The banking industry has thrown around the term “customer-centricity” for at least a decade. In 2012 consulting firm Bain defined it as “a way of banking based on trust and fairness that uses knowledge of customers to meet their needs and achieve sustainable, valuable, long-term relationships.”
That description still fits, yet few financial institutions achieve it. While banks and credit unions often use basic data around demographics, income and — to some extent — transactions to understand their customers, real customer focus involves learning about consumers’ values and what drives them, says Phillip Dudovicz, Industry Director at Hitachi Solutions America.
“It’s about building a relationship that is more meaningful than the transactional one banks traditionally have with their customers — a relationship that looks more like a partnership and that is attuned to the customers’ needs,” he says in a blog post.
If your bank or credit union falls short of that description, it may be due to a misconception about what customer centricity is all about. Here are five myths about customer centricity in banking.
Myth #1: It’s All About the Technology
Many financial institutions are tempted to take a technology-first approach to customer centricity with new apps and solutions. It’s understandable given how much focus there is on technology in banking. Yet, without a solid customer-centric strategy, technology alone is little more than “expensive window dressing,” Dudovicz observes. Banks and credit unions need to go beyond basics like income and credit score to build out individual customer profiles on a more granular level.
There's Data and Then There's Insightful Data :
While banks often use demographic and income data to segment customers, a real customer focus involves learning about people's values and what drives them.
For example, data attributes like “attitudes” may reveal how confident consumers are about their financial matters, while “personal preferences” may indicate how they like to bank. Banks that learn to treat such preferences, values, and interests as a top priority will be well-positioned to engage.
George Debono, Chief Commercial Officer at BNF Bank, based in Malta, wrote in International Banker that customer-centricity has been key to its rapid growth and success. Digital touchpoints and an AI-driven virtual agent enhance the experience. But ultimately, though, Debono believes meaningful conversations over many years are essential to exceeding customer expectations. Close and direct client contact “gives us a considerably stronger platform from which we can listen, empathize and formulate solutions that work for [clients] and their families,” says Debono.
Myth #2: Most Banks are Customer Centric
Many banks and credit unions think they’re centered on their customers (who would say otherwise?), but many are still largely focused on product metrics — new accounts, cross-sales, loan volume. All important obviously, but attaining true customer centricity requires institutions to overcome many internal issues and learn to discover customers’ real needs, even when they don’t have the right solutions, observes Mark McDonald, Vice President and Gartner Fellow.
“Too often, we only hear customers when they validate our worldview, plans, or internal bias,” says McDonald. “As a result, many organizations are actually ‘internal centric.’”
Banks and credit unions can’t become customer centric until they build up data in their CRMs over time and use predictive models to discover valuable customer insights, says Dudovicz. To be most useful that data must incorporate insights and interactions from all channels, including in-person.
While not where it needs to be with the use of data, the banking industry is moving closer. In Forrester’s 2022 report on top emerging technologies, AI and predictive analytics topped the list of planned technology investments for banks. Nearly 90% said they are in the planning, implementation, or operational phases of using predictive analytics.
Myth #3: Customer Centricity is Primarily About Creating New Products
While customer centricity can help banks and credit unions identify needs for new products, one of its main functions is also to better match consumers with existing products.
For example, a financial institution may find its customers frequently call in with simple questions, such as how to send a wire transfer or what transactions are covered by overdraft protection. An AI-enabled chatbot can address these basic inquiries, reduce wait times and improve customer satisfaction by funneling only complex service requests to the call center. By using predictive analytics, the chatbot — or a human agent — can suggest a service or product that meets customers’ needs.
For instance, a customer with a balance of $10,000 in savings may be offered a high-interest rate CD. Or a customer that meets specific spending criteria can be sent a personalized recommendation for a rewards card.
In this way, predictive analytics benefits both customer — by anticipating their needs and making a useful and relevant suggestion — and the institution with valuable upselling and cross-selling opportunities. But the customer benefit must be there first and be genuine.
Myth #4: Customer Centricity Means Loyal Customers
Not necessarily. At a time when customers have more options than ever and expect a high degree of personalization, many banks and credit unions are failing to build or reinforce loyalty with customers.
Using data and analytics to predict customers’ needs, as covered above, is a key element. But don’t overlook the use of rewards and incentives. Travel rewards remain the most common approach, but they are only one of the ways banks and credit unions can build and reward customer loyalty, Dudovicz states.
For example, Citibank’s ThankYou rewards program offers customers points for making purchases with a Citi credit card or by linking their Citi checking account to qualifying products and services. Wells Fargo Go Far Rewards programs offer points toward gift cards, retail items, charitable donations, and more. And for consumers who maintain higher balances, Bank of America’s Preferred Rewards program offers higher interest and reduced mortgage origination fees.
Dudovicz notes that banks should keep programs simple, using analytics to determine what incentives will appeal to a particular customer base, and develop a user-friendly portal that makes it easy for customers to track and redeem points.
Myth #5: Customer Centricity is ‘Front-End’ Only
Ultimately, as banks and credit unions rethink their operations in a digital-first world, the institutions that will best succeed are those that redesign processes around customers’ needs, says McKinsey.
Done right, the redesign of internal operations and infrastructure — as well as a related mindset adjustment — will enhance customer centricity, as Christoph Berentzen, Head of API & Open Banking at Commerzbank, told Intelligent CIO. The German bank specifically reimagined its workflows from the perspective of the end customer. It developed over 200 APIs to create a robust architecture to support open services and cultivate new partnerships.
“We’re attracting customers with help from our APIs,” said Berentzen, “gaining market share because we’re integrated with fintech ecosystems and growing our revenues through our own partner network.”