Under assault from regulators since 2008 and distrusted by sceptical consumers, the Financial Services (FS) industry is still trying to fix past misdeeds. But in the interim, technological advances have changed the landscape forever.
The future of Financial Services
While FS firms were focused on IT, regulations and upgrading core banking systems, technology firms were busy changing the relationships between consumers and suppliers. FS firms now have to close both technology and customer experience gaps – writes Dennis Harhalakis, consultant at Gulland Padfield.
What does the future for Financial Services looks like? To a large extent, it’s already here – it’s just distributed across the broader services, media and communications landscapes. To understand this, let’s look at some of the major developments of the last 15 years:
Customer experience – the impact of Amazon, Apple and Google extends far beyond their respective industries. Consumers benchmark all experiences against those provided by the top companies – and established FS firms, both culturally and otherwise, fall well short.
Big data – data-driven marketing first emerged in the mid 1990’s, but it was the confluence of digital only firms and the ability to capture all channel interactions that really moved the dial. Supported by massive increases in processing power and collapsing storage costs, data-driven has become big data-driven.
Personalisation – personalisation is part of customer experience but it’s important to distinguish it from the other more standard factors such as website reliability and ease of use. Customers now expect to be reached via the right channel, with the right content, at the right time.
User generated content (UGC) – consumers under the age of 40 spend a great deal of time with media and 30% of that time is with UGC (between 5 to 6 hours per day)*. They trust UGC more than any other media source and it drives their purchase decisions.
Peer validation – as trust in institutions has declined, peer validation has emerged as the new way to build reputational capital. Whether through customer reviews, internet forums, user ratings or canvassing friends and family, consumers are using distributed trust sources to get opinions on products, services and individuals. Digital marketplaces such as Airbnb and Ebay now have Trust and Safety teams building and monitoring the trust infrastructure.
Democratisation of investing – online trading, peer-to-peer lending and Robo-advice are all examples of a broader trend where consumers now have access to markets and products that were previously unavailable. In particular, the rise of ETFs and online technology to generate low cost diversified portfolios with very low entry points has created investment avenues for millions of new investors keen to try financial self-management.
Financial self-management – with the emergence of strong digital capabilities and investing tools, distrust of traditional banks and, in particular, their ability to offer unbiased advice has driven the rise of financial self-management. This trend has also been supported by an increasing trust in non-traditional financial institutions and the almost limitless amount of research and advice available on media platforms.
How should FS firms incorporate these developments into their business models?
By using emotional engagement and data analytics to understand, anticipate and react to customer needs. Done correctly this will reposition FS firms from product pushers to institutions that aim to build long term financial partnerships based on customer needs and lifecycle events. Here are 3 broad areas for consideration.
- Create emotional engagement through simplifying complexity and helping customers achieve personal values such as social acceptance or attaining independence. Behavioural research has shown that people shy away from things that appear complex, difficult to understand or may leave them feeling inadequate (emotional/physical pain). As with avoiding the dentist, people know they should do financial planning but don’t. Helping them with simple online guides, podcasts or videos creates a connection and builds subconscious loyalty. It also allows you to track what they are interested in.
- Build an ecosystem where customers can share ideas and feedback. The financial product sales and education process is now increasingly online and customers use a combination of news feeds, finance sites, blogs and social networks to help them make decisions. Understanding what your customers are thinking is the cornerstone of any successful Customer Experience programme and it’s now possible to do it without having to ask them directly. Combining educational material, feedback and other UGC, will prove invaluable in being part of customers’ learning processes, understanding their needs, and then helping them with their financial journeys.
- Give customers the tools to manage their finances in the way they want. Most of us have multiple expenditure and savings goals but we often have to combine them in one pot or open different accounts. The ability to set up rules to transfer salary proceeds into various sub-accounts (rent, food, utilities, rainy day, holiday, etc.) supports budgeting and creates empowerment. By using tools that analyse transaction patterns, firms can then anticipate customer needs and offer solutions – for example, warning them before they incur charges or offering pre-approved loan limits if they are likely to go overdrawn.
Nearly all of the developments above have been driven by technological advances. Technology has changed the way products and services are delivered as well as the nature of the relationship between producers and consumers. FS firms need to use it to engage with their customers and position themselves as long term financial partners.
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