Is customer experience at the centre of your digital transformation strategy?

To create a technology transformation strategy that will compete with fintechs, it’s best for banks to start with the customer experience (CX) and work backward.

Banks should take advantage of digital technologies to upgrade their CX

Too often, however, companies are enticed—and maybe even side-tracked—by focusing on only the technology choices needed for an all-encompassing change.

Yet a user-centered approach is as old as management guru Peter Drucker’s (1909-2005) quote, “The aim of marketing is to know and understand the customer so well the product or service fits [them] and sells itself.”

For this to become the norm, the customer experience needs to drive decision-making—especially in banking. That’s because it’s never been harder to compete and stay profitable in traditional banking than it is today.

A 2020 McKinsey report on fintech states: “The challenge they [bank CIOs] face is significant: in a competitive environment of rising cost pressures, where rapid action and response is imperative, financial institutions must modernise their technology function to support expanded digitisation of both the front and back ends of their businesses.”

The McKinsey document orients more toward the technology end in terms of increasing tech productivity and modernising their platforms in the expensive and sometimes intractable march through digital transformation.

The CIOs, CTOs, and CFOs in this legacy-burdened, historically slow-moving industry will have to accelerate their choices and invest in new digital technologies in addition to embracing the cloud. The financial services sector is measured at 20 to 25% of the world economy. The 2020 global fintech market was valued at $190 to $310 billion by some estimates. Banks see these multi-zeroed figures and long to invest in the tools that will keep them in the game. But without a proper digital-first customer experience, all of their digital transformation investment decisions could be wrong—and costly.

Safe is risky

The central banking system for this country didn’t emerge until 1913, and has mainly been the same all these years. Before the bank runs during the Great Depression, Americans mostly felt safe with their money in a bank. Then again in 2008, the recession challenged that trust. Now, bank clients don’t have to make a long-term choice in their bank partner. And, they have many more ways to experience these interactions with numerous alternate, non-bank organisations.

The more forward-thinking players in various financial spaces use machining learning to understand, interpret, and leverage customer experience initiatives. And while machine learning by itself is not strictly at the centre of customer service, it facilitates capturing some of the mind-numbing minutiae about customers’ preferences.

From there, even a tiny customisation can shift the CX into a market-capturing game-changer if it’s understood for its potential and introduced quickly. This strategy is risky because it’s often expensive. And it could be the wrong gamble. But the stakes are high, and competitors are getting more aggressive with both a head start on consumer data collection and a track record of good bets.

The new bankers

Four fintech segments continue to add players. Below are a few in each category.

1. Digital payments (Apple, Facebook, Google, Amazon, and Alibaba)
2. Alternative financing (Kabbage and PayPal)
3. Alternative lending (Quicken Loans, SoFi, and Peer-to-Peer)
4. Personal finance (Robin Hood and robo-advisors like Betterment and Wealthfront)

Meanwhile, business news headlines seem to mint new currency every week or so, with Bitcoin, Ethereum, Litecoin, and more adding to people’s alternatives.

How can traditional banks compete?

Consumer preference information can be collected with each transaction and is the easy part of a customer-centred digital transformation. Not so simple is the interpretation of the data that will help decide the best course of action.

The following steps may have to be reordered, repeated, and retried:

• Step one: Use digital technologies to rebuild your platforms and move to cloud. This will give the banks the ability to collect critical customer data and information.
• Step two: Collect current CX data and understand what “too-old data” is in your fintech market segment. All markets move quickly.
• Step three: Hire innovative thinkers and programmers who understand the new banking challenge and the digital requirements to stay competitive. A sense of urgency is a must.
• Step four: Leverage the right combination of machining learning, APIs (application programming interfaces), chatbots, and so on through and around the collected data to overcome objections (such as privacy) and meet tomorrow’s needs.
• Step five: Realise that this is a journey—an environmental change that takes time. But at the same time, be willing to act quickly to incorporate new, cloud-based, security-responsible products that compete with new players in the industry while showing the customer your vision for their welfare. Aim for long-term ROIs, yet be open to the risk of a slight dip in the short term for more significant future gains.

Be prepared

Nimble. Innovative. Agile. Responsive. These words are not often used to characterise traditional banks. They describe their scrappy, formidable start-up competitors like Venmo, Stripe, SoFi, and Wealthfront. While a digital transformation agenda at the top level of banks will move them into the fray, the financial outlay is not for the faint of heart.

The “undoing” of physical data centres and data transfer to cloud servers are expensive moves. But the cost to maintain the data is lower in the cloud, and the response time is faster—meaning customer-facing apps can be launched quicker and replaced if they don’t work. “Fail fast,” the mantra of smaller companies, sets more traditional executives’ teeth on edge.

Both tech giants and nimble start-ups have discovered how to apply Peter Drucker’s strategy of delivering a banking experience that services and “fits the customer so it sells itself.” Taking full advantage of finely tuned digital technologies sensitised to rapidly changing CX will protect an age-old industry that needs modernisation to survive.

About the author

Sudipta Kumar Ghosh is director of software engineering at Capital One.

He holds an MBA from Northwestern University Kellogg School of Management.