The era of open banking is here, and it is changing the game for banks everywhere — most immediately in the UK, where legislation is transforming banks’ relationship with consumer data. The Second Payment Services Directive (PSD2), which came into effect in January 2018, enables European consumers to instruct their banks to securely share their financial data with third parties. As such, it forces banks to open up the back end of their systems to other external developers.
This will allow emerging tech companies to offer direct financial insight, services and transactions outside of the banking ecosystem, and increase visibility and choice for consumers. It will be easier for consumers to compare services, making them more likely to switch banks if their needs aren’t being met.
Unlike many other regulations that change the day-to-day lives of compliance officers, this one will really hit home for financial marketers.
Banks Need To Focus on Relationships
Retailers have known for more than a decade that they can’t rely on the traditional ideals of brand loyalty, and many have spent just as long evolving their marketing and communications practices to adapt to demands for personalized attention. Banking is a different story. Consumers often stick with a bank even if they are dissatisfied because it’s too hard to figure out if another option would be any better. Thus, there has been little incentive for banks to spend time and resources on sustaining close customer relationships.
As new laws make it easier for consumers to compare what they are getting, and in tandem make it easier for new and nimble fintech firms to enter the market, financial institutions are going to have to work harder to keep their customers.
For new, tech-centric entrants into the financial market, the stakes are high. They’ll have a short window to gain customers’ trust and prove that the new era of banking is a better, more customer-focused one. Otherwise, customers will start questioning why they gave their precious financial data away.
For traditional institutions in the era of open banking, the stakes are even higher. New fintech firms are starting at an advantage with clean data sheets and more nimble technology; if they succeed at winning customers over with their service, offerings and relationship management too, banks could be relegated to proverbial balance sheets.
Accenture found that banks are at risk of losing up to 43% of retail payment revenues by 2020 due to the introduction of digital banks. And after so many years of failing to invest in the customer relationship and experience, traditional financial services organizations will need to do exactly that if they want to remain competitive.
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Time to Embrace the Digital/Mobile Revolution
While this has certainly been a long time coming, banks and fintech companies must fully embrace the digital revolution, or risk losing relevance. This means investing not just in your customer service efforts, but specifically and uncompromisingly on your mobile service offerings — because this will bring you closest to your customers.
It’s not just about adjusting the existing banking experience, but really building a new one from the ground up – leveraging everything from chat apps to SMS, online branches, guided self-service offerings, incorporating video chat and more. Digital tools will rule the banking world sooner or later; now is the time to get on board.
Good Relationships Start With Communication
As banks globally feel increased pressure to focus on the customer relationship, improving communications will be key to building loyalty and staying power in their base. Financial institutions will need to offer tailored, personalized and emotionally intelligent interactions with their customers at every touch point in order to keep them happy.
Essentially, financial services is today undergoing the kind of change that retail was going through a few years ago — technology is disrupting the way this space has traditionally worked, and newer, digital-first brands are threatening long-held market share by big brands. Those bigger brands — in this case, big banks — need to adjust their approach to match these smaller, more nimble financial services startups that are known for for intuitive customer experience and convenience.
What does better communication look like? It means not sending an email offer to a customer for a great deal on a first time mortgage, when that customer bought their first property over a year ago. It means not sending push notifications about an upcoming student loan program through your mobile app to parents whose children have long since graduated. And blanket marketing isn’t going to cut it, either – blasting a significant portion of your customer base with a canned promotion simply won’t resonate. In the age of hyper-personalization, every message you deliver that isn’t relevant to your customer has a higher cost.
Better Communication Starts With Better Data
Consumer desire for personalization has increased in tandem with more widespread collection and use of customer data in banking. And increasingly, consumers are more and more willing to share their personal data if it will improve service; according to a Salesforce study, 61 percent of respondents do not mind sharing their personal information with the business if it will make product or service interaction both offline and online more personalized
Emerging fintech companies were born in the era of the hyper-personalized customer experience, and built their products around it. Traditional players must improve at articulating their value proposition to customers – personally, emotionally, and intelligently — to catch up.
With large amounts of customer data available, traditional banks have the resources to do this. By applying AI and data analytics to their marketing strategies, banks can gain deep insight into what is most useful for clients, and use these insights to develop their own personalized services and create more meaningful relationships with their customers. That could mean sending hyper-relevant promotional offers, or reaching out with advice on how a customer can best save for retirement based on their personal assets and investments.
As consumers use more online and mobile banking tools, their behaviors are more easily quantified, and modern data solutions let banks see the future of their customer base. When properly analyzed, this data can become a powerful tool to improve the relationship between banks and their customers.
Marketers can parse their customer base into distinct categories, based on things like demographics, net worth, or recent transactions, and use those groupings to craft campaigns for each group uniquely designed to resonate. Banks can then measure the the success of each strategy to inform marketers how to adjust their approach for particular types of customers. When done right, this allows marketing campaigns to become increasingly relevant across a customers’ lifetime, strengthening that relationship over time.