The competition in the financial sector is increasing. FinTechs and big tech companies are grabbing market share from banks. However, financial institutions can learn a lot from these companies in order to advance their own digitization in a targeted manner.
Banks are threatened from several sides. Long resting on their market shares and innovating little, they are now being overtaken by companies that offer people real value and seamless digital experiences. Customers now expect similarly perfect digital experiences from their bank. However, they rarely get them. As a result, the satisfaction of many bank customers is falling continuously – this is also shown by a study by Backbase and GFK .
Customers get innovative solutions from the new players. And whenever customers use the offers of the new players, banks move a little further into the background for them. Banks now no longer have a strong relationship with their customers, especially the younger ones, and are becoming replaceable service providers. This is a dangerous process for the institutes, as they not only become interchangeable for customers, but also leave important cross- and upselling potential to others.
Customers compare digital experiences
Nowadays, consumers are offered first-class and seamless digital offers on different platforms every day and are thus bound to them in the long term. In particular, solutions from e-commerce providers are driving up consumer expectations of digital services. However, many consumers do not get comparable digital experiences from banks and also feel limited by the lack of services.
The study reveals alarming customer satisfaction figures: 43 percent of respondents are dissatisfied with their bank. A fifth of all those surveyed (21 percent) are even planning to switch their current account to another bank. Dissatisfaction and a willingness to change jobs are particularly high among younger people. Almost 34 percent of 18-29 year olds are planning to move their checking account to another bank.
Bank customers are interested in new services
The study also shows that bank customers are definitely interested in new services and, for example, would not only use their online banking for transfers or to check their account balance. You can well imagine managing contracts and subscriptions there as well. Many, especially the younger ones, also want a financial manager who can break down exactly what they’re spending their money on. The topic of multibanking is also becoming increasingly important. Many consumers have multiple accounts (call money account, securities account, etc.) and would like to be able to access them in a single app.
From the financial manager to the administration of insurance and the electricity provider: Many of these services are not offered by banks, but by innovative FinTechs. As a result, bank customers are having less and less contact with their bank, interacting more with third-party providers and bonding more closely with them. This process is accelerating and carries the risk that banks will become interchangeable service providers for consumers, which can be stored and managed in apps from other companies.
Ecosystem bank for financial matters
But many of the solutions that consumers value so much and seek elsewhere could also be offered by banks. Banks would benefit from this because their customers would then rarely or never have to leave the bank’s ecosystem to take care of their financial needs. And with many transactions – such as changing electricity provider – the bank can collect a commission. The bank could thus become the orchestrator of an ecosystem.
The threat is there, and ways out have also been outlined. But there are hardly any concrete projects. One reason banks are lagging behind is IT. Outdated back-end systems and a monolithic infrastructure in the front-end not only prevent a first-class banking experience for customers and employees. This legacy IT also makes innovations impossible.
With a platform approach to the most popular banking app
How can a platform be built, an ecosystem created, in which customers are offered the services and solutions that meet their needs so well that they hardly ever leave it? Simply improving or redesigning the banking app is not enough. Because the ecosystem first needs a strong foundation – an engagement banking platform. This new technology is superimposed on existing systems such as the core banking system and CRM and is then, in the truest sense of the word, a platform on which innovations are then implemented. An engagement banking platform – or the products on it – can be adapted quickly and flexibly to constantly changing requirements. And new systems and partners can be conveniently connected via APIs.
Success with engagement banking
Good engagement banking platforms have preconfigured customer journeys and offer state-of-the-art apps and web interfaces for bank customers. Depending on the platform, a finance manager is already part of the app and the web interface. It does not have to be developed first and is available to customers immediately after the platform and the new app go live.
However, developing an engagement banking platform is a major challenge and can take years. Fortunately, engagement banking platforms also come as a white-label, turnkey solution that only needs to be implemented and customized. In-house IT can then take care of other issues and has resources for expanding the ecosystem or for developing innovations.
Banks must be the main point of reference for customers
Banks should aim for bank customers to interact first with their bank, rather than with third parties, for all financial matters, or at least for as many as possible. To do this, however, banks must modernize their IT and first introduce a robust platform on which innovations can be implemented that create an ecosystem. In this way, banks can orchestrate the entire customer journey. The bank remains the most important point of reference and binds its customers in the long term through excellent digital experiences and personalized offers.
Many banks see the new players in the market primarily as competition. And it may be true that certain market shares have been lost forever – for example in the area of payments and BNPL. But in many areas, the BigTechs and FinTechs are only one or two steps ahead of the banks. However, with a forward-looking digitization strategy, the right partners and intelligent innovation, banks can quickly regain ground. But time is short and the clock does not stand still.