Is frictionless finance the future?
Frictionless commerce has shifted from being a novel retail strategy to a core requirement for businesses in multiple sectors.
From retail to transport, food and travel, organisations are racing to strip time and complexity from the consumer journey, creating seamless and convenient experiences.
It’s a model that makes sense in the current landscape. According to PwC, 43% of consumers will pay more for a service that is convenient, while half will actively change retailers if a company offers a more frictionless experience. What does that mean for banking, financial services and insurance companies?
“Consumer expectations have changed in finance, driven by retail, commercial and ecommerce sectors. Consumers now expect to access almost everything online, without needing to jump through hoops,” explains Jason Lane-Sellers, EMEA director, fraud and identity, at LexisNexis Risk Solutions.
The challenge is that finance isn’t a sector that naturally lends itself to frictionless experience, adds Lane-Sellers. “If I’m accessing my bank or buying an insurance policy or checking my mortgage statement, those are serious transactions, and they won’t look the same as someone buying a film on Apple TV.”
In some cases, friction might be a requirement from industry regulators or designed to minimise fraud, adds Lane-Sellers. “If I want to make a large payment through my banking app, it might ask me to authenticate again or push a message through SMS. I might be making a purchase online and the retailer asks me to authenticate the payment via my banking app. That’s a bit of friction in the process, and that extra validation is required by regulators in many cases, but customers find it frictional.”
How can the financial services sector reduce friction?
While banks might not be able to emulate Amazon’s one-click purchasing, for example, there are other ways to reduce friction in the financial services sector, says Phil O’Neill, financial services director at consulting firm Kin and Carta. “Banks hold enormous amounts of data on customers, so it’s entirely possible to use that data to power personalised experiences and suggest products before the customer even realises that they need them,” he says.
For example, banks could pre-approve customers for certain products, provide ‘embedded’ services such as insurance, or make a timely recommendation for a service based on data that it already holds, says O’Neill. “This all reduces friction because it saves the consumer time, and that’s probably more important for financial services than trying to emulate ‘one-click’ models, he adds: “Gen Z are very positive about frictionless experiences, but I suspect if you asked a gen-Z person who had been attacked by a fraudster how important it is in finance, you’d get a different answer.”
One firm that has taken steps to reduce customer friction is Legal & General, which has implemented several changes to its insurance and pension products. For example, L&G has created a range of dashboards and calculators to help customers understand complex financial products more easily. Recently, the firm has created personalised, animated video messages that are shared with workplace pension customers over email. “The video says how much their pension is predicted to be, and what annuity they could buy, and then click here if you’d like to increase your contributions,” says Bernie Hickman, chief executive, Legal & General Retail.
This small service reduces the friction typically involved in reviewing pension projections, making it easy for customers to make a change. The video campaign generated engagement from almost 30% of recipients, showing the appetite for frictionless services, says Hickman.
Balancing CX and a sense of security
But consumers don’t necessarily want zero friction from their financial services providers. Legal & General Retail has specifically added ‘pauses’ into certain consumer journeys to give customers time to consider what action they’re taking. This is important when considering products such as pensions, which can have a long-term impact on the customer’s financial health, says Hickman. “Yes, we want to make ourselves easy to do business with, but if you’re taking out a life insurance policy, it’s really important that customers get every opportunity to give us honest and complete information because they’re going to depend on that policy,” he says.
The goal for most financial service providers is to minimise the sort of friction that makes customers frustrated, while adding just enough ‘positive’ friction to make customers feel protected, says Kate Frankish, chief business development officer at Pay.UK. “We’ve got to balance the desire for things to be quick and easy with a massive increase in things like APP (authorised push payment) scams,” she says. “The question is what’s the right level of friction so that people get value but are protected.”
A good example of positive friction is the introduction of ‘confirmation of payee’ in online banking. Today, when consumers in the UK make a new bank transfer payment, the bank can check that the account name of the payee matches the account number and sort code. The system can identify a close match and suggest the correct details, or it can confirm that the details do not match and advise the customer not to proceed. Pay.UK’s research shows that 70% of consumers felt positive about the introduction of this service, and the service has significantly reduced this type of fraud, says Frankish. “That’s an important point of friction and it’s slick, so people quickly got used to it,” she says.
Sometimes, positive friction can mean not doing things as quickly as might be possible, adds Lane-Sellers. “Banks can identify customers in milliseconds using behavioural biometrics, and knowledge about your location and device, but they will often ‘hold’ customers for a second or two and suggest they are authenticating your details,” he says. “That’s an artificial pause to make you feel that you aren’t getting access to your account too easily. That holding page gives you the feeling of security that you’re being validated before you can access the app.”
Getting the balance right between positive and negative friction isn’t simple, but it is critical. In today’s marketplace, banks can’t afford to ignore the customer experience, says O’Neill: “Banks and insurance providers are commercially sensitive, and they don’t want customers dropping out of the process or to see negative net promoter scores,” he says. “People have the option to go elsewhere, and they will do just that if you can’t provide a seamless, frictionless experience.”