Like many industries pursuing innovation, banking and financial services often gravitate to hot topics such as decentralised and sustainable finance, super apps, or some aspect of the metaverse. While new technologies and initiatives do have the potential to transform the landscape of the industry, sometimes customers’ day-to-day requirements end up being overlooked.

What the customer wants…

A critical aspect which is attracting increasing focus is customer centricity and customer experience (CX). This is principally about creating financial products and services that customers want or need and making the process of engaging with them either frictionless or positively enjoyable. A great deal of effort is being expended - 75% of banks are actively investing in this to create new customer-centric services. However, poor customer satisfaction often centres around old and perennial issues such as a lack of transparency and flexibility, sharp practice, and inconsistent competence from service staff.

…and the banks need… 

For regulators actively encouraging competition between banks, the switching statistics are often a source of great frustration. Approximately 40% of UK customers have never switched banks, and of those that have, nearly 40% of those are unlikely to switch within a 10-year period. However, behaviours change with culture, and culture is shifting. Generation Z customers, whose expectations have been entirely driven by digital-first experiences, are most likely to change banking providers. Whilst the likelihood of switching tends to decrease with customer age, digital experiences outside of financial services are creating a more discerning customer base that is less tolerant of poor experiences.

Accordingly, the introduction of new services and better experiences is a commercial imperative for incumbent banks. Whilst these may help retain customers and fend off competing services from digital-first and big tech players, only 17% feel “very prepared” for a new breed of customer-centric business models.

Understanding the customer

It’s hard to build compelling services when you don’t really understand the customer. Building effective data and application integration infrastructures can break down data silos and mitigate many of the issues associated with a firm’s internal view of the customer. However, firms must recognise that their view of the customer is likely a limited perspective. To get a fuller picture, firms need to expand their horizons to understand their customers’ overall financial activity. 

In 2018, Open Banking paved the way for banks to share customer account transactional data with intermediaries to promote competition and encourage better financial decisions. Open Finance is a more ambitious initiative to extend the concept to a much wider range of financial activity. This creates a significant opportunity for firms to develop a richer understanding of their customer's financial activity beyond what is happening in their current account. It is estimated economies that embrace data-sharing initiatives within finance could boost GDP by between 1 and 5% by 2030.

Informing for change

Nothing is ever perfect. Despite the best of efforts and intentions, new services will likely be a constant work in progress. It’s hard to improve services in an information vacuum, so firms also need to understand how their customers interact with their services. Surveying the customer base is rarely an effective way to gather feedback or derive insight when only 7% of the user base is typically considered. Unsurprisingly, only 16% of CX leaders feel that survey data provides any useful diagnostic value.

For increasingly effective insights on customer experience, highly instrumented service platforms must be created, allowing integration infrastructure to channel usage data into centralised data repositories for subsequent analytical analysis.

Discovering and reacting to all insight

Due to the increasing availability of cost-effective compute and data storage resources, there has never been a better time for firms to exploit analytical initiatives to realise improved business outcomes. For many problems that are analytically well defined such as risk calculations and asset allocation, there is already a huge pool of numerical tools that exist to tap into. However, in the past when trying to solve ill-posed problems such as trying to predict customer behaviour, the tools have been less capable. People problems are just plain hard and awkward. Machine learning has proven revolutionary in this context because it has provided structured, repeatable methods to address problems that were hitherto intractable for classical approaches.

Advanced analytics have enabled significant outcomes across business domains including marketing, sales and compliance. But often many analytical initiatives implicitly target the exploitation of durable insights, where the insight is relatively static over time. This is the basis for what most people recognise as “business intelligence” and might include the breakdown of market constituents or the classification of customers into discrete groups. The problem for firms pursuing solely this approach is that they are missing valuable opportunities. 

Insights exist across a spectrum of defined lifetimes, during which one must identify and exploit them to realise a beneficial outcome. If firms wish to increase the volume of insights they can exploit, they must extend their activity beyond durable insights. This will enable them to exploit the perishable insights within their operations that exist at the shorter end of the insight lifetime spectrum. This is particularly important in the context of customer engagement with service platforms, where being able to infer that a customer has an issue in real-time and providing immediate mitigation is the difference between a customer that drives a positive or negative net promoter score. Over 60% of surveyed firms are beginning to prioritise the ability to react to CX issues in real-time, but only one in eight of them expressed certainty in their existing systems to support this goal.

It’s just the beginning

Investment in open data ecosystems, capable hybrid integration and real-time analytics capabilities create a solid foundation for firms looking to continuously improve experiences for their customers. But the benefits don’t stop there. Customer experience is just one disruptive dimension that firms need to address, and we should also look at how these data foundations can be used to address other significant challenges.