Retail banks are under extreme pressure to readjust their approach due to increasing competition and a cultural shift that sees customers expecting more personalization and flexibility. Now, traditional retail banks are increasingly moving to a more customer-centric way of doing business, signalling an industry transformation away from a largely product-focused approach.
Here are some key reasons why more retail banks need to pivot to a strategy that puts customers first.
Serious Competitors Are Focused on Customers
Traditional retail banks now face serious challenges from all-digital neobanks and other upstart fintech (financial tech) companies. These businesses have had great success among younger and financially established (and therefore potentially more lucrative) clients thanks to their focus on customer service.
To regain market share, some forward-thinking retail banks are matching or exceeding fintechs at their own game. Much of the recent success of retail banks is thanks to a rethinking of their core banking solution.
Core banking solutions are software systems that enable real-time banking no matter which bank branch or touchpoint a customer accesses these banking products or services. Where legacy core banking systems were mostly used for transactions between bank terminals, newer generation platforms enabled a truly mobile banking experience, with transactions able to be facilitated on almost any internet-capable device.
Fintechs were able to recognize the potential of these systems in the 2000s, gaining customers with then-novel all-digital and mobile banking services. These new players then made significant inroads in the consumer banking market with a new class of convenient, customer-centred products and services.
Though most traditional retail banks lagged behind in using mobile core banking, many have since caught up, using their higher trust and rethinking their core banking to offer customer-centric mobile banking services.
Retail Bank Customers Are Now More Demanding
The traditional banking experience is not something most customers today would consider to be pleasant. The long queues and the often aggressive upselling at banks can now be a big turn-off for many customers. Clients are also increasingly dismayed at the hidden terms and conditions that traditional banks impose. As such, even just going to the bank can be problematic, and as a result, many retail banking locations are closing down, turning many locations into “banking deserts,” inconveniencing clients who need to cash checks or do other over-the-counter activities.
Until recently, these inconveniences were just thought to be the things one had to deal with to enjoy a bank’s services. However, when neobanks and other fintechs showed that better service was available, retail banking clients started changing their expectations of what banks could be.
Now, clients are expecting even traditional retail banks to deliver service without any of the stress. The availability of more banks and fintechs that offer personalized service, transparent terms, and 24/7 mobile banking has created a need for convenient digital banking—and a distaste for how the banking experience used to be.
Retail Banks Have to Consider Future Profits
The disfavour that has developed for old-school banking is especially true among millennial banking clients, which means banks should begin to listen if they haven’t already been listening. Millennials are a key demographic for retail banks to retain as they are currently in their high-earning years, with 20 to 30 years more left in the workforce. The earnings of this cohort are only likely to increase with time.
It’s not just millennials that banks have to think about either. Older Gen-Z clients as well as tech-savvy Gen-Xers are also bidding traditional banks goodbye, leaving Baby Boomers as the last cohort that is likely to stick with regular banking.
If traditional retail banks want to keep making a profit, they have to start earning — and retaining — their younger clients. By making the shift to a client-centred way of doing business now, retail banks can ensure future gains from these key clients over the next few decades.
How Can Retail Banks Make the Move to a Customer-Centred Strategy?
Making a move towards customer-centred banking involves more than simply reconfiguring a core banking system or investment in cloud services. Reorganising the bank’s processes, management styles, and goals towards meeting customer needs is also key.
Thankfully, current baking software offers banks a comprehensive overview of individual client behaviour patterns as well as the means to effectively leverage these to their advantage. New core banking systems have automation features powered by highly capable artificial intelligence and machine learning capabilities, allowing banks to address all customer experience aspects without the need for a large client service team. These systems also offer secure client-side personalization, which means clients can get the exact kinds of services they need.
With competition set to increase even further in the next few years, banks should be doing all that they can to shift to a more client-centred way of doing business. Through a combination of smart banking technology investments and reorganization, retail banks have the potential to not only gain lucrative clients but hold onto them as well.
