Digital Banking Strategy 2.0: Escaping the ‘Utility Trap’

Banking providers have made great strides digitizing the day-to-day aspects of money management. But is this where the digital journey ends? Will financial institutions be consigned to the perception that they are nothing more than digital buckstops?

Until now, digital innovation in the banking industry and the focus of fintechs have largely centered around the transactional side of money management — checking accounts, payments, and spending analysis tools like PFM.

While the digital push has delivered many benefits for both consumers and financial institutions alike, it hasn’t necessarily yielded stronger relationships. Sure people may switch to- or stick with a particular banking provider because they are digitally savvy and offer all the various tools they need to manage the day-to-day aspects of their financial lives.

But this leaves retail financial institutions in an uncomfortable (if not all too familiar) position: consumers essentially view their banking provider as a utility — a “buck stop” where cash can be stored, moved and monitored… and not much else. This leaves banks and credit unions vulnerable; if a new provider comes along with a better suite of money management tools, customers might rush for the exit.

It’s time financial institutions think about how- and where they can advance their digital strategies beyond the utility of transactions and payments. Where should banking providers focus their digital investments once they have tackled the full digitization/mobilization of checking accounts? How can they use digital channels to build stronger customer relationships, and what will be key to retaining more customers? What should their digitization strategies look like in the next three to five years?

To address these questions, the digital consulting team at Cognizant and ReD Associates fielded a study looking at the future of money. Researchers took an outside-in, qualitative approach to gain insight into people’s experiences with money and banking, revealing areas of opportunity for financial institutions to better serve their customers in digital channels.

They started by asking people about their biggest sources of stress. And what worries consumers most? Not terrorism, their health, nor their career. They are completely freaked out about their finances and the money challenges they face.

The level of financial insecurity people feel can not be overstated. Complex financial ecosystems and difficulty navigating these systems leads to a deep, depressing anxiety about money. People feel as if they are not in control of their money, which, in turn, affects literally every other aspect of their lives. Not knowing whether they are putting enough money aside for their children’s education means not knowing whether they are competent parents. When they don’t know if they are saving enough for retirement, that means not knowing how they will live when they grow older, or if they will be able to retire at all.

“In short, people’s relationship with money is broken,” Cognizant and ReD Associates noted in their report. “Money pervades almost everything people value in life. And so when people’s relationship with money is broken, it is almost as if their relationship with life itself were broken.”

From ‘Fast Money’ to ‘Slow Money’: Digital Banking Solutions for Life’s Big Financial Challenges

Resolving people’s slow-money challenges is the next digital imperative in financial services.

Researchers determined there are essentially two types of money: fast (checking accounts, overdrafts, credit cards, mobile payments, etc.) and slow (one’s investments, assets, etc.), but people lack the ability to align the two with larger life goals.

Fast money (bill payments, daily expenditures, bank accounts, etc.) is used in and viewed almost exclusively through the lens of the present- or immediate future. Fast money is largely functional in nature. Consumers engage with it on a regular basis, and its management is now primarily digital. Banking providers that were the first movers in this space often won over consumers with their new digital offerings.

However, the teams at Cognizant and ReD Associates concluded that the financial industry is far from having successfully established what digital can do for slow money. Slow money is assigned to some distant future purpose, and is vastly more difficult for customers to manage and comprehend.

The research also revealed that consumers struggle to make connections between fast- and slow money. Fast money is concrete, tangible, real — something they can touch in the here-and-now. Slow money is more abstract, vague, ethereal — something that feels more akin to a dream than a deliberate, long-term strategy. And they fail to see how their approach to managing fast money can have massive implications for their slow money plans (e.g., splurging today and racking up huge credit card balances can destroy a retirement plan).

Paradoxically, instead of providing comfort and certainty that they are well prepared for the future, people agonize over their slow money. They struggle to translate their personal needs and life goals into real financial targets, and they fail to understand whether they are on track to meet those targets once they have been set.

This is where financial institutions should be able to step in and help. Unfortunately, a large majority of consumers believe banks are focused purely on transactional activities. In the research, nine out of ten consumers said their relationship with their bank is defined by simple transactions, such as depositing money and checking account statements, etc. Banking providers have been obsessed with digitizing the fast money side of people’s financial lives — and arguably they have been right to do so — but it doesn’t help consumers shed the perception that their primary financial institution can help them with their slow money goals/concerns.

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Five Ways to Start Digitizing Slow Money

According to Cognizant and ReD Associates, it’s critical that financial providers start to focus the next wave of digitization on slow money” (future spending or saving) rather than “fast money” (consumers’ daily and short-term spending). They see this as the biggest barrier for institutions seeking to build meaningful customer relationships — How can digital support the marriage of people’s fast- and slow-money challenges?

Digitizing fast money may have been the priority in recent years. But Cognizant and ReD Associates says its study demonstrates that getting slow money right will make consumers more loyal, less price sensitive and more inclined to do more business with their primary financial institution.

To get started, the report’s authors recommend banking providers take the following five steps.

1. Activate data to recognize the customer. Most institutions are sitting on piles of data but consistently fail to recognize customers needs, resulting in broken interactions and situations, with the wrong products and services being pushed to the wrong consumers at the wrong times for the wrong reasons. Cognizant says financial institutions must build a system that remembers everything about the customer, consolidating transactional, behavioral, financial and socio-demographic data into a comprehensive profile that can be shared and used to guide the experience at every touchpoint.

2. Build predictive models for key financial moments. Most financial providers talk about “life events,” and yet Cognizant did not meet one customer who said his or her provider had helped them during key life events — education, marriage, parenthood, changing jobs or losing family members. Pure lip service. Building better predictive models can help banking providers prove greater relevancy during customers’ life event, and help people actually prepare for them.

3. Unleash the power of digital learning. People don’t want to become financial experts, but they do want a sense of mastery vs. helplessness when it comes to dealing with their money. Cognizant says financial institutions must learn how to engage and motivate people to develop skills and sensibilities in a way that fits each person’s capabilities and situational needs without making them feel they are going back to school. According to Cognizant, it will be critical to help customers by integrating guidance and data interpretation into the front end of existing digital platforms and providing guidance at the moment they’re making a financial decision.

4. Digitize financial advice. As financial institutions continue to replace people and branches with digital offerings, Cognizant says they must also pivot to turn their expertise into offerings that guide consumers to healthier financial behaviors and interpret what their financial data concretely means for their situation. They must provide meaningful points of comparison to help customers understand whether they are financially on track or not, and figure out how to do so in digital channels.

5. Organize around the customer. Often, financial institutions are structured in siloes, organized around product lines and departments, and not the customers they serve. Cognizant says they must serve up a shared point of view on what matters most to people, and better share and surface data that resides across business units. They must also evaluate performance based on the financial well-being of the customer rather than product or company satisfaction.

For those banking providers that get the digitization of slow money right, Cognizant estimates that there’s the opportunity to increase net revenues by 14.2% — 8.0% in additional revenues and 6.2% in cost reductions.

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