Banking transformation begins and ends with the customer

In a world of huge innovation and rapidly evolving industries, the banking sector is navigating the seas of change at a much slower pace.

Can banks maintain their dedication to customer service while preserving their competitive advantage in an evolving market?

This inertia is largely fuelled by two predominant roadblocks. The first being that banks often interpret this crucial business challenge as a technological one, a perspective that ultimately hinders progress. The second stumbling block is the banks’ concentration on product-driven strategies, often at the expense of customer-centric ones.

Our research highlights an industry-wide tendency among banking leaders to prioritise Banking-as-a-Service (BaaS) solutions over improving customer loyalty.

From the outset, challenger entities, including fintech and big tech firms, have strategically embraced a customer-first approach. However, traditional banks have often underestimated these new players, relying on regulatory frameworks, customer inertia, and their substantial size as safeguards against such disruptive innovations.

Now that customers have access to a growing array of options to meet their financial needs, incumbent banks need to adapt and evolve to stay competitive.

The risk of underestimating competitors

History is replete with examples of industry titans falling prey to complacency. Take Blockbuster for example, the once paramount name in video content distribution during the 90s and early 00s. Its dominance, however, led it to dismiss Netflix’s potential, and it ultimately lost its once superior position.

Similarly, consider the case of Kodak, the pioneers of digital photography who held a sizeable market share for film. They presumed digital would only be a niche segment. Today, of course, the tables have turned, with film becoming the niche.

We’re observing significant shifts in customer behaviour across the finance space. Are these the precursors to an extensive industry transformation? Such a question can only be affirmed retrospectively. Nevertheless, if banks harbour concerns about being left behind, the opportune moment to mobilise and take decisive action is undoubtedly now.

Customer-centricity is the cornerstone of transformation

The starting point for modern banks is to define their objectives for transformation. Each change should be closely linked to a desired business outcome.

Often, the concept of transformation is incorrectly viewed as a technological issue. This skewed perspective can lead to significant challenges. Our research exposes a shocking truth: banks admit to a 20% loss in their customer base due to substandard user experiences, while a substantial 63% of banking leaders believe their slow pace in digital transformation has cost them in terms of new customer acquisition.

Banks must shift from a product-focused strategy and transition towards a comprehensive customer-centric approach. For instance, if a customer begins a conversation about their credit card and then wants to discuss a different product, the shift should be seamless. Customer service representatives ought to have instantaneous access to a complete overview of every customer’s financial history, equipping them to address customer concerns more effectively.

Surprisingly, the research discloses that a significant 35% of banking leaders believe they have achieved their transformation targets. However, there is a clear disconnect among the decision makers: a staggering 92% of managers would switch to a bank with more ambitious transformation aims, indicating that current strategies do not meet expectations.

Maintaining a competitive edge

Even as challengers continue to mature, 94% of bank managers maintain confidence in their ability to outperform the competition.

Yet, the increasing disruption within financial services is a genuine cause for concern among banking professionals.

Consider the rise of Apple and Google Pay – basic yet effective payment methods that have been widely embraced. By understanding customer needs and expectations, these big tech firms are progressively undermining the traditional ties between banks and their customers.

To date, banks have directed a significant amount of their transformation resources and budget towards superficial innovations, such as mobile apps. However, there are inherent limitations to such innovation, and it’s inevitable that customer needs will eventually surpass these developments.

Rethinking transformation

Despite substantial investments to date, a notable 65% of banking leaders feel that significant progress in transformation is still on the horizon. So, how can banks definitively tackle this challenge?

At the crux of the issue is a widespread misunderstanding, where transformation is often conflated with innovation. While innovation typically suggests a series of linear, marginal improvements, transformation implies a nonlinear step-change.

This viewpoint refocuses the industry on the fundamental problem: banks must tackle the business problem in its entirety, rather than merely improving technology.

Undertaking true transformation is no easy task. However, the opportunity significantly outweighs the resource investment. It all comes down to this question: can banks maintain their dedication to delivering high-quality customer service while preserving their competitive advantage in an evolving market?

About the author:

Antony Jenkins CBE is the founder, chair and CEO of core banking fintech 10x Future Technologies Group.

Additionally, since April 2021, Antony has been an external member of the Prudential Regulation Committee for the Bank of England. He is also chair of Currencies Direct.

Previously, Antony held leadership positions at Citigroup and Barclays PLC, including as group chief executive at Barclays from 2012 to 2015.