Bank customers reported a decline in positive banking experiences for the first time in three years, according to the recently released 2014 World Retail Banking Report from Capgemini and Efma. The growing prominence of Gen Y was an important reason behind the overall decline in customer experience ratings, underscoring the challenges banks are facing in meeting the evolving demands and high expectations of the digitally-savvy younger generation.
For instance, in North America, only 41.7 percent of those between 18 and 34 years cited positive experiences, compared to 63.4 percent of those of other ages, a difference of 21.7 percent. It was found that Gen Y customers want to conduct more of their banking through social media channels and are frustrated that most banks only allow them to do basic research via these channels.
“The decrease in the percent of customers reporting positive experiences signals an early warning alert for the industry,” said Jean Lassignardie, Chief Sales and Marketing Officer, Capgemini Financial Services Global Business Unit. “To reverse the troubling decline in positive experiences, banks need to fully understand evolving customer preferences and the expectations of ‘Gen Yers’, who are driving current and future demands in banking and its digital transformation.”
Balance Between the Physical and Digital
Increasingly, the bank of the future is shaping up to be an integrated network of distribution channels, with each channel working fluidly with the others to serve the specific needs of a diverse and changing customer base. To be prepared, the Capgemini report believes banks need to embrace some form of omnichannel delivery, presenting a clear and positive experience through all channels.
“We know that today’s end-users expect seamless interactions via multiple channels with faster, almost instantaneous responses. The findings in this year’s World Retail Banking Report demonstrate that retail banks need to be more agile, innovative, social, and mobile in order to create a more meaningful experience to engage their Generation Y customer base.” — Simon Short, Global Head of Digital, Capgemini
As the number and type of channels increase, knowledge of how customers prefer to interact with their bank is critical. Only with a full understanding of individual customer habits and preferences will banks be able to ensure a consistently positive customer experience.
Read More: Social Media In Banking: Slow And Cautious
The Importance of a Social Banking Strategy
“The mindset of Gen Y customer expects interactions with all organizations to be similar to what they receive from Google, Amazon, Apple and others,” said William Sullivan, Head of Global Financial Services Market Intelligence at Capgemini during an interview with Brett King on his “Breaking Banks” radio broadcast. “They don’t interact with their bank from a traditional channel perspective … but as part of an overall customer experience.”
As more and more people utilize social media, customers increasingly expect banks to offer services via these platforms.
Sullivan continued, “It’s not like the branch is not important for Gen Y, it’s just that all channels are important to this segment – with the internet, mobile and social being the most important. In the end, Gen Y wants convenience and reduced friction, allowing them to do banking as part of their everyday lives, when and where they want.”
In the research study, Moven and Simple were illustrated as examples of banks that are changing the way people bank by empowering customers with information and advice – providing an advanced user experience, simplifying payments, and focusing on the customer.
Among banking customers surveyed as part of the Capgemini report, more than 89% of the respondents said they had a social media account. As would be expected, the most active users are the younger demographic segments.
While relatively late to the social media table, a majority of banks and credit unions currently leverage social platforms, particularly Facebook and Twitter, to monitor and respond to service issues and to build brand awareness. Some of the more advanced institutions are using social media to better understand customer preferences and even sell services.
While serving as a communications channel, the Capgemini study found that social media has not yet matured into a channel for executing transactions … yet. According to the study, at least 10% of customers in some regions of the world are using social media to interact with their banks at least once a week.
The study also found that retention is likely to increase at banks that offer a strong social media experience. As shown below, the impact of social media differs by age of the customer and region of the world.
Current Social Banking Initiatives
Until now, most banks and credit unions have taken rather modest steps in social media compared to other industries, initially using social channels as an alternative means of outbound communication. Once banking’s comfort level with social media increased, more firms used social media to monitor customer sentiment.
According to the Capgemini study, more than 90% of the banks surveyed provided (or plan to provide) basic information and customer service capabilities via social media. As shown below, only 32% offer some form of collaboration functionality with 51% planning to do so.
Even lower on the priority list was providing transaction or account information capabilities through social channels. In fact, more than half of the banks surveyed (58%) said they were unlikely to offer account information, citing data privacy, security, potential regulatory issues and inadequate back-end infrastructure as reasons.
Some examples of banks that have leveraged social media in a relatively broad way according to Capgemini include:
- DenizBank in Turkey: Became the first to open a Facebook branch, letting customers access their accounts, transfer money to friends, apply for credit, etc.
- Commonwealth Bank of Australia: Extended the Kaching product app to Facebook, enabling payments to friends, access to account information and transferring money between accounts.
- Royal Bank of Canada: Became the first North American institution to support P2P payments between Facebook friends.
- ICICI Bank in India: Launched an app that lets users pay friends and track group expenses via Facebook. The bank also supports the uploading of funds to prepaid accounts and even buying movie tickets online.
- ASB Bank of New Zealand: Implemented a virtual branch that mimics in-branch services by clicking photos of staff members to initiate one-to-one chat.
- Moven: By integrating customer’s financial histories with social timelines, insight is provided on how social activities impact spending habits. This is in line with other strategies around empowering customers with insight and advice based on non-traditional sources of information.
Social Banking Strategic Challenges
Existing banks face technological challenges because legacy core systems have a difficult time supporting mobile and Internet banking, much less social network interactions. “There’s no question the legacy systems pose challenges in cost and execution at the larger banks in the U.S.,” Sullivan said in an interview with Forbes.
“The likelihood of a core replacement is not extremely high because of the cost and risk. So we find focus on how to work within existing system, how to manage and leverage data, and how get channels to interact seamlessly.”
The report notes that there is also a lack of clarity around the emerging social media landscape and that social media channels add another layer of complexity to an already crowded channel infrastructure. Another challenge is that there are few metrics to measure the impact of social media to a bank’s bottom line.
Some believe the biggest barrier to the advancement of social media as a banking channel is the lack of regulations governing its use. Proper disclosures, privacy issues and the risk associated with working with third parties all add to the challenges of broader social media use.
Finally, while some banks have developed a wide variety of ways to leverage the power of social media, including access to account information, payments, etc. there’s no single proven path to success with social media banking.
Ways to Improve Social Banking
According to the 2014 Retail Banking Voice of the Customer survey, there are several mismatches between the social banking functionality and what customers want to do through social media.
The biggest gap is in the area of account information where, while ranking highest on the scale of customer importance, virtually no financial institution provides this functionality. Another gap was apparent with social collaboration, where customers did not find this capability as important, yet a relatively high percentage of banks provide this functionality.
The report recommends, “Banks must advance their understanding of social media, to better deploy it to the fullest advantage. There is a gap between how customers would like to use social media in banking and the services they currently receive. As banks ramp up their social media strategies, they should strive to gain greater intelligence about the specific expectations customers have for this medium. At the same time, they should not overlook the possibility of developing social media services that address the needs customers have yet to anticipate.”
According to the report, “We anticipate social media will become a permanent part of retail banking, with growth in social media accelerating at speeds similar to those witnessed during internet and mobile banking adoption.” Therefore, bank strategy can become misaligned with customer expectations, particularly when technology is evolving so rapidly.
“Just when we thought we had internet banking and mobile banking with apps under control, now Gen Y is calling out social media to us,” said Phil Gomm, Capgemini director and banking industry Australia practice leader. “Gen Y is becoming disenfranchised because they can’t transact in the way they want and when they want.”
It is clear that banks have to work out how to make social media an effective channel, alongside the branch, telephone, internet and mobile device.
Banks need to focus their efforts on leveraging social media to improve customer knowledge and customer service.
It’s all about convergence, with ‘SMAC’ being the door to the future, according to Gomm. “That refers to acknowledging that Social media is now entrenched, recognizing that the Mobile device is in our hands and always switched on, having the Analytics to interpret big data enabling sensible business decisions that become a competitive differentiator and all based on Cloud-hosted technology.”
To carry out a strategic social media strategy, Capgemini recommended that banks build a multi-layered infrastructure to include:
- Appropriate platforms to develop and host apps
- Big data analytics to process customer data and generate insights
- Dedicated support staff to provide live customer care and address reputational issues
- Governance mechanism to be used for training and risk mitigation
- Enhanced safety and security of customer data.
Read More: 12 Questions: The Role, Relevance and ROI of Social Media in Banking
Financial Impact of Positive Gen Y Experiences
The industry’s ability to reverse the drop in positive customer experiences is crucial given the powerful effect positive experiences have on various behaviors that drive profitability. The Capgemini report found that customers with positive experiences are more than three times more likely to stay with their bank than those who have negative ones. In addition, customers with positive experiences are also three to five times more likely to refer others and purchase another product.
With Gen Y comprising one-quarter to one-third of the population in many markets, its attitudes and preferences are highly influential. Retail banks must pay attention to the needs and expectations of Gen Yers, as their influence is only expected to grow.
While the Gen Y customer may not generate the largest amount of revenue for banks today, that dynamic will change. According to Sullivan from Capgemini, “The value and profitability you receive from Gen Y is ten years from now when you get to stay in business.”