Digital strategies are paying off in higher profits for traditional retail banks.
However, digital technologies providing greater automation, easier customer access, and more self-service are no longer competitive differentiators. “Once big advantages, these capabilities now represent mere table stakes,” notes a report released this week by The Boston Consulting Group (BCG).
The report, Global Retail Banking 2018: The Power of Personalization, benchmarked retail banks in North America, Asia-Pacific, Western Europe, Latin America, Eastern Europe, and the Middle East and Africa.
BCG’s Retail Banking Excellence Benchmark (REBEX) — a yearly analysis across more than 100 key performance indicators — equates adoption of digital technologies and top performance. At the most advanced banks, three-fifths of all transactions are now conducted digitally, via smartphone or computer.
BCG is a global management consulting firm.
Why Personalization Is Key for Retail Banks
Ian Walsh, a BCG senior partner and a coauthor of the report, said banks today must redouble efforts to personalize their product and service offerings to future-proof their businesses and retain their customers.
Banks, for example, have progressed in digitizing to reduce costs. Banks with more developed digital strategies and (in many cases) regional advantages have lower cost-income ratios. Cost-income ratios — also called efficiency ratios — measures operating costs as a percentage of operating income.
But Walsh said banks are less far mature in their efforts to digitize for value. “The goal of this more ambitious effort is to understand and serve the customer better and, in doing so, to earn more revenue per customer and increase retention. This can happen only through personalized value propositions,” he said.
For many retail bank executives, the key question is how efficient and digitally advanced their organization is compared with their immediate competitors, the report states.
The Role of Retail Banks
According to the report, retail banking is responsible for roughly half of all banking revenues worldwide. The rest comes from corporate banking and sources such as asset management, investment banking, proprietary trading, and bancassurance (the sale of insurance products through bank distribution channels).
That share is not likely to change dramatically between now and 2021, a period during which BCG expects retail banking revenues to rise by 5.3 percent annually to reach approximately $2.54 trillion. If achieved, this compound annual growth rate would be the highest in the sector in at least a decade, the report predicts.
Digitize for Value
To successfully digitize for value, retail banks around the world need to address both personalization and continuous delivery — that is, the concept of always-on banking.
To effectively personalize products and services, banks must understand and serve customers — at scale — in a relevant, immediate way. But they should also aim to replicate the trust and feelings once generated by face-to-face meetings with branch managers.
“Bank personalization is about delivering the right one-to-one experience in the right channel at the right time to every customer, in a contextually relevant manner.
“The right experience might entail advising a customer to transfer money from another account with ample reserves when the customer is about to make a checking-account payment that will result in an overdraft. Or it might involve using a text message to steer a customer to a short video about how home-equity financing works when the customer is considering a home renovation project,” the report states.
Personalization and Always-On Banking
According to a recent BCG survey,
- 54 percent of new retail bank customers rate personalized experience as at least very important
- 68 percent respondents said they deepened ties with their existing bank because of the bank’s personalized approach
- 41 percent cited insufficiently personalized treatment as a factor for leaving a bank
Banks should use improved data and technology to get a clear sense of each customer’s financial and behavioral DNA. They should also develop individualized offers on that basis, the report suggests.
What’s more, retail bankers should prioritize convenience by addressing the concept of always-on banking.
To remain flexible, banks will have to build sophisticated routing platforms that ensure continuous delivery of personalized experiences, the report states. They can best do this through digitally empowered relationship managers, automated customer care centers, and self-service technologies.
Next Steps for Retail Banks
Banks have very different levels of digital maturity, the report notes. Some still have room to gain a competitive advantage by digitizing for cost. But others “have progressed to the trickier part of the journey, which is digitizing for value.”
“Each bank must consider the imperatives of personalization and continuous delivery and decide how to get to where it needs to go. The destination is becoming clearer with each passing day,” it states.
For retail banks (and every other business today) the message is clear. Customers today expect personalization.
As Arke CTMO Chris Spears said, “Customers today are discerning. They understand the possibilities of technology. What’s more, they expect all businesses, large and small, to use it to make their lives simpler and easier.”
Customers want to feel understood, valued, and connected. They expect relevant marketing, delivered at the right time — personalized to their interests, wants, and needs. And they want it everywhere, across multiple channels and in every form of marketing.
“Trust is the cornerstone of the customer relationship with all businesses. But that’s especially true of businesses like retail banks that are entrusted with some of our most private data.
“Banks that want to keep their customers and attract new ones will capitalize on all of today’s possibilities. The strategic use of technology will help them stay ahead of their competitors,” Spears said.
Need help driving your own digital transformation? Contact Arke CMTO Chris Spears for more information.
Atlanta-based Arke develops strategies and implements digital technologies for better brand experience for your customers.