The Rise of Digital in Financial Services

The retail segment of the global financial service industry shares many attributes and issues with other businesses that sell products and services direct to consumers. Banks, investment firms and insurance companies have seen their businesses undergo accelerating change in recent decades, driven in part by technological innovation and rapid digitalization.

The consumer, increasingly, controls the market. Financial service customers are well armed with up-to-date information and have shifted dramatically away from banking face-to-face in brick-and-mortar branches. They have switched to online banking and investing, making many decisions on their own without help from, or even contact with, bankers. The good news is that there are many opportunities to operate at lower cost in a digitalized market. But the challenge for financial firms in a market where online — and increasingly mobile — services are the norm is to achieve differentiation from competitors.

When customers have easy access to data that compares banks’ services, rates, terms and pricing, a crucial competitive differentiator is service. Technology enables customers who prefer a self-driven service experience to meet their account management needs and execute transactions more easily and more successfully through guided, knowledge-rich self-service — online, on a mobile device or even in the bank branch. The technology also enables the bank to recognize when the customer needs help, and to provide it in real time through chat, co-browse and other innovative means. These tools enable financial institutions to improve the rate at which customer interactions convert to revenue-generating opportunities, to maximize the value of every customer relationship, to optimize the use of the institution’s marketing assets, and to realize substantial cost savings.

The challenge of global financial services

The financial services industry quite literally never sleeps. Tides of wealth wash back and forth across the world, 24 hours a day, 365 days a year, through global, interconnected computer networks serving banks, investment firms and insurance companies. Financial services account for roughly eight percent of GDP in the US (about $1.25 trillion) and for similar proportions of the major capital markets in Europe and Asia.

At the main street level, banks, brokerages and insurers play an enormously important role in consumers’ day-to-day lives. The “retail” organizations in the financial services industry include some of the world’s most recognized brands. These organizations have many of the same marketing challenges that other retail businesses face. Driven in significant part by technological innovation, they must compete in a globalized industry in which change has been accelerating for decades.

As in most retail businesses, financial service companies providing consumer services have seen control of the market shift sharply to the customer. Digital technology has empowered the consumer with increasingly sophisticated information about banking, investment and insurance, enabling quick and intelligent differentiation between companies in terms of services, rates, terms and pricing. These developments mirror the more general growth in consumer dependence on digital devices and the increasing confidence of consumers in their purchasing decisions based on the information that these devices provide.

A growing consensus among bank executives is that their greatest challenges include satisfying and retaining increasingly demanding customers, as opposed to winning new ones.

Financial service firms, like other companies, need to differentiate themselves from competitors. Many have found that providing a better customer experience is a potent differentiator. They are adopting tools and strategies that other retail businesses have used to improve that experience, to make customer interactions faster, more aesthetically pleasing and easier for the customer to understand.

Better customer experiences lead to higher conversion rates, more transactions and more opportunities for upselling of new services to current customers.

Adoption began with relatively simple processes, such as checking balances and paying bills. But financial service marketers recognize that broader adoption depends on their being able to offer more sophisticated services online. Top priorities for banks include enablement of completely automated online account origination, delivery of personalized online marketing offers, deployment of personal financial management tools on bank websites, and online tools to enable customers to compare alternative financial products.

Banks, investment firms and insurance companies are adopting omni-channel strategies (spanning traditional branches, online and mobile banking) to improve service while lowering costs, and to market new services and upsell those services to current customers. They are accommodating consumers’ well-documented preferences for increasingly sophisticated self-help tools, for the convenience of online experiences versus on-premises interactions at the bank branch, and for ability to get information and execute transactions whenever and wherever they happen to be. This last preference has driven accelerating adoption of mobile banking, which is likely to become the predominant medium for financial service interaction before the end of this decade.

Each interaction between the financial service firm and its customer is increasingly information-rich. The ability to analyze Big Data and deliver actionable insights enables financial service companies to see customer behavior and demand patterns, match service offerings with customer profiles, focus upselling on likeliest buyers, and spot customers likely to churn before they do.

And information technology is helping financial service providers to sharply reduce their costs, particularly in areas like customer service. Traditionally dependent on call centers where live phone agents respond to customer questions, banks and insurers are finding that high percentages of these calls can be deflected from the call centers to chat sessions with agents who can provide better, more information-rich service, handling multiple customer interactions simultaneously at a fraction of the cost of call center operations.

Or, customers presented with the right online self-service tools can resolve many of their own issues, only initiating a chat or voice interaction when they have complex problems. Customer satisfaction scores typically improve, as consumers appreciate not having to deal with complicated voice response systems or wait in lengthy call queues. And each online or mobile session provides the bank with new data on the customer’s needs and preferences, and can present a targeted upsell opportunity even if the customer never interacts with an agent.

The Digital Economy and Banking