When it comes to banks getting a pulse on what their customers will want in the future, nothing seems as perplexing or challenging. Even calculating and conforming to liquidity cover ratio regulations seems gentle compared to predicting future customer behaviors — and that involves asset maturities, liquidity of current investments, maturity of short-term investments, equity strategy, contingent liabilities, hedging against market conditions… yeah, that complex.
Yet to survive in the coming years (let alone today), banks must have fundamental understandings of what customers want from them tomorrow. Thankfully there is a way. And it’s composed of three ingredients: trust, innovation, and listening. To make a friend of “innovation” you need trust, which I previously covered in the last article. It’s the first step that sets up the second, and the focus of the next part of this series.
The value of innovation to retail banks
Innovation is incredibly valuable to banks as it offers new and compelling ways to capture new business and grow loyalty from consumers. However, innovation requires a degree of risk, and risk is not a friend to banks. In fact, banks make a living by avoiding and mitigating it. Warren Buffet once famously summed up the risk-averse nature of banks when he quipped “Banking is very good business if you don’t do anything dumb.”
Fortunately, we’re not talking about traditional risk that banks face (credit, interest rates, liquidity, compliance, etc.). We’re talking about managing risk in innovation. Customers are looking for innovation from their banks – and are demanding it. Consider that 53% of customers would use fintech if their bank offered it, according to recent research. It’s innovation that will fuel the ability to deliver on customers’ future wants and needs, but it’s a non-starter if a systematic process and culture that embraces reasonable risk is not present.
So, what’s required for banks to start building this into the operating culture to uncover future customer needs?
Create a culture that thrives on it
Innovation requires a culture where people feel comfortable trying things that might fail. It requires trust – and not just internal, but also trust from customers (that’s why Trust was highlighted as Fix Your Culture 1.0). When customer’s trust you, they’ll see failure not as a reason to leave banks, but as the true, aspirational purpose that risk was taken in the first place – to make their lives better. As a result, they’ll stick around more often than leaving. McKinsey, which found that the wrong culture was the biggest barrier to digital effectiveness for an organization, offers some great insight into how to begin to build this kind of culture.
Innovation requires talent
Obtaining talent is a concern for banking CEOs. For instance, a recent PwC CEO survey highlighted that 77% of Global CEO’s believe lack of skill will hinder growth – and 52% are planning to hire to do something about it. That’s a limited talent pool that Bank CEO’s now have to compete in considering that survey represents CEO’s across multiple industries. However, “build it, and they will come”. By creating an environment and culture that breeds innovation, the talent to innovate will follow.
Innovation requires iterative improvement processes
Innovation necessitates speed. Customers expect more and more – and they want it quickly. Agile methodology helps deliver on this speed, and can be considered a must-have in the ecosystem of innovation improvement. Project success rates have been boosted to 39% from 11% because of agile methodologies. If your bank is not working in an agile environment that facilitates iterative improvement, you need to seriously consider changing.
Innovation isn’t for the feint-of-heart, particularly in a centuries old industry like banking where avoiding risk is central to the business. So, inviting some risk into your strategy – for the sake of innovation – can be dangerous without first having a good handle on what consumers want and expect from you now. That means being able to measure the customer experiences and understand what’s affecting satisfaction and how it causes them to behave — which is why the third key ingredient we cover next is Listen. Without that, innovating to stay relevant could fall short of helping achieve business goals.
It takes a culture of trust, a culture of innovation, and the ability to listen (coming next week in part 3) to improve the customer experience. Then you’ll know future.
For more banking customer experience insights, download the latest ForeSee Experience Index (FXI): Banking Report.
Part 2: Innovation — Why banks need innovation to know future consumer expectations
Part 3: Listening — Coming Soon!