There’s no question that nimble fintech startups can offer features not readily available to consumers served by modest-sized banks and credit unions. But legacy financial institutions possess advantages that many fintechs lack. And merely being clever or trendy doesn’t guarantee the fintechs anything.
Consider the number of streaming apps available on today’s smart TVs. At last count, I found over 100 on mine. Favoring this trend are low entry costs for getting started in streaming niche content. But I guarantee that few services have little more than a relative handful of subscribers.
My point is that in today’s new world of streaming services, it’s legacy video content providers such as Disney and HBO that are best positioned to succeed. That’s because they offer familiar content, have well-established and hard-fought brand equity, and a “gotta have it” factor that many competitors can’t match. Netflix enjoys similar status.
In the same way, legacy banks can best take advantage of their history, ubiquity and brand familiarity to create the bank or credit union of tomorrow. According to J.D. Power, banking customers that routinely use both branches and digital channels are more satisfied than those who rely solely on online services. At the same time, they have the opportunity to incorporate some features that fintechs do best, to make their total offerings even more compelling.
In short, consumers want a bank that offers convenience, friction-less ease of use, and a deep understanding of their financial and personal needs, both online and in physical locations.
Here are three things that legacy financial institutions can do to retain and build on their advantages.
1. Partner with Fintechs Instead of Trying to Beat Them
Partnership with a fintech can provide a traditional financial institution with a quick way to access technology features — and a bit of glitz — that resonate with Millennials. A well-defined mobile app, easy ways to send payments, split payments, customer service representatives that understand the younger consumer, a cool website, and the cachet of a leading modern brand are all elements that help Millennial-oriented fintech startups do well.
But there’s more to such alliances. Fintechs look at data that your institution historically hasn’t evaluated, or perhaps haven’t even gathered. Partnering with a fintech can provide your institution with a deep well of fresh data. This includes such information as search data, purchase interests, knowledge of hobbies, income, and spending habits. This can all be blended with more-traditional financial data to gain a better sense of consumers’ desires, financial needs and plans.
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2. Create a Hyper-Personalized Banking Experience
Not only is “one size fits all” thinking done for, but even “one-size-fits-one” must be revisited from time to time. No fit will work forever.
“Not only is ‘one size fits all’ thinking done for, but even ‘one-size-fits-one’ must be revisited from time to time. No fit will work forever.”
Here is where data, both from the financial institution and its fintech partners, can provide value, that is, if AI can be harnessed to understand trends down to the granular level, and then be able to use that information to respond to consumers in ways that appeal to their preferences. Banks and credit unions that adopt these tactics will retain consumers and attract new ones.
Today’s consumers want connected customer experiences: opportunities to acquire not just a single object or service, but an amalgam of products and experiences that speak to their particular stage in life.
Financial institutions can do so by stressing themes, such as wellness, financial security or home ownership, and then gathering appropriate items under that umbrella concept. This provides an advantage over competitors.
Aiming for this kind of reach would widen the types of partnership that could help financial institutions beyond fintechs.
For example, institutions could partner with retailers to create special offers on merchandise. Say certain potential customers are passing a store; the retailer could know what each customer is likely to be interested in, based on past purchase information fed to it by the partner financial institution. If recent purchase information gleaned from a partner indicated that the individual was about to travel via plane to a cold climate, promotion could concentrate on goods and services related to that trip.
Financial institutions could use analytics to determine which consumers are in the market for a new vehicle and automatically send pre-approved loan offers. Extras could also be promoted, such as discounts at luxury hotels reached via a road trip in their new vehicle.
Information could flow both ways. Furniture retailers could ally themselves with financial institutions. When a potential customer searched for large amounts of home furnishings, a financial institution could, using analytics software, predict that the consumer was in the market for a new home and present mortgage information and “welcome to the neighborhood” offers from other partners.
Consumers want their financial institutions to be more like their favorite online retailers, showing them relevant products and services, or even offering them ones they had never thought of. New thinking on partnerships can help.
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3. Make Your Institution’s Customer Experience Truly Responsive to Consumers
Opportunities to personalize are everywhere, and consumers have come to expect this type of product personalization. Did you know that the promotional screen for a program that’s seen by a given Netflix subscriber is one of hundreds of promos created for that show. The final choice is based on the subscriber’s viewing history, and artificial intelligence helps Netflix constantly reevaluate consumer preferences.
By likewise understanding consumers down to the granular level, financial institutions can — on the fly — create personalized offers and proactively suggest advisory services to consumers visiting branches. Consumers who feel that they’re actually heard and not just treated as a number will stay loyal to your institution. For example, financial institutions should present ATM users with unique offers on their transaction screens, rather than generic ones, based on who’s accessing cash.
Success requires constant attention. Monitor individual spending patterns and offer new products, such as credit cards or overdraft protection, before your customer has already decided to bolt to a competitor. Develop an industry-leading cross-platform app with your fintech partner that creates a highly intuitive, frictionless banking experience. Consider allowing customers to add banking information from competing institutions within the app — Citigroup created such an app and makes it available to non-customers. In the long term such strategy could be a competitive advantage.
Sitting still is not an option. Institutions with a declining customer experience risk losing as much as 12.5% of their share of deposits, according to research by Kantar. Institutions can use AI and machine learning technology — perhaps purchased and then honed in-house — to create a truly responsive customer service representative program. Use personal and financial data gleaned from consumers’ relationships with your institution and your fintech partner to create individualized scripts for your service reps. Monitor process bottlenecks and take pro-active steps to eliminate them.
Banks and credit unions are sitting on a goldmine of data. And established financial institutions now have the ability to analyze and use that data to create sophisticated, hyper-personalized offerings built around lifestyle themes. This, and partnering with fintechs to offer personalized services to a digital-first, digital-savvy cohort, will help your institution maximize the likelihood that it will thrive in an increasingly competitive landscape.