Keeping the personal touch

Storing customer data will introduce additional risk, but it may be the only way for retail banks to pursue digitalisation without sacrificing personal relationships

Retail banks often struggle to make headlines in the same way their fellow financial institutions do. When investment banks are supporting multimillion-dollar stock market flotations, the goings-on at high street banks can feel a little insignificant. This way of thinking, however, underappreciates the importance of retail banking to the global economy.

Retail banks provide the medium through which the majority of people interact with the finance industry and, as such, account for 45 percent of all banking revenues. Worldwide, they are also fuelling much of the industry’s growth, particularly in emerging markets, where the retail banking sector is developing at a rapid pace.

In Western Europe and North America, however, retail banks are facing a number of challenges. Historically low interest rates, tepid GDP growth and tentative consumer confidence are all denting profit margins. Shifting customer demand, meanwhile, is challenging banks to change the way they deliver their services.

This leaves retail banks facing a difficult balancing act. Pressure is building to introduce further efficiencies, usually in the form of new digital technologies, but not every customer is willing to abandon their brick-and-mortar branch. Appealing to disparate customer demands, therefore, will be one of the major challenges facing banks in the coming years.

Best of both worlds The ubiquity of smartphones and the internet has prompted businesses in all sectors to adopt digital services at a rapid pace. Retail banking is certainly no exception, and an increasing number of customers would prefer to check their account balance using a mobile app than by standing in line at their local branch. In the US alone, there have been more than 10,000 bank branch closures since the 2008 financial crisis, and similar stories can be found elsewhere, particularly in the developed world.

Customer behaviour is evidently shifting (see Fig 1), but that doesn’t mean that all banks should undergo a complete overhaul. According to the Boston Consulting Group’s report Global Retail Banking 2017: Accelerating Bionic Transformation, 43 percent of those surveyed preferred a digital-only banking experience, while the same percentage wanted a mix of virtual and physical interactions. Financial institutions should also be wary of neglecting the 14 percent of respondents who said they still carry out the majority of their banking face-to-face.

In order to please everyone, the most successful retail banks are delivering a hybrid customer experience. Certainly, the flexibility provided by mobile and online banking solutions is proving popular with customers who value convenience, but digital tools cannot replace a dedicated financial advisor – not yet, anyway.

There are, of course, many technological innovations that serve to enhance the customer experience without detracting from the human input they receive. Advanced security solutions, from two-factor authentication to biometrics, can be deployed to improve trust in the banking landscape, and social media output can be used to better interact and engage with customers. For many retail banks, the test will be whether they can embrace these technologies without disrupting the traditional banking services that customers continue to value.

The customer is always right If retail banks are to keep customers onside as they move towards an increasing level of digitalisation, they’ll need to remember the importance of personalisation. Data could hold the key here (see Fig 2), providing financial institutions with a way of identifying individual needs, even as they cater to a customer base of thousands or more.

Fintech start-ups are already using data to give their customers saving tips, tailor account services and detect fraud with greater accuracy. More established banks have been slower to react, but there are signs that they too are beginning to leverage data on a greater scale.

Financial establishments have already found that data can reduce customer churn and give them a better understanding of risk, and further opportunities will surely emerge as data analysis tools become more advanced. It is for this reason that enhancing data analytics capabilities was cited as the second most important strategic priority in the Financial Brand’s annual Digital Banking Report.

Given that the amount of data available to them is increasing all the time, retail banks have little excuse for treating their customers as a homogeneous group. Even so, there are still general customer trends that banks would be wise to consider.

Looking at customer behaviour on a national scale could help banks decide which particular services to prioritise in each branch. In the Netherlands, for example, 76 percent of customers prefer to have a purely digital relationship with their bank, but this figure drops to just 11 percent in the United Arab Emirates. Similarly, banks may be able to use data to identify similar trends as a result of their customers’ age or employment backgrounds.

Regaining trust Although the retail banking sector is right to embrace data and customer personalisation on a greater scale, a note of caution is worth sounding: with memories of the financial crisis still lingering in many people’s minds, trust in banks is not particularly high. Storing and analysing large swathes of customer data, therefore, is a huge responsibility and one that could go a long way towards restoring broken trust – or damage it further still.

In order to improve this relationship between bank and customer, financial institutions must ensure that personalisation is not viewed as an intrusion. Transparency in terms of what data is collected and what it will be used for will play a key role in convincing customers to hand over their personal information. Security will perhaps prove even more important. While it’s true that banks have always been a major target of cyberattacks, do not be surprised if fraudulent activity increases further as banks grow their treasure troves of data.

Although retail banks should use data carefully, they should not reject digital solutions entirely. When used effectively, data enables banks to deliver the digital services that many customers crave, without compromising on personalisation. It promises a banking sector that is simultaneously more flexible and more understanding of customers’ individual needs.