Improving customer engagement in financial services continues to be a major challenge, as consumers just don’t find the subject particularly interesting. Even with the advent of mobile banking which improves connection with your money, banks have struggled to cross sell other products.
Arguably, one of the most important catalysts to improving engagement of banking customers will arise from the implementation of PSD2. This becomes law on 13 January 2018. From that date, there will be a separate implementation timetable driven by the requirement for the European Banking Authority (EBA) to develop a number of guidelines and regulatory technical standards [RTS] to provide strong customer authentication and secure communication.
One of the outward manifestations of PSD2 will be the creation of ‘open banking data’, facilitating aggregation of banking relationships, a single view of a customers’ accounts across multiple providers and opening up new services and propositions which give consumers greater control.
Let’s first consider what do we mean by deeper customer engagement
Surely customers are already engaged with banks because they use them daily to pay to and receive money from 3rd parties? This is obviously true. However, I have long held the belief that banks and other financial services providers can do a lot to improve customer engagement by building deeper customer trust.
Its clear that much has been done in the UK to destroy consumer trust, the PPI scandal is a case in point.
EY’s 2016 Global Consumer Banking Survey* highlights that complete trust is highest in the emerging economies of the Asia-Pacific region (54%) and lowest in Europe (36%) and the mature economies of Asia-Pacific (31%). Chinese banks enjoy the highest level of complete trust (79%), followed by banks in India (65%). Japanese banks have the lowest level of complete trust (11%), followed by those in Ireland (21%).
The survey also highlights the competitive threat from non-banks moving into the PSP space. They have mostly already gained similar levels of trust as the traditional banks. PSD2 could well be a springboard for Fintech entrants to overtake the long-established players.
Improving trust requires a number of actions;
- Change the way staff are motivated and reward the right behaviours
Changing reward mechanisms will change the way banking staff behave and the internal culture. Consumers will hopefully see this in both the press and through a reduction in regulatory sanctions.
- Develop a more customer-centric business model
The silo-mentality still exists with product owners forcing product down the same bank channels as their colleagues. This is often a function of product profitability and reward. PSD2 gives an opportunity to look at the whole customer value, their broader needs, aggregation of other data [perhaps from non-banking relationships] and develop more relevant, personalised and real time propositions. This will help create new customer focussed structures in banks.
- Protect customer data
EY’s survey shows 60% of global consumers worry about the hacking of bank accounts or bank cards, and 59% worry about the amount of personal information private and public sector organizations have about them.
Whilst PSD2 offers a lot around data protection and integrity [the devils in the detail of the RTS], there’s a lot that can be done now.
The introduction of mandatory payment alerts in the USA by Visa and MasterCard is a very positive initiative. With this functionality, consumers can check alerts in real time, respond if they suspect fraud and be more in control of personal financial management [how many of us have already forgotten those numerous contactless payments we made for coffees last week?]. Applications such as Vipera’s CardControl take this a step further with more specific management tools, for example, the ability to set spending limits by type of spending, restrict contactless or turn cards off if you misplace them and turn back on when located.
- Changing the face of front-end engagement
10 years ago, banks invested money in ‘coffee housing’ their real estate. Branches were transformed into open seating, relaxed environments. Metro owns the dog bowl in the branch! The investment in branches is a tricky one against a backdrop of declining branch traffic and fast-growing online banking. That said just under half of respondents in the EY survey said they don’t trust banks without branches. The demographics of that segment would be interesting to look at.
The UK Retail Distribution Review which was effective from 1 January 2013, caused banks to retreat from providing personal financial advice to its customers and their ability to meet customers’ needs outside of payments, saving and borrowing has diminished. The ability to find advice on the high street is now very difficult.
PSD2 is an opportunity to create new integrated propositions which aggregate data to improve customer engagement and the overall relationship. EY’s survey also shows a correlation between improved digital experiences and the propensity for customers to share more data with the provider. The challenge we see now is for banks to find ways of offering insurance, protection and investments to customers delivered with low conduct risk and high levels of engagement.
- Ensure all touchpoints are executed with best practise delivery
Customers don’t just expect things to work, they expect them to work as well as their non-banking experiences. Digitisation of banking processes shouldn’t be about the replication of what currently happens. On the contrary, its an opportunity to redesign, future-proof and be creative in the way the services are delivered. Look outside and think about how things can be done differently. PSD2 will for some banks be a compliance project. For others, it will be a huge opportunity to rethink a number of processes around a new vision for their banking proposition.
In summary
The banking sector has a lot of opportunity to improve customer engagement in the pursuit of deeper, more meaningful and profitable relationships. The arrival of PSD2 is a catalyst for a major strategic shift. Those banks who see this, will protect and prosper. Those that see this as a compliance exercise will be less likely to fight off the competition from new entrants. These new entrants have already gained a foot hold in the vital element of trust amongst consumers. And we know how hard it is to build trust.
EY’s 2016 Global Consumer Banking Survey* set out to measure the state of banks’ relevance to consumers’ lives. More than 55,000 consumers participated in the survey, which was conducted in early 2016.