E-banking is dead? Mobile banking first?
Many clients see banking as a pure necessity, with a limited fun factor. This has its reasons – paying bills, making transfers and checking your account balance at the end of the month is hardly moving on an emotional level. Banking only becomes emotional if you have reached your card limit, the performance of your portfolios is negative, or you can no longer find the paper version of the interest statement you need to print out. So why are financial institutions making sustainable investments in transaction-oriented channels? Is e-banking even still required if clients are increasingly mobile and no longer want to settle their bank transactions on their PC in the evening, but rather during the day between two meetings or on their commute to or from work?
The banking market has been saturated for a long time, with approximately two banking relationships per client. Nevertheless, new competitors are entering the market on an almost daily basis. If you look more closely, you will see that the new banks – the so-called neobanks – only provide the simplest banking functionalities. On the other hand, financial institutions are grappling with increasingly complex, convoluted products, multidimensional fee models, and high, further increasing fixed costs, which they must impose on the end clients to be able to remain reasonably profitable. Nevertheless, vying for clients’ loyalty – whether at banks characterised as traditional or neo – seems to mostly take place using well-known means. Should market directors and marketers not finally be finding new approaches and ways to exceed the benchmark?
Attack or defence?
Although Swiss banks are attempting to trim down using more efficient distribution and settlement processes, the rich offer of banking products and services may well be too extensive and unclear for most clients. Just think of the complex, convoluted bundling packages for clients in different life stages, of the structured products with trigger limits, of the forms of financing with changing interest rates and barriers, which can be coupled with insurance benefits in individual cases.
In addition, the number of clients in banks’ counter areas is sinking, which is contributing to the death of branches and to the loss of a trust-building point of contact for clients. Instead of developing a positive emotional bond with clients as in times of purely analogue banking, (too) many financial institutions are focusing on defending existing products and processes by bundling products or simply redeveloping product communication.
New clients – new banks
If banks wish to consistently adapt needs to a new target group, old wine in new bottles is not a good way to stand out from the crowd and win new clients. In the thicket of traditional, established banks, however, a refreshing small plant is growing in the form of so-called neobanks (also called challenger banks). These mostly young financial institutions consistently orient themselves towards the communication and consumer behaviour of generations Z, Y and X (in this order). They are consistently developing client-oriented, often purely digital solutions, which enable very simple processes and low fees due to their reduced service offering, thereby winning over clients.
Mobile first is standard
There is a simple, but convincing reason why these products are developed according to the ‘mobile first’ approach: electronic banking is already well established. Approximately three-quarters of the Swiss population settle payments via e-banking today.[1] However, media use has fundamentally changed in the meantime. Smartphones have become a constant companion and internet penetration has reached almost 100% among 14- to 29-year-olds.[2]
Therefore, traditional banks without a clear orientation towards client needs rarely trigger positive emotions among this target group. On the contrary, consistent orientation towards the customer journey and consumer behaviour of this generation is necessary so as not to be viewed negatively. As a matter of course, young clients settle simple transactions online. They have learned this over a number of years and, in doing so, can compare the usability of the various providers on an ongoing basis. They hardly know any ties.
Making contactless payments via smartwatch is today as common as electronic train tickets, which can be redeemed directly in the relevant app, whereby the cheapest fare can be automatically calculated after your journey thanks to the new start and stop function. Whether in respect to transactional banking, e-commerce, information procurement or dialogue with the bank, the modern consumer wants simple solutions that are easy to understand, which are offered via digital channels, and which are designed to be simple, logical and user-friendly. Offers should be instantly available as well as time- and context-bound. Today’s clients no longer think in terms of products, but rather in terms of needs to be satisfied immediately, therefore according to context. They are not interested in pension products, but rather have the need for security in old age. They do not opt for e-bills for the sake of the product, but rather because they wish to save time when paying bills. They also do not want to be contacted at regular intervals, but rather only expect a notification when there is something to edit or decide, or if something unexpected happens.
Digitalisation instead of digital transformation
Financial institutions with a traditional background often opt for the only viable approach in the course of these challenges: the hybrid bank. This strategy combines the best of traditional banking with digital banking. Nonetheless, the leverage effect and long-term success only set in when the deep-rooted emotional need for security has been satisfied. This means, for example, that clients continue to trust in the capabilities of trained bank advisors when preparing and processing major, complex financial decisions such as buying a house or pension planning, whereby banking services such as advisory meetings mostly continue to take place according to conventional processes, even if simple digital tools are included. Information material, for example, that was previously provided in paper form, can now be converted and thus digitalised in an electronic format.
The latest findings show that advisory cannot be undertaken exclusively by chatbots, at least not yet. Acceptance rates are below average and many of the ongoing projects that are going in this direction are being discontinued. As long as challenger banks do not succeed in overcoming the emotional hurdle of an important, personal relationship and trust, the profitable advisory business will continue to be dominated by traditional banks. Their digitalisation activities continue to cater for sufficient competitiveness against the simple digital products and services of the challengers. But be wary: if the willingness of clients to break free of longstanding patterns grows, digitalisation of ‘old’ processes and products will not be enough. Only those who can integrate the digital transformation as a continuous, superordinate process into the company’s DNA will live up to consumers’ expectations in future. Only then can companies consistently orient both their processes and products towards the needs of the end clients – in the same way as challenger banks are doing today. |
Philipp Zimmermann
Head of Product Management Digital Banking
Finnova AG