Customer-Centricity as a key success factor in Retail Banking
The current financial services environment is placing significant pressure on institutions to upgrade their IT capabilities. This is in part due to the out-dated IT functionality of prevalent CORE systems, but most importantly it is due to the volatility and rapid evolution of customer preferences and expectations.
Customer demands are generating a pull mechanism in which banks have to react and adapt to create new products, services, and channels at a quicker pace than ever before. Customers currently expect the same level of adaptability and channel integration from their banks as from other industries with more developed customer experiences (e.g. amazon). Thus retail banks can no longer rely on financial incentives and back-office efficiency but must truly place the customer at the center of their business model and adapt to their preferences and needs in order to maintain a competitive edge. This realization is embodied by the term “customer-centricity” and has become an essential element of a successful retail banking strategy in our current financial services environment.
True customer centricity involves a multi-faceted shift in a bank’s vision and strategic model - banks have to adjust and customize the key elements of their business towards each individual customer’s needs and preferences. Some key aspects of a customer-centric model include:
- The customer is king: Digitalization and increased competition have served to shift power towards customers, who now dictate the terms of business. Customer loyalty is no longer a given, switching is easy, and customers expect more than financial incentives. Thus banks must strive to enhance the customer experience and business decisions should have a customer-driven justification, rather than firm-internal drivers. Firms can no longer unilaterally decide to market products and services through the cheapest channel, they must develop an acute awareness of customer channel preferences and natural customer behavior and accommodate for this accordingly. This means that IT structures within a bank can no longer be designed for internal users and internal efficiency as they have been in the past, but must be designed for external users (customers) and must necessarily enhance the customer experience to create a competitive edge for the firm.
- The customer is an individual, not a group: taking a collective group or segment view of customers will not provide the personalized experience customers now expect. Consolidated customer information should be used to tailor each interaction to the needs and preferences of individual customers. In a world of laser-sharp targeting by firms like Google, offering the wrong products or promotions on an internet banking website can be seen as a customer service failure. Thus firms must focus on developing adaptive sales campaigns, customizable interfaces, and targeted marketing and communication. Technology trends such as Big Data, real-time analytics, and a shift away from product and service silos will contribute to even higher customer expectations regarding individualization and personalization. These technological developments should be used as allies to enhance the customer experience and increase the bank’s share-of-wallet in the long run.
- Pull instead of Push: The customer is the key driver for business decisions in a customer-centric business, and a such the bank no longer “pushes” channels, products and services towards the customer (e.g. by promoting channels with the lowest cost for the bank, or by offering products according to internal strategy), on the contrary, the customer must be free to “pull” the bank and define what channels, products and services he or she requires. This implies nimble creation and customization of products and services to evolve in real-time with customer preferences. Banks must have the flexibility to unlock new channels and adapt their product and service palette – this has deep implications from both an organizational as well as IT perspective.
- One unified bank: It is no longer enough to offer a full palette of channel options, it is now essential to achieve full, seamless, and invisible integration of these channels so as to provide a unified and integrated customer experience. The success of applications such as drop-box highlights that channel switching between iPads, iPhones, laptops, and wearable technology is now the norm and banks should adapt accordingly. This implies real-time information cooperation between channels and implies that channels must serve as perfect substitutes in terms of functionality.
- Change is everyday business: The pace of change in customers’ needs and preferences has accelerated exponentially in the past years, banks thus need to engrain change, adaptability, and innovation as part of their routine business model from an operational, organizational and IT perspective.
30% Revenue GrowthAccording to the Boston Consulting Group 2014 operational excellence report, leading banks consistently outperform competitors on customer-centricity. According to the report, a strong customer-focus results in up to 30% more revenues on average. A separate study by BCG (“committing to customers in the new normal” 2013) defines customer-centricity as a unifying theme amongst the top 5 trends of Premier-League banks. It is thus clear why repositioning the bank around the customer is a top priority in the current customer-driven environment.
Customer-centricity will be a key component of a successful retail strategy going forward, and it is inevitable that customer demands and expectations will continue to grow and evolve. Firms must therefore ensure that they establish the right governance, processes, structures and IT capabilities required to support the shift towards a customer-centric business model. Digitalization and efficient and effective use of customer information is an important first move towards developing a fully customer-centric organization.