With more branch closures on the horizon, retail banks are investing in data analytics and machine learning to personalise the increasingly remote customer experience
Root of all evil it may be, but as the fury over High Street bank closures demonstrates, our relationship with money is highly emotional. So as banks embrace digitalisation, they must ensure that public needs and perceptions are at the heart of their approach.
In the 24 years since Nationwide launched the UK’s first internet banking service, apps, video calls, passwords and bots have all but replaced cosy, in-branch chats with human relationship managers.
Yet while Covid has accelerated the adoption of digitalisation, the failure of banks to regain the trust they enjoyed before the 2008 crash weighs heavily on a sector where the personal touch is seen as the holy grail.
Stung by the popularity of high-tech, low-fee ‘neo banks’, particularly among the young, the ‘Big Four’ – Barclays, HSBC, NatWest and Lloyds – are turning to fintech acquisitions and partnerships, seeking to catapult their businesses into the digital-first arena.
But functionality alone – however impressive – isn’t enough when it comes to something as personal as our money. To remain relevant, old-school banks must see off challengers in terms of speed and convenience while simultaneously delivering a bespoke service which matches or exceeds that of the local branch model.
Banking on emotions
Take-up of HSBC’s mobile app has doubled in the past four years, with more than 95% of its daily transactions now completed across digital channels. But tech-driven hyper-personalisation won’t be a quick fix for retail banking, says Matt Turner, HSBC’s UK head of digital.
“Building loyalty and emotional connection is still in its infancy in banking, particularly mobile banking,” he says. “When it comes to delivering the type of personal, relevant experience which generates loyalty and advocacy, we aren’t even scratching the surface.”
In time, Turner thinks developments in personal financial management software – the features which give you a bird’s eye view of last month’s spending, for example – will help plug the gap between the touchy-feely human service of the past and the bells and whistles digi-led delivery of the future.
“Whether we’re talking about tracking your outgoings, boosting your savings or raising customers’ financial literacy overall, the goal is to deliver experiences and messaging with genuine personal relevance. And yes, we have much more to do to make that happen.”
Short of offloading those customers who refuse to go digital, banks have little choice but to try to please everyone in an omnichannel world. Yet balancing the needs of tech enthusiasts with those of customers still yearning for counter service is proving a thorny problem.
The July relaunch of Standard Life Aberdeen as abrdn in a bid to create a “modern, agile, digitally enabled brand” spawned a clutch of mocking headlines about the asset management firm’s attempts to get down with the kids.
Noting that the free publicity more than made up for the negative coverage around missing vowels, Charles Wright, global principal at branding agency Wolff Olins – which worked on the campaign but didn’t come up with the name – says High Street banks must tread even more carefully.
“Everyone recognises that the Big Four have a problem with inertia and lack of innovation,” he says, “and while swallowing fintechs like crazy – which some are certainly doing behind the scenes – looks like the obvious solution, it could stifle the fresh thinking that they need in order to meet growing customer expectation.”
Clunky mobile banking
Describing the big bank digital experience as “clunky,” Wright singles out bureaucratic foot-dragging for particular criticism.
“When you compare the one to two hours it typically takes to open an account at a challenger with the one to two weeks it can take with a traditional bank, you can see a clear disconnect in terms of the digital service on offer across the sector,” he says.
Muddled fee structures, excessive security protocols and “gimmicks” are also in his line of fire.
“If the bricks and mortar players can start to give customers the speed, flexibility and transparent fee structures they are demanding, I’ll actually start to believe all the stuff they are currently claiming around hyper-personalisation.”
Abrdn’s investment director Iain Pyle takes a different view. He stoutly defends the Big Four’s record on digital banking, arguing that their tech-led transformation can only improve over time.
“Banking is a customer service industry at heart and while it may have been a little slow in getting to grips with some aspects of digital, it’s clear that people do now trust the technology.”
Pyle doesn’t see “a great gap between what the traditional banks and the new banks are offering in the digital arena. And while big firms are slowed down by the network infrastructure, they have the capital and resources to get this right over the long term for all types of customer.”
The latest Edelman Trust Barometer indicates that our trust in banks and other financial institutions has yet to recover from the shockwaves triggered by the last recession. But luckily for the Big Four, what we say and do are often very different. Although neo banks enjoy high recommendation levels, relatively few customers have switched their main accounts to them, suggesting that while they’re fine for bitcoin or for side hustle earnings, we don’t trust them with our main salaries.
Some challengers are said to be operating on wafer-thin margins. The fear that they will be swallowed up by bigger players or simply go bust – energy market-style – can only compound our reluctance to break away from more familiar names.
While trust may have dwindled, most people – aside from those who prefer to hoard their cash under mattresses – would probably agree that their bank can be relied on not to lose or misappropriate their money. Yet when it comes to the far more complex belief that banks can be trusted to actively protect our long-term financial well-being, this is no longer a given.
So says Fred Burt, founder and chief executive of Olix Consulting, whose recent clients include a fintech firm and other financial services brands.
“We all need to feel in control when it comes to managing our own money and when it comes to relinquishing that autonomy to algorithms and robots, very many people, including techies, have concerns about ethics as well as day to day security,” he says. “If you happen to be a customer who feels they are being shoved into using the latest app because the bank no longer wants to keep the well-used local branch open for reasons best known to themselves, you are very likely to feel anger and distrust.”
In Turner’s view, the surviving bricks and mortar bank branches will ultimately be geared towards more considered purchases like investments and mortgages, or events such as bereavements, which require more sensitive, face-to-face handling.
Although access to a human assistant will, he says, continue to be an option for those who either request or need it, the driving force behind HSBC’s drive towards hyper-personalisation will be wholly digital.
“I very much see banks being part of a broader financial marketplace in the future, one in which a selection of third-party products and services will be made available across a far broader range of consumer needs,” he says.
While Turner notes that Facebook has pressing trust and ethics issues of its own, he notes that the social media giant “has given us an idea of what can be done in terms of successfully personalising people’s experiences of a platform”.
From fully customised mobile alerts and in-app notifications to personally tailored prompts and nudges – perhaps to increase savings towards next year’s holiday or switch to a better utility deal – the bank of the future, Turner believes, will take a far more proactive role in our financial lives.
“As long as all the necessary consents are sought and given, the service we offer will, through digitalisation, become more relevant to our lives than ever before,” he predicts.
In this brave new world, banks will have to ensure that technology supports customers and doesn’t pose problems. For example, they must guard against automated systems that encourage us to take on more debt than we can afford to repay or buy into investments which don’t meet our needs.
“It’s all too easy for newly digitalised banks to fall into the trap of using their platforms and their access to vast amounts of personal data to indulge in mass cross-selling, but this would simply erode trust still further,” says Wright.
However all-encompassing the future business model proves to be, knowing that your bank can be trusted to have your back is essential in rebuilding trust. When it comes to delivering that promise, however, human beings are only one of the options, according to NatWest, which has more than 7.5 million personal customers.
The first bank to launch a chatbot in the UK, NatWest’s ‘digital human’ Cora now handles a large proportion of online queries end-to-end, including requests for mortgage and credit card payment holidays and new PINs, tasks previously reserved for human staff.
Cora has been trained to recognise human emotion and can automatically transfer more complex questions to a human assistant through a feature known as ‘deep linking’. However, the bank’s approach to digitalisation overall is deliberately cautious, says Wendy Redshaw, NatWest’s chief digital information officer, retail banking.
“I know some customers see beautiful digital products out there and they want their bank to replicate them, but everything we do digitally is based on human-centric design and is thoroughly researched and piloted with a range of real customers before it’s rolled out.”
Redshaw agrees that the competition to offer the best digital experience in the industry has become intense, both in terms of keeping pace with the other big players and seeing off challengers. However, bricks and mortar branches are an integral part of the NatWest offer, she says.
“We’re very conscious of the need to offer a whole continuum of services to customers with very different attitudes to digital banking and we have a rainbow, or a continuum, from branch through to digital services, with both feeding cohesively into each other.”
Cora, she says, “will become a genuinely trusted friend” over time, but for now, “humans need humans.” The bank has 15,000 video banking calls every week, including on-demand conversations for when it’s urgent.
Although the need to rebuild trust is a key focus for the banking community, Turner believes digital confidence is a more pressing issue.
“While more work needs to be done as regards trust, I think the problem is more to do with lack of ease with using internet banking and making people more comfortable using digital is something I can very much help people with,” he says.
His challenge is to ensure that digital banking is as simple and user-friendly as possible, Turner adds. This all starts with good data, including data on behaviour across different platforms. However, “the only real value data has is in helping us improve our customer service.”
The big banks have had many successes in modernising their offer. However, they have much work to do to deliver the level of service and value for money offered by their digital-only competitors and are still playing catch-up with fintech firms, says Wright.
“Although they will weather the storm because they’re big and old, they need to accept that they no longer set the customer experience benchmark because that position is reserved for the likes of Netflix or Uber,” he says.
If he was advising a big bank today, Wright would tell them to pay more attention to security procedures, particularly for customers who log on via their computers. The sheer number of passcodes and PINs involved often contradict claims around speed and accessibility.
“I’d also advise them to make their offer simple, affordable and convenient and resist the urge to cross-sell,” he says. “That’s how you build trust.”