Could we be entering the age of customer-created banking, where conscious consumerism takes centre stage? 

Traditionally, product marketing teams at fintechs and banks have a remit to continuously develop services and digital capabilities which will attract new customers and reduce churn. Over the past decade, stubbornly low interest rates have made it more difficult for banks to offer the kinds of interest that will prompt people to switch providers. Add to this a wave of challenger brands entering the market, each with a digital-first experience to offer.

Extra features have therefore become the main way by which banks differentiate their products, especially credit cards and current accounts. New features and perks have been an essential feature of both retail and business banking in the past decade. These can range from enhancing user experiences via mobile banking apps, through to retailer offers or exclusive savings accounts.

But what would happen if we turned this model on its head? What if product innovation was directed by customer feedback and priorities?  

A new way of thinking

While just a few years ago this approach might have been impossible, it is now firmly in our sights. The amount of customer data available has grown exponentially over the past few years, which has led to a revolution in how financial institutions interact with customers. Going beyond a typical demographic breakdown, many banks have moved onto a more personalised approach to understand customer needs and develop long-term relationships. This maximises engagement and improves customers perception of their banking experience, which minimises churn and builds trust. As we embark on what is likely to be a prolonged period of economic uncertainty, banks will need to focus on that trust more than ever to help customers navigate financial difficulties and to retain them.

At the same time, in a highly competitive market banks will also need to offer added value. One of the areas of opportunity is in helping customers to understand and reduce their climate impact. Cogo has found that 57% of UK mobile banking customers want banks to provide information of carbon impact on transactions. And while it’s true that being under acute financial strain can make it harder for consumers to allocate thinking and priority to other considerations, no matter their importance, financial wellbeing and environmentally sustainable behaviours are often intertwined.

Financial and carbon literacy go hand in hand

While environmental sustainability is a primary concern for many, sustainability goes beyond just climate change. Real, holistic sustainability also means recognising and addressing the financial concerns and stressors of customers. It also means developing sustainability solutions which are financially inclusive – affordable and accessible to customers across demographics.

Financial resilience has been a key topic in the road to recovery from the economic fallout of COVID-19. At the same time, there are calls for the world to keep some of the environmental progress we made during lockdowns – for example, reducing air travel for business or accepting slower delivery options. Building both financial resilience and more conscious consumption will depend on helping customers to access the right information, support, and education.

To bolster financial literacy, banks can equip consumers with the right tools to achieve their financial goals. Indeed, the development for digital banking offerings has been moving at an accelerated rate for the past few years. Especially over the pandemic, digital and mobile services have helped banks to understand how their customer bases are dealing with sudden changes to their personal finances – such as furlough or rising food costs.

The biggest, most innovative banks are looking beyond simple personal financial management (PFM) tools and looking to more holistic solutions designed to truly help their customers improve their understanding of their financial health and environmental impact. The most successful features leverage customer data to deliver contextualised experiences, which include a personalised insight and clearly defined action. Because the messages delivered are highly relevant in the moment and delivered over time, they are much more likely to drive long-term behaviour change and be seen by customers as a valuable service.

The challenge for banks

The race towards holistic, sustainable transformation, spurred on by demand from today’s conscious consumers, presents a unique problem for traditional banks. In the age of “cancel culture”, how can they continue to keep legacy services viable by improving functionality and usability, while encouraging the loyalty of informed consumers?

Partnerships are a golden opportunity for banks because they provide ready-made, specialised tools to enable agility and quick action in an increasingly competitive and changing landscape. The partnering of banks like TSB and NatWest with green fintechs like Cogo enables those banks to provide their customers with a valuable tool to manage their carbon footprint, without drawing resources away from the maintenance of existing banking services.

Combining forces gives banks the ability to quickly enrich and add contextual information to customers’ spending at scale and enables them to assign ’emissions’ to each of their transactions – giving customers accurate insight into their carbon footprint. What’s more, an actionable “nudge engine” can help shift customers towards more responsible financial choices, including climate impact reduction. A personalised, engaging experience spurs on excitement and loyalty among customers looking for a value-added service.

Open Banking and the age of transparency

It almost goes without saying that the open banking legislation has underpinned and enabled much of this increased collaboration between fintechs and banks. But while open banking has seen decent traction with UK consumers so far, so far we have only seen a glimmer of its potential.

Most customers will be familiar with the concept of open banking through the purely financial features it enables – for example, being able to see the balance of all their bank accounts in one central app. These features have been a great way for banks to develop their proposition, and position their digital services as convenient and easy to use. But adoption for most solutions is being held back by the reconsent requirement every 90 days, which often leads to many customers dropping out after a few months, thereby not fully realising the value of said solutions. As Generation Z come through, this is likely to change – as these younger, digital native consumers are likely to have a better understanding of the data exchange. This all adds up to a significant opportunity for banks.

What’s most exciting is that now companies from other compatible industries – such as greentech – are also making the move to become FCA accredited and develop offerings that work with open banking. This means that customers can now benefit from a greater variety of innovations, for example, carbon labelling and carbon footprint tracking, within the context of trusted and data-rich banking services.

But within this atmosphere of innovation and collaboration, banks will nevertheless need to be selective in the innovation routes they pursue. Otherwise, they risk confusing consumers with a suite of new features that don’t work together to support either the individual’s financial goals or help the bank to prepare for upcoming changes in the market.

Moving towards true personalisation

The demand for banking services that focus on sustainability has never been more prominent. Banks need to evolve and look beyond providing consumers with basic budgeting tools to stay ahead of the curve, especially in mature markets like the UK which has been a sandbox for open banking for several years.

However, when it comes to offering better personalisation in banking services, it has become apparent that a delicate balance needs to be struck: communicating with consumers in a way that is relevant and helpful for them, while remaining sensitive to their communications preferences and the risk of ‘information overload’. Cogo leverages behavioural science to help its partners deliver the right specific 'nudge’ at the right time, which maximises the proportion of consumers adopting more sustainable habits. Contextualised to fit the user’s level of motivation and personal circumstances, they are capable of building levels of trust and engagement that non-personalised messages simply are not.

To focus solely on developing robust technology is not enough, as it often leads to the misconception that more communication is better (often, it’s not).  Key tenets of personalisation should be consumer behaviour, human nature and cognitive biases built around the lived experiences of users. Personalisation initiatives should strive to first and foremost be human centric and banks (as well as fintechs) must not get carried away with data analytics, AI/ML models and technology at the expense of customer-centricity.

There is a fine balancing act between embracing data analytics, behavioural science and respecting customer preferences. Digital banking solutions need to therefore be modular, flexible and be able to acclimatise to the widening array of customer needs and preferences. When applied accurately and appropriately, personalisation in digital banking has the potential to drive real revenue by increasing levels of customer engagement and reducing support costs for financial institutions.

Surviving and thriving in the age of the conscious consumer

While the individual customer experience is paramount, for banks it ties into a wider narrative of competition and innovation. The rise of the conscious consumer is paralleled with the increasing importance that investors and other stakeholders place on sustainability. Both aligning business operations to changing environmental attitudes, and early evidence that companies which prioritise sustainability show better ROI (McKinsey), means increasingly that investor support is linked to sustainability.

Taking a proactive approach to both changing consumer attitudes and increased climate consciousness will help banks maintain long term relationships with investors. While especially for large banks there is a current heavy focus on the organisation’s own ESG ratings (and rightly so), it is only a matter of time until investors start to focus more on how a bank’s products align with their corporate ESG narrative. For example, if they have reduced their use of office paper but are still reliant on selling pension schemes heavily invested in fossil fuels, then this disconnect is likely to feel inauthentic to both consumers and stakeholders.

It’s clear that when applied correctly, building sustainability-focused banking features is a game-changing strategy for banks and other financial services organisations looking to differentiate themselves. In the coming years there will likely be a whole suite of new green products in the market – from EV loans and eco-mortgages to sustainability reward points for current account customers. Getting ahead of the curve now is key for banks to differentiate early and futureproof their products in preparation for the rise of the conscious consumer.