Over the past three months, more than a quarter of a million people left their bank. It’s perhaps not a massive surprise, but those hit the hardest were the market’s more established players. Whilst leading banks such as Barclays and Santander have fared better, seeing only a handful of customers leave, others in the mid-tier are reporting losses of up to 17 customers to every new customer that comes in.
Of course, we can only speculate on people’s reasons for leaving their bank. But there appears to be a strong correlation: the more digital investment the bank has made, the fewer customers lost. In fact, online-only challenger banks such as Monzo, Starling and Triodos boast an average of seven new customers for each one they lose. HSBC and Nationwide, who have joined them in making serious investments into their digital strategy have also fared well. So what can the established banks do to continue to compete in the space? It all comes down to how they meet the customer experience through the adoption of digital.
In the current market, consumers hold all the power – and they know it. They certainly won’t stick around if they can get a more convenient, better experience elsewhere.
That means banks showing the consumer that they – and their needs – are understood. Customers ultimately want to bank with institutions that listen to them, support their lifestyle and are flexible enough to allow them to manage their money the way they want. If a bank can prove they ‘know the customer’, it’s a big step towards getting, and more importantly, retaining their custom. Just look at challenger bank Monzo who develops unique features it knows customers will appreciate, like releasing salaries a day before they’re paid.
In fact, this is why digital banks are thriving at the moment. They’re exploiting the opportunities, using technology as a way to understand – and create – the very best customer experiences.
The challenge for the established banks is the struggle to provide this level of customer centricity and digital convenience, even though they’re well aware it is what consumers crave. In order to offer a personalised experience, banks need the customer insight to design this journey, and the flexibility to implement it based on their findings. However, the larger, established players are often burdened by information silos, unwieldy legacy platforms and infrastructure, as well as a fragmented approach to data collection. Challenger banks, on the other hand, are a dab hand at the above approach, having focused on analysing and actioning data since their inception.
However, it’s not too late for incumbent banks to bridge the gap. Transformation may take longer and potentially be more cumbersome for them, however numerous pathways exist meaning success remains within their reach. The secret is understanding which modernisation activities will make the biggest difference and focusing efforts on these. Perhaps it’s breaking down organisational silos to better exploit customer data; maybe it’s wrapping legacy systems in APIs that support new services and experience; or even migrating key platforms onto the cloud.
Just look at Avanade customer Towergate, one of Europe’s largest independently owned insurance brokers. Following numerous acquisitions over a 20-year period, the company’s IT footprint had mushroomed into hundreds of systems, applications and processes, leaving fragmented and unstable infrastructure that was expensive to run. When Towergate approached us to support an IT reboot, we recommended they zero in on the key areas that would bring the most value. The subsequent transformation project included data centre and hosting, network and telephony, end-user computing and service support. Most importantly, however, it brought tangible results straight away, with Towergate reporting an immediate cost saving of 30%.
Tools and platforms are only part of the story – without the right people and processes to leverage the full potential of technology, even the most robust transformation efforts will stall. And yet, a modern workplace experience is essential to attracting today’s top talent. If established banks hope to secure the young, tech-savvy talent that challenger banks are snapping up, they need to offer the same tools and services these people draw on in their private lives – or with their previous high-tech employers such as Google and Microsoft.
However established banks face the same challenges with digital workplace experience that they face with digital customer experience. Their siloed data and legacy infrastructure hold them back from rolling out digital tools and sharing customer insights. Indeed, our recent Workplace Experience survey shows the uptake of digital workplace tools is low in the Financial Services industry, despite a largely optimistic attitude towards the technology. While 76% of respondents believe workplace technology can have a positive effect on their work, email is still the most popular tool, used by 88% of respondents. More modern and collaborative tools like Teams, Slack and Skype have been adopted by only 44% of respondents.
It is once again the digital infrastructure that will help traditional banks overcome these challenges, but this will only be possible if they succeed in engaging the workforce to integrate the technology into their daily work. And this is a largely leadership-driven process: it involves communication and training, as well as change management. At Avanade, we have worked with clients who have tackled this challenge in many different ways. Some have introduced champion networks or talent communities to provide an example of best-practice use. Others have sought to legitimise new technologies by getting leadership to set the right tone from the top. The most important thing is highlighting the ways in which employees will benefit from the technology and providing as much support and encouragement as possible in their transition to using it.
When it comes to taking on challenger banks, it’s not always about imitating them. Established banks shouldn’t forget that in many respects their size actually affords them an advantage. For example, bigger banks are much more experienced at managing risk, and they typically offer much broader product and service portfolios. Smaller challenger banks may be better positioned to add neat digital features to their retail offerings, but when it comes to rolling out more ground-breaking, riskier products – for example mortgages or even digital currencies – it’s the more established players that are better placed to produce watertight offerings.
Sometimes the battle isn’t about established banks tackling the smaller players head-on – it’s about accepting their differences and playing to their strengths.
Established banks need to find a way to stop their customers from deserting to challenger banks, and ramping up their digital experience is the best way for them to stem the flow. Established banks can’t hope to embark on transformation at the same pace as smaller, more agile, challenger players. However, the battle is far from lost. By focusing on the areas where transformation matters most, and playing to the unique strength of their size, established banks are well placed to win back the customers they have lost to their smaller rivals.
Nic Merriman is financial services chief technology officer at Avanade