Banking Transformation: The Meaning for Communications
The banking industry is going through a period of unprecedented technological change. This banking transformation represents both an opportunity and a challenge for today’s communication leaders in three ways: how to mitigate the impact of disintermediation, how to connect with new stakeholders, and how to manage reputational risk.
The Nature of Today’s Bank Transformation
The changes we are seeing are driven not only by incremental improvements to an existing business model, the likes of which we have seen many times in our history – e.g., the introduction of the ATM, the introduction of electronic cash counters, say – but also by a transformation of the very landscape in which banks operate and the ways their customers use banking services. Overarchingly this is driven by the adoption of the smartphone; worldwide users are now estimated to be in the 2.5 billion range, and in the US over 72% of the US population now uses one of these devices.
The rise of the smartphone has opened the door to a revolution of the customer experience in terms of payments. In an increasingly cashless world, banks now have to contend with new market entrants – Accenture suggests that 17% of the players in the banking/payment world are new since 2005 – and competition from two core areas. First, from ‘big tech,’ e.g., Apple Pay – powering almost 2 billion payments in the first quarter of 2019, doubling year on year – and other services including Samsung Pay and Google Pay, representing approximately 25% of the mobile payments market between them. The second area of competition comes from untethered peer-to-peer (P2P) payment services such as Venmo, PayPal and Zelle, and mobile-only ‘neobanks.’ In parallel, though no less importantly, the very nature of the consumer interaction is changing: 62% of US consumers use a voice-assisted app on their smartphone at least once a month. Together, these clearly represent steps on a path to what some call ‘invisible banking.’
What customers value to choose a bank
In terms of who the customer is, there is a continuing trend of shrinking numbers of unbanked consumers (i.e., those entirely without a bank account) and underbanked consumers (i.e., those who have a bank account yet also use alternative financial services such as payday loans, pawn shop loans, etc.) both in the US and worldwide: in 2017, 69% of adults globally had a bank account, up from 51% in 2011. Alongside this trend, which is of critical importance in terms of new account openings, we must also consider the possibility of higher-value consumers moving from traditional banks to other technology-driven offerings such as those detailed above.
From the bank’s ‘internal’ perspective, we now have AI-driven predictive banking. We have open banking – essentially API-enabled sharing of data with third-party developers in order that the latter can build new apps and services. We also have the ability, increasingly, to market to a ‘segment of one,’ i.e., using highly personalized creative. In parallel, the responsibilities of the bank as steward of the customer’s data, and the potential consequences of failing to safeguard those data, are magnified in our interconnected, hyper-transparent world.
Finally, customer expectations are also shifting; whereas once these were calibrated simply against performance within the sector, now consumers are judging their banks – and indeed, all of their everyday interactions with businesses – against benchmarks established by experiences outside banking, notably including those with retailers such as Amazon, Walmart, eBay, Target, Alibaba and Taobao. This effectively results in a set of benchmarks for response times, personalization, and the ability to ‘meet the customer where they are’ across multiple channels, along with increased expectations in terms of self-service.
The challenge for communications professionals is that our model must now evolve to keep pace with this evolution.
First, banks are increasingly disintermediated from their customers, who are less likely to come into contact with a bank than ever before. In terms of payments, the customer may be engaging with a mobile app where the bank itself is largely invisible or, at best, is visible only sporadically. Understanding how the customer perceives the bank is as important as ever, but making sure they get that interaction right is critical, given the relative commoditization of the service.
Connecting with New Stakeholders
Second, there are new stakeholders to take account of; whereas previously these might simply have been customers, shareholders, politicians, regulators, investors, and employees, now their stakeholder views must also include the new set of current and potential partners – some of which may well be ‘frenemies’ – so that they can build the relationships they need to stay successful in this ever-changing environment.
Managing Reputational Risk
Finally, there is an entirely new set of issues for banks to be aware of: whereas once these might have been restricted to interest rates, fees, customer service, compliance, etc., now they also include areas such as diversity and inclusion, cybersecurity, fraud, and integration.
The new paradigm
For communications to succeed in the new paradigm, they must do three things:
- First, to mitigate the challenge of disintermediation, they must reach consumers in ways outside of their everyday productivity experience and quantify the impact of these initiatives. The Citi Bike initiative in New York City, launched in 2013, is one clear and compelling example of such an initiative.
- Second, they must make sure they understand and track how they are perceived by new stakeholder groups in order to build relationships, whether these are with new market entrants or with ‘big tech.’
Finally, they must make sure they’re tracking emerging issues and have a flexible means of identifying reputational risks that is not just top-down but rather enables issues to bubble up and surface organically. Research shows that not only has the impact of these ‘risk events’ on business performance doubled since the outset of the social media age but also that the market is increasingly quick to judge: the success or otherwise of a company’s response to a reputation event can be predicted as early as five days after the event.
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