I just finished watching "The Big Short"; a film about the financial crisis and how one person, Dr Michael Burry, predicted the banking crisis. Despite being contrarian to the major Wall Street banks, the US Government, the credit rating agencies and the regulators, he stuck by his analysis and view and bet against the industry. A couple of smaller investment houses latched onto his theory, agreed, and also backed it. Effectively the banking industry had buried its head in the sand; it denied a collapse could be possible, let alone imminent.
When I see banks respond with a lack of urgency and investment to the changes in the industry driven by digital, I wonder if heads are being buried again. Will the impact of digital be as hard as the financial crisis? Changes are already starting to filter through and to me it seems inevitable that a number of banks will cease to exist in the near future.
Customers are already telling banks that they'd prefer to bank with Google, Apple, Amazon or Facebook. P2P lenders are facilitating billions in lending, and more brand new banks have been created in the last 2 years than the previous 100 years. In parallel, technology innovation grows apace from even smarter phones, smart/connected cars, home and cities to smarter AI and robots. Technology is having a profound impact in every industry, from farming to health care, manufacturing to retail; in fact I struggle to think of any industry not impacted by technology.
So it still begs the question why some banks are doing very little? I'd love to hear from banks that aren't investing in digital why this isn't a priority.
However, even for those that are investing: will they succeed and beat the newer players? If you've read Clayton Christensen's "The Innovators Dilemma", you'll know even successful, well run banks with smart people can fail when a market is disrupted. Why? Well, one of the reasons is because what made them successful previously holds them back from innovating the future. These banks have a deep ingrained understanding of today's customers; they have products and services for these customers and complementary processes for managing them. Tomorrow's customers are inevitably not their focus.
Steve Jobs has provided many relevant quotes on this; here's a couple of my favourites:
"It's not the customers' job to know what they want" and "get closer than ever to your customers. So close that you tell them what they need well before they realise it themselves".
As the industry strives to find the answers, I've spoken to many banks that do understand that digital will have an impact and that it has to be a priority, and are forming their strategy for transformation. In a series of four posts, I'll be sharing some views and insights on transformational thinking for digital banks. I hope they'll provide some help and, as always, I welcome feedback...
Why Customer Experience is Not the Proposition for Digital Banks
Post one of four blogs on digital transformation...
For many years, banks have been advised to focus on customer experience and it has become very much a C level issue, with some banks going as far as appointing a Chief Experience Officer. Wikipedia defines Customer Experience as:
"Customer experience (CX) is the product of an interaction between an organization and a customer over the duration of their relationship. This interaction includes a customer's attraction, awareness, discovery, cultivation, advocacy and purchase and use of a service."
However, for many of us not from a marketing background, we couldn't see the fuss. Surely every bank makes their website as attractive as possible, or their online banking as easy to use as possible? Can banks really compete solely on this kind of "experience"?
Of course, as a technologist, I am not meant to understand; this is the domain of the creative marketing teams. However, even speaking to bank marketing managers I found many lacked clarity about their customer experience strategy, sometimes not even understanding that a strategy was required.
Yet if you swap the word "experience" for "proposition" and start talking about "customer value propositions" things start to make much more sense. Indeed banks that shifted their focus like this even publish their customer value propositions online. For example, OCBC in Singapore make clear it is the solid credit rating, best in class products and expertise that provide a compelling proposition of leadership for their customers.
Charryse Scapignato of Macquarie in Australia, provides a useful six point checklist of how to create a strong value proposition.
- Does it resonate with your target market?
- Is it clear, simple and succinct?
- Does it really set you apart?
- Does it sound good when you say it out loud?
- Could it trigger a conversation?
- Is it true?
For digital banks, creating a highly targeted offering for finer segments will allow them to successfully differentiate and provide value to customers. After all, many banks will claim to have fantastic customer service, market leading products or easy access through any channel.For example, in the UK looking at the student segment identifies over 2.3 million students in higher education, of which 1.5 million are first time degree students. Or if you take micro-business, and consider those with less than 9 employees, there are over 5 million. The point is that "niche" segments can be large opportunities and high street banks are still treating these like generic banking customers.
For digital banks, without the legacy of requiring "physical presence" and traditional marketing like printed brochures, there is a huge opportunity to leverage their cost advantage with targeted offerings for these segments. However, whilst the vehicle might be banking, the destination has to be a clear differentiated proposition specific to that market.
For students, it might be "the most rewarding bank" – a bank that seeks to understand all your preferences, hobbies and habits, and turn those into rewards and freebie promotions. After all, how many students would turn down a discount to see their favourite band or get a cheap meal? For micro businesses, it might be "the bank that works for you" – a bank that helps them easily keep track of business expenses, helps them with tax returns or offers to find the best P2P funding.
Whilst customer experience is important, banks wondering how to beat challengers should look to define a clear customer proposition by leveraging the benefits of going digital. As Bill Gates poignantly said, "Banking is necessary. Banks are not". A focus on customer experience for banks only improves an existing bank; a focus on customer proposition can help redefine banking services. The former is cosmetic; the latter is transformational!
On the same basis, a bank's approach to big data and API's can also enhance or limit transformational banking... More to follow in my next post.