Let’s face it, consumers have lost faith in the banking industry. After the exposure of Wall Street greed that led to the birth of the Occupy Movement and the recession of the past few years, consumers, especially Millenials, have become disenchanted with banks. One of their biggest complaints is that banks make no effort to get to know them as customers at the same time they are trying to build revenues by imposing more service fees.
Customers are Disenchanted
In an article posted by American Banker earlier this week, Derek Corcoran, Chief Experience Officer for Avoka, a global customer experience technology company, talks about the erosion of consumer trust:
“Consumer trust in banks took a big hit in the aftermath of the financial crisis, leading some people to shift away from traditional financial services. Meanwhile, some millennials are rejecting the banking sector altogether. Now a demographic that was once targeted by select financial institutions is being pursued by global powerhouses like American Express…”
Corcoran’s argument is that it’s time for the financial community to focus its attention on the younger generation and the underbanked or emerging financial service providers Like AmEx and Wal-Mart will capture those customers. These customers have no institution loyalty; a Scratch survey revealed that one-third of Millenials are willing to change financial institutions within 90 days, half are hoping start-ups change the banking industry, and 53 percent can’t tell their bank from the competition.
Smart banks are emulating the best practices of emerging competitors with mobile banking technology to attract younger customers and the underbanked. The FDIC reports that 32 percent of underbanked customers use mobile banking services as opposed to 22 percent of other bank customers.
Fees Makes Foes
Part of the problem is how the banking industry makes its revenue. As noted in a recent post in The Financial Brand, the change in the economic climate has led to a much greater reliance on fee revenue. Consumers are starting to look at overdraft fees as punitive, yet they are the single largest source of fee revenue for banks and credit unions. The reliance on fees breeds mistrust in younger customer.
According to a 2013 Think Finance survey, 45 percent of Millennials are turning to prepaid cards and payday loans to avoid transaction and overdraft fees. By promoting distrust with increased fees, banks run the risk of a mass exodus when the FDIC starts to raise interest rates later this year. One bank predicts that they may lose 8 percent of their deposit base or more than $100 billion when depositors start shopping for higher interest rates.
Promoting Customer Intimacy Through Technology
To win the loyalty of these alienated customers before they abandon ship, banks and credit unions are going to have to find new ways to connect with customers. More aggressive mobile and social media strategies may help, but financial institutions need to work harder to establish a dialogue with customers to learn what they want, and to demonstrate to customers that their needs are being met.
Eric Levy, a financial services analyst for GFK Custom Research, envisions a new banking future where technology helps financial institutions get closer to their customers by anticipating their needs. Levy envisions a new in-branch experience where identifying the customer as he or she enters the branch and using what is known about that customer, it’s possible to provide that customer with a range of banking services and financial strategies unique to their needs.
What banks need to do is make a better effort of getting to know the needs and desires of Millennials and the underbanked and developing service strategies designed to be more appealing and rebuild trust in the bank institution.
Big data is playing an increasingly valuable role here. Using big data analytics, banks can develop a 360-degree portrait of their target customer, their habits, likes, dislikes, and financial needs, Using data stored in the bank’s CRM system combined with external data sources that reveal market trends, big data analytics can deliver real-time insight into each customer and his or her needs. Rather than adopting a relationship banking strategy that treats every customer the same way, big data makes it possible to personalize products and services, and increase bank revenue at the same time.
To remain competitive, banks and credit unions are going to have to get closer and more personal with their customers so superior customer service becomes a real differentiator. Making customers feel special with products custom-designed for their financial needs will be the best way to revive relationship banking and to ensure the next generation of happy customers.