Rising Rates Raise the Bar for Digital Customer Service in Banking

In economically challenging times where banks and credit unions are seeing fewer applicants for consumer loans and mortgages, a seamless digital customer experience can increase the conversion rate to make up for lower application volumes.
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Inflation and rising interest rates are two interrelated forces that have dominated the U.S. economy in 2022 so far. To tamp down historically high inflation, the Federal Reserve raised interest rates in March for the first time since late 2018, followed by another increase in May and then again in June, with the largest interest rate hike since 1994. Further, the Fed has provided guidance that additional rate increases are to be expected later this year.

How can financial institutions continue to grow in this challenging economic environment?

While the impulse might be to tighten budgets and slow IT projects, investing in technology that improves the customer experience can help financial institutions weather a downturn and even thrive. In today’s digital-first world, that increasingly means digital customer service.

Higher Rates Have Quickly Affected Consumer Behavior

In a short period of time, elevated interest rates have already affected consumer behavior, having a meaningful effect on how banks and other financial institutions engage with customers. For example, in mid-May, mortgage applications for a new home fell 12% from one week to the next, down 15% from the same period last year. Mortgage refinancing was even harder hit, with demand 76% lower than the same time last year.

For financial institutions, slowing demand for mortgages and loans — including business loans — has increased already stiff competition to acquire and retain customers. As fewer customers seek financial products that have driven growth for the past 18 months, banks and credit unions will need to make each interaction count and deliver the kind of customer experience that differentiates them from their competitors.

Customer satisfaction pays big dividends. A growing body of research has demonstrated how truly exceptional customer experience leads to superior financial performance. In fact, researchers from the University of Michigan and Michigan State University studied 15 years of audited financial returns from public companies and found that a portfolio of businesses with high customer satisfaction scores outperformed the S&P 500 by 487%. Another study in the Harvard Business Review reported that a 5% increase in customer retention rates increases profits between 25% and 95%.

Customer expectations keep increasing. Financial institutions have come to recognize just how important it is to provide an exceptional digital experience to customers and prospects. Many accelerated their digital transformation during the pandemic by focusing on retail customers and, more recently, on providing similar experiences to commercial customers. In its report about top commercial banking trends of 2022, consultancy Capgemini cited data that 95% of commercial banking clients who use digital retail banking services expect the same experience on the business side and that banks are struggling to meet those expectations.

The Case for Retention:

Onboarding new customers is a great sign of growth. However, even just a 5% increase in retention rates can translate to strong profit growth.

With the stakes high, numerous financial institutions have prioritized customer service technology to meet increasing customer expectations. According to Forrester Analytics, customer service technology tied for the highest average critical software priority among global software decision-makers in 2021. In addition to pandemic pressures, this reflects the gaps many organizations have observed in their customer service technologies.

Many financial institutions still manage their digital channels in silos, creating a disconnected, frustrating customer experience at a time when it needs to be seamless and exemplary. Abandonment rates typically spike when customers have to interrupt their digital journey to make a phone call and start the process over again.

Read More: What Customer Data Platforms Can (and Can’t) Do For Banks 

Three Ways to Overcome the Digital Disconnect

To address those gaps, financial institutions need to rethink their expensive and inefficient phone-first service in favor of digital-first customer experience solutions. In other words, they need to employ a holistic approach to digital customer service (DCS). Here are three ways to accomplish this:

1. Meet customers where they are
In today’s digital-first world, financial institutions need to connect with customers online beyond bolting on a basic chat feature. Customers expect their financial institutions to accommodate their shifting channel preferences — whether that’s chat, SMS, voice, or video —without creating dead-end conversations in the process.

Allowing customers to speak to a customer service representative with a simple transition from chat (typing) to on-screen voice (talking) maintains the digital connection and avoids the high abandonment rate experienced when customers are asked to make a phone call for service.

Financial institutions today need to align to digital lifestyles and allow customers to interact with them in the same way they interact with friends, family, and other businesses.

2. Keep customers online through a seamless experience
It’s not enough to offer customers digital options to connect with your institution. Those channels must be connected to create a seamless digital customer experience that not only starts online, but stays there. Keeping customers online can decrease the abandonment rate significantly and help drive more conversions.

The challenge is to provide a seamless customer experience that stays online without breaking the digital connection. While many institutions offer digital channel options, they are often bolted to the phone-based contact center. These disparate, point-solution channels are not integrated with each other, creating dead ends that force customers to start all over again (like making a phone call) to continue service.

Institutions that have taken a digital-first approach can offer a seamless experience that keeps customers online, even as they need to transition from one channel to another. Digital customer service platforms are enabling this with tight integration of all channels, avoiding the digital disconnect.

Imagine a customer asking about a loan via SMS and simply shifting to chat for more information, then transitioning from chat to video to discuss the loan and complete the application online. Stack those conversion odds against an institution that asks customers to make a phone call when they get stuck in chat — or worse yet, tells them a representative will call them back within 48 hours.

3. Increase the odds with online collaboration
Engaging customers in digital channels they prefer and keeping them on screen can greatly improve the customer experience, but online collaboration can give your institution an even bigger advantage. With co-browsing, customer service representatives can see what customers see and proactively direct them to the online resources they need.

Consider the loan application scenario above where the customer transitioned from SMS to chat to video. With co-browsing, the representative can show the customer where to find the form, highlight a specific section, and even help fill in the application. Co-browsing can accelerate complex processes, such as mortgages, credit card disputes, or even insurance claims.

In economically challenging times where the industry is seeing fewer applicants for loans and mortgages, a seamless digital customer experience with online collaboration can accelerate the cycle and increase the conversion rate to make up for lower application volumes.

While it may not be easy to manage high inflation and increasing interest rates, financial institutions can still continue to grow with the right digital customer service platform. Look for a solution that enables seamless experiences that keep customers online and drive them toward resolution. Factor in online collaboration tools that can make your institution even more competitive and enhance the adoption and effectiveness of other digital transformation initiatives.

While IT budgets might get scrutinized more closely as the economic outlook worsens, there is a strong case to invest in digital customer service to ride out the challenging times and even thrive.

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