Customer Experience and the Unexploited Profit Opportunity

With narrow margins and limited cost-cutting options remaining for most banks and credit unions, investing in an improved customer experience may generate a return not available elsewhere.

When the Fed raised its benchmark rate last December, it signaled to the market that 2016 was finally going to be the year when U.S. banks could go back to doing what they do best: earning interest spread on a “normal-looking” rate curve. But global market volatility and economic uncertainty has spurred the Fed to scale back forecasts for its rate-hiking path.

So what can banks do to increase earning potential and sustain growth? How much additional cost cutting can be initiated without impairing basic function and crushing employee morale? How many more “non-core” assets can be sold off before there’s nothing left?

There is still one safe bet for improving any bank’s prospects: Focus on the customer. Sounds obvious, yet it’s surprising how underutilized the customer-first approach is in banking, particularly as digital methodologies ascend as a primary means of customer interaction.

Managing customer experience (CX) is a valuable technique for capturing sustainable competitive advantage in any interest rate environment and under any market condition. And technology should afford banks the same CX-management process efficiencies that have been achieved in parallel industries, where well-known organizations have fostered customer adoration through purely digital interactions (for example, Amazon or Google).

Conversely, in the banking arena, loyalty and brand affiliation have instead been curtailed – nearly two-thirds of consumer respondents to a recent survey noted that they perceive banking to be “transactional rather than relationship driven.” Those statistics represent an enormous opening for disruption and an unexploited profit opportunity.

By investing in CX, banks can forge a relationship-driven connection with consumers, consistently deliver more positive service interactions, and spur revenue growth through increased sales and decreased operating expenses.

Why CX Matters

If a bank doesn’t have loyal customers, doesn’t treat its customers well, or doesn’t deliver on brand promise, its customers will take their business elsewhere. Because consumers now have more choices than ever when it comes to financial services, brands that create consistently positive user experiences are far more likely to grow and retain their client base.

There are a few universal truths about the banking industry that illustrate just how central customer satisfaction is to success, and they manifest in research data:

  • Customers spend more with their top bank. Most people now use more than one financial institution for their banking needs. The brand distinguished as a consumer’s primary choice, however, generates more revenue streams for potential growth than the others, by far.
  • Happy customers attract more customers. People who love their primary bank will refer others, organically expanding a bank’s potential consumer base. While word-of-mouth networks are still important, modern referrals have exponentially farther reach, as they increasingly take place publicly in the digital realm and across social media. One Dimensional Research survey indicated that 90% of modern purchase decisions were influenced by positive online reviews. An Epsilon and Wylei Research survey also found that ratings and review websites influenced more respondents than spouses or partners and co-workers.
  • Loyal customers don’t stray. A study by Accenture indicates that customers – especially Millennials – now move more fluidly among institutions rather than sticking to one primary bank for all services. Savvy companies take advantage of that fluidity to lure new clientele. Banking is rooted in a subscription business model that brings a recurring stream of revenue from regular customers. The more those customers appreciate how their bank treats them, the less likely they are to be lured away by competitor overtures.

CX and Banking

Though most companies can now agree that CX is of the utmost importance, banks often struggle with it. That’s because it’s hard to galvanize an entire organization used to a different way of doing things. It’s hard to change a culture.

Most banks are complex organizations with lots of people distributed over lots of places doing complicated work, so it’s especially challenging to refocus such an unwieldy system on only one thing – the customer. However, customer-centric organizations thrive, so committing to the change is obviously astute. To successfully create a customer-centric culture, there must be a combination of top-down support, technology to facilitate the process, and constant positive reinforcement.

In an industry not noted for customer-centric innovation, even little improvements can make a big difference. Here are four focus areas to start the process:

1. Unify the meandering customer journey. Due to organizational structure, many financial institutions measure performance within silos. While individual or departmental accountability is good, it really doesn’t translate to the way customers experience banking – which is in sum. Take the mortgage process, for example. A person getting a mortgage thinks about working with Bank X, not working with the sales department versus underwriting versus appraisal versus documentation and closing. Yet almost all banks measure performance from within these individual silos. To be customer-centric, there needs to be a system of collective accountability and uniform purpose for the entire mortgage “journey,” thus reflecting the true nature of the customer’s viewpoint. Although the mortgage process has numerous touch points and can transpire across multiple channels—call center chats, branch discussions, mobile apps, web interfaces—the customer views it as a single large transaction, and the user experience should be optimized at each step and ultimately feel unified to the customer.

2. Listen and you’ll hear it. For true transformation, financial institutions should wire the customer voice into every decision and let it guide operational focus. Whether it’s contemplating rate increases, developing new services, deciding to close a local branch, or establishing new ATM locations, consider the customer’s perception and solicit customer feedback to steer the right course. Customers are always talking—whether on the phone, in person, or via social media—and what they say is actionable. Improving CX involves listening to all of it, engaging in real time, and responding to reported needs and expectations with action. The payoff? Huge. One global electronic payments company instituted a “customer first” reorganization, used feedback to identify and resolve customers’ top issues, and reduced complaint call volume by 50% over 12 months.

3. Let the tellers tell. Tellers, and other frontline representatives, are in a unique position to engage with customers in the most direct manner. But traditionally, market research groups have been responsible for gathering CX data and sharing findings with executives. While executive involvement is still very important (any cultural shift in an organization requires an all-inclusive commitment from the c-suite to the frontline), it’s much more crucial to get pertinent customer data into the hands of those who personify the institution on a daily basis – tellers, branch managers, call center representatives, website developers. These frontline representatives should be empowered to efficiently close the feedback loop for customer journeys on their respective channels. Operationalizing employee feedback not only highlights specific insights into improving customer service, it also increases employee satisfaction and loyalty, and reduces the likelihood of costly employee turnover. It’s a sure road to employee engagement, and Gallup estimates that companies with highly engaged workforces outperform their peers by 147% in earnings per share and have fewer quality defects, lower shrinkage, and less absenteeism—all while supplying a treasure trove of the creative service acumen that arises from direct experience dealing with recurring customer issues.

4. Use Low-risk, high-reward testing. Continually experimenting with new ideas in localized environments based on customer preferences, patterns, and trends is both economical and advantageous in building a customer-centric culture. While testing big institution-wide changes is difficult and high-risk, localized testing of what works (and what doesn’t) is easy, cost-efficient, and low-risk. If a small idea doesn’t pan out, the consequences are minimal. But if it succeeds, the change can be scaled and translated into system-wide improvement – which can boost brand reputation, create customer loyalty, and ultimately lead to high-impact growth. In a parallel industry, the Four Seasons Hotel and Resorts “Bluewater” initiative provides a perfect example of successfully spurring a culture of testing and innovation to improve service and gain competitive edge. The Bluewater practice of mining staff for ideas on improving services and testing out their suggestions locally has not only bolstered employee engagement, it’s also produced popular innovations (free poolside suntan lotion, mobile check-in) that Four Seasons has scaled across its properties to the the delight of customers, thus increasing brand prestige. Applied to banking, something as simple as responding to a customer complaint about lack of short-term parking at a branch location by swiftly designating a new 15-minute parking space can have a huge impact. That customer feels valued and other customers receive better access. This is the kind of small, direct action that can be iterated across an organization. Interestingly, one comprehensive study on the subject found that only 24% of companies have effective organizational alignment around innovation activities, so making this type of customer-centric innovation a priority can legitimately differentiate an institution.

Making a Commitment to an Improved CX

Gartner identified customer experience as the new battlefield for business, and banks are not exempt from combat. By leveraging insights about customer needs and expectations and acting on them, forward-thinking banks can optimize operations, create new sources of value for their customers, and ultimately increase their bottom line.

While this may sound straightforward, examining precisely how an institution should reorganize to fulfill these goals is momentous enough to justify another discussion entirely. Simply put, it is not so easy to do. Utilizing state-of-the-art technology and advances in data collection and dissemination can certainly aid in establishing a customer-centric organization, but tools alone won’t get the job done.

A mindset shift and a top-to-bottom commitment are also imperative. Honing in on a presenting a unified user experience, instituting a commitment to the customer’s voice, empowering employees to better serve, and encouraging feedback and innovation are a few choice goals to get started, but there are many others.

Regardless of how your bank moves to embrace customer experience as a key performance indicator, focusing on the customer is never a bad investment.

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