Race to build ‘customer-centred’ banking is on

By Elliott Holley

Banks must learn to use information services to provide value to their customers if they are to avoid falling victim to competition, according to a report by consultancy Ctrl-Shift.

In September 2013, the UK Payments Council will introduce account switching, allowing millions of bank customers to switch their account from one bank to another in much the same way as a telephone number can be ported between providers.

The report, entitled ‘What are banks for? Customer loyalty in retail banking’, suggests that this change, coupled with the rise of social media, mobile technology and the internet, is prompting banks to move away from traditional ‘push’ business models towards a more customer-centric ‘pull’ model. That means using information about customers to tailor products more directly to their needs, rather than simply developing a product and hoping consumers will use it.

“Creating information sharing relationships with customers, so that both sides can get the most value from data is becoming a key to success in a digital world,” said Alan Mitchell, strategy director at Ctrl-Shift. “Engaging customers on this basis in a mutually rewarding value exchange provides brands with the opportunity to differentiate, reduce their cost to serve and improve their ability to trade on a more personalised level than ever before. Ultimately, it gives their customers a compelling reason to stay with a brand, buy more from it, and recommend it to others.”

On average, the banks surveyed by the study rated the importance of information-driven services to customer loyalty very highly, at 8.2 out of 10.  However, the research also found that the majority still prioritise acquiring new customers over retaining their existing ones, with some 65 per cent rating acquisition first and loyalty second and 63 per cent admitting that new customers get better deals than existing ones. In addition, many institutions are at risk of taking their customers for granted, because banks have not previously been under commercial pressure from high levels of switching.

Other factors, such as the shift towards mobile and online banking, and the entry of new non-bank participants such as supermarkets, are adding further competitive pressure to the existing financial institutions’ hold over their customers. One-third of UK consumers expect to be using smartphones to do all their banking by 2020, while two-thirds of banks expect everyone to be using mobile banking in some capacity by 2017, according to statistics gathered by business technology provider Avanade earlier this year. In September, a separate report by business technology consultancy Capco concluded that interacting with clients effectively through digital channels will be a minimum requirement that is non-negotiable in the near future.

“Brands that control the data dialogue with the consumer will lead the way,” said Mitchell. “Banks need to act fast to rebuild trust. Information services, and the information sharing relationships they rely on and help create, lie at the heart of twenty-first century banking.”

However, not everyone is convinced that new technologies always work in the banks’ favour. In October, Davide Steffanini, head of VISA Europe’s Italian operation, argued that innovative banking products such as the mobile wallet are being held back by slow retailer and merchant adoption. If customers cannot use payment innovations at the retail outlets of their choice, the technology will be limited in its usefulness and may struggle to gain traction, he warned.