Long reads

4 things banks can do in 2021 to protect customer relationships

Annerie Vreugdenhil

Annerie Vreugdenhil

Chief Innovation Officer, ING

The age-old business saying ‘customer is king’ may be more relevant than ever in 2021, given the circumstances banks have to operate in.

Spurred by surging demand for digital services during the pandemic, banks are tasked with speeding up their transformation agendas to cater to new customer needs. With consumer behaviour impacted to an extent only seen in times of wars and revolutions, what can banks do in 2021 to ensure long-lasting customer relationships?

Let’s have a look at the context.

Welcome to the future

A global survey by McKinsey shows consumer and business digital adoption progressed five years in only eight weeks. Eight weeks! If there’s one thing 2020 proved, it’s that digital progress doesn’t have to take years. Microsoft for instance, saw two years’ worth of digital transformation in two months.

What does this mean for banks?

The move to digital channels, social distancing, remote working, new spending priorities, and fear-driven and defensive financial decisions are trends that will continue to make an impact in 2021. With more and more people growing comfortable with digital services, a post-Covid surge of bank switching is expected in 2021. These trends are informing the technology investments that will define 2021 in banking.

Digitalisation is a no-regret move

In times of crisis, banks – like other companies – focus on ‘putting out the fire’: looking after clients, employees, and safeguarding their business operations. But with a clear outlook that digital experiences will continue to grow in popularity, banks cannot afford not to commit to increasing their investment in long-term digital strategies.

It’s not easy. While efficiency measures are demanded, investments are necessary. This is why digitalisation is a no-regret move. If done properly, it will improve product and service quality, save costs and improve the customer experience.

Here are four things banks can do in 2021 to cater to the new needs of their customers and ensure loyal relationships. 

1.       Understand your customer through data analytics and AI

To use resources efficiently in 2021, and offer the personalised experiences that customers expect, banks need to understand their post-pandemic customers and their digital presence. This is where AI and data analytics come in.

Besides enhancing efficiency through automation (e.g. chatbots), AI will help banks gain insight into their customers’ banking habits. What is the ‘why’ behind their decisions? Knowing that, banks can offer better and faster advice, create proactive offers, predict behaviour, and send personalised ‘nudges’ suggesting new products and services suited to the customer’s particular needs, the way Netflix recommends movies to its users based on what they’re watching.

But personalisation starts with data quality, and extracting value from data remains a hurdle for banks when it comes to using AI effectively. Many companies have their proprietary data organised in data lakes, which alone, lack emotional intelligence (the ‘why’ behind customers’ actions). Banks can explore the full potential of data only if the entire cycle of collection, monitoring, analysis and interpretation is completed.

So make sure data analytics capabilities are embedded across your organisation. Educate employees on the possibilities that data analytics offers and on the use of analytics in models supporting decision making so that all functions can benefit in their day-to-day work, not just a small group of data specialists. Investments in data analytics and governance will bring benefits that span beyond 2021.

2.       Invest in graph technology to detect financial crime

Even more crucial, because it relates to banks’ social responsibility and duty of care to customers, is data protection and data privacy. Any security breach or incident related to financial crime, will severely damage people’s trust in your bank. And whether you are a traditional bank, a digital bank or a platform, trust is your lifeblood. 

As financial crime operates internationally, it’s difficult to keep track of bad actors. Hackers often move their operations to territories with less regulatory scrutiny, making it difficult for banks to monitor them. Graph technology is one way to fix that. A method to store data that shows relationships between data points, graph technology can be used in financial services to create connections and detect irregularities. By adding graph technology to data analytics platforms, banks can monitor criminals’ movements and better detect suspicious activities in transactional data.

With every new digital process, banks become more vulnerable, so investments in analytics and graph databases are imperative for banks to keep up with financial crime and protect their customers.

3.       Explore financial health

Given banks have far greater insight into their customers’ financial position than anyone else, financial health is a value space with massive innovation potential. Humans make emotional decisions based on impulses, rather than goals. While we like to think we’re logical beings, we’re motivated by basic needs and fears – especially in high-stress situations. Businesses on the other hand, want to concentrate on growth rather than financial management.

This is a time when consumers and businesses alike are taking a closer look at their financial commitments. Providing targeted advice that helps people manage their budgets more effectively, save, or build capital for investment, is an untapped opportunity for banks. Banks can create their own money management service or show a proactive approach towards open banking and partner with others to help customers make better financial decisions and achieve goals. 

4.       Banking as a service. Be where your customers are.

Non-finance companies too have been compelled to speed up their digital strategies, with an increasing number of companies embracing Banking as a Service (BaaS) to offer financial services to their customers. By embedding finance into their product offering, companies allow customers to complete their decision-making process in one experience, without leaving the platform they are on. For instance, it’s easy to see the value in offering mortgages on a house hunting app: customers want houses, not mortgages.

With banks’ return on equity under pressure, BaaS is an opportunity to tap into new revenue models by monetising platforms, as well as gain access to new customers and their data. This is one of the different platform ‘plays’ that banks can pursue - connecting to existing platforms and their satellite ecosystems where people now spend most of their online time. Research by 11:FS shows that banks that have already embraced BaaS are seeing two to three times above market return on equity. Several players have entered the market by now, using BaaS as an opportunity to fill the gap in their balance sheets. In 2020, Goldman Sachs introduced a software that allows clients to embed banking services in their own products and BBVA USA has teamed up with Google to offer digital bank accounts.

No such thing as ‘new normal’

We shouldn’t expect a return to a ‘new normal’ in 2021. Now you’re an app on a screen or a link on a webpage, and people have to put their trust in that app or in that website. The path to recovery is digital, with customers expecting their banks to mirror the instant, personalised experiences offered by their favourite brands. Those who will cater to the new needs of their customers in 2021 will be rewarded with loyalty.

Comments: (1)

Sumeet Singh
Sumeet Singh - Teradata - Amsterdam 01 March, 2021, 14:451 like 1 like

Thanks Annerie for sharing your views, they are quite insightful and pertinent to how banking is changing after Covid.

Indeed AI will help banks gain insight into customers’ banking habits. But to know the ‘Why’ behind customer decisions, it will help to first understand -

  • Are all primary customers of the bank becoming primary relationships? 
  • Which journeys are “critical to customer”, bearing a direct impact on Churn or Loyalty, and are these journeys fully digital?

AI will certainly help banks gain insight into their customers’ banking habits. That combined with analytics on Customer Spend, Channel preferences, Loyalty cretiria etc. will help create and launch personalized offers that will help retain and grow the customer base.