features that enable customers to engage with each other and your bank in an ongoing digital conversation. Beyond having a social presence on Facebook, Twitter or Instagram, is your presence sustained with regular and frequent postings and content (some great practical examples here)?

Crucially, your social efforts must cut across channels, and mobile is the most important because it is where customers primarily live their online social lives. Social is the medium and mobile is the platform.

And, finally, loyalty: Does your social presence have loyalty components that incentivise customers to follow and interact with you – special offers, premiums, points or similar? Once again, mobile is the key; it’s all about habits and consumers are developing new habits in mobile right now.

Reward consumers for engaging with you in the mobile sphere, even if the incentives are small. Once the customer – and your bank – are in the habit of conversing regularly, you are positioned for an ongoing and trusted dialog about their financial needs and how you can address them.

Moving positive customer engagement into the digital realm
The big banks always had advantages in technology and time-to-market. But small and midsize banks always had the edge when it came to meaningful customer conversations and loyalty. Rather than cede that advantage, smaller banks can advance it by taking what they have always done and moving it into the digital realm.

By Glen Fossella, EVP of enterprise growth at Urban FT