The last few months have been a painful crash course in inflation for financial service institutions. And while inflation has reached its highest level in decades in many countries, the US ranks consistently high when compared to the rest of the world. How can we nurture a loyal customer base?
What does this mean for banks?
With the recent interest rate hikes, banks have had to look beyond the balance sheet and focus on the origination and sale of value-added services. This imposes a greater pressure on sales productivity and customer experience since customers are now hyper-aware of how inflation is affecting them and will spend time shopping for the best deal. To add to this, there’s a looming threat posed by neobanks, fintech firms, and financial service offerings by big tech organizations.
Luckily there’s hope… according to McKinsey, two thirds of a recovery post-crisis happens within the first 18 months. Meaning now is the time for banks to act.
Here are three steps banks can take to navigate the present and position for the future.
With the Federal Reserve increasing interest rates to allay demands, customers are more sensitive, cautious and on the lookout for greater value in deals.
Regional banks can no longer take comfort in their loyal customer base whom they have served for generations. Newer banks and fintechs are moving in and offering core banking products to customers, making it vital that traditional banks leverage their core value proposition and build digital journeys around this.
As a first step, banks must evaluate existing services and convert them into compelling digital experiences for their customers – if they haven’t already. For example, Chase Bank (one of the early adopters of self-serve banking systems) offers their customers a digital mortgaging experience that provides a simple, fast and transparent end-to-end home financing experience.
Enhanced experiences such as analytical insights or AI-powered virtual assistants assure customers that their long-term financial health is being taken care of. And while this helps strengthen the bank’s brand and reach, this also gives banks deep, unique perspectives on consumer behaviors.
With the recent interest rate hikes, banks and financial services organizations have had to shift from balance sheet businesses and making money on spread, to sales and origination. McKinsey’s Global Banking Annual Review pegs the return on equity (ROE) from origination and sales to 20%, five times higher than that of 4% for balance sheet-driven businesses.
While most “Big Tech” companies start out with lending, many are aggressively moving into selling other financial products and services. For example, Amazon Lending was built on the motto of “business lending doesn’t have to be complicated” and touts itself on the ease of giving financial support to small and medium-sized businesses without the paperwork and lengthy wait times.
This is something banks should take a close look at considering since 2011, Amazon Lending has made more than $3 billion in business loans ranging from $1,000 to $750,000 to help small and medium-sized businesses grow their enterprises.
From a market valuation perspective, the gap between the best and the rest in banking is widening and this is only going to get further exacerbated. To gain a lead, sales teams need a system of insight that provides a deep analysis of customer behaviors, patterns and habits for quicker conversions, and ways to nurture loyal customers.
According to Forrester, organizations now need intelligent, AI/ML solutions that help:
- Their sales, marketing, and post-sales personnel understand and manage their omnichannel touch points across the buying cycle;
- Automate and orchestrate manual repetitive tasks, as well as deliver insights and tools that improve efficiency and effectiveness;
- Users understand preferred engagement channels, identify missing contacts, and surface important account, contact, and opportunity insights.
It is a difficult balancing act – investing in sales tools while cutting costs. But if banks can leverage technology to build these systems of insight for their sales teams, it will enhance sales productivity and the bank’s overall book of business. And a step-change increase in productivity would cut costs per unit and raise supply, putting downward pressure on prices.
As the economy recovers from one crisis and prepares for newer challenges, banks should consider an inside-out transformation to survive, compete and succeed.