Digital simplicity: the surest route to improving customer experience in retail banking

Posted by media on June 21, 2016 at 9:00 AM

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If one word stands out in the sixth annual Global Retail Banking 2016 report by the Boston Consulting Group (BCG), it’s “simplify.” In order to remain competitive amidst changes taking place in the financial sector, retail banking has no choice but to achieve digital simplicity.

The concept of digital simplicity set out by BCS in the report consists of two variables: on the one hand, simplifying operations using digital and analytical capabilities. On the other, improving customer experience, providing efficient, fast and quality service.

It could be said that customer experience is the Achilles heel of financial institutions. The scale determining the quality of an online shopping experience has been the making of companies like Apple or Amazon. However, traditional banking still faces internal obstacles that prevent it from enjoying the same levels of success.

What must retail banking do in order to reach digital simplicity and improve customer experience?

This post is also available in Spanish.

Digitally simplifying its business is not an easy task for any financial institutions given that they often have to first battle with complex IT infrastructures that are too hierarchical for the times and manned by too many people. Furthermore, the corporate culture of most financial entities still tends to be more like that of a traditional public institution than a company aligned to the digital era.

That said, achieving digital simplicity will allow retail banking to offer clients vastly improved customer experience, as well as help their business stand out from competitors who are already in the race to improve their customer journey and bring it up to the standard set by world leaders in digital retail.


According to BCG, improving digital capacity will lead to substantial and measurable improvements in retail banking's financial outlook:

↑ 50%

Increased revenues per customer

30%

Increased customer penetration

↓ 20%

Reduced operating costs


How can digital simplicity be achieved?

The aforementioned annual report by BCG makes reference to a study that compares the operational and digital practices of the 20 best financial institutions across the world, who in total serve around 200 million customers in over 26,000 branches. The study make it clear that those particular retail banks achieve digital and operational excellence and enjoy the best results with on average 50% more profit per customer (before tax).

The study analyzed the performance of these 20 top global banks to establish their degree of operational and digital excellence by looking at 4 specific areas:


1. Financial returns

Leading banks with high levels of digital and operational excellence receive on average 50% more profit per customer before taxes. In addition, these banks save approximately 30% per customer in terms of operating costs due to not needing to spend so much in terms of IT and personnel.

2. Excellence in sales and customer service

Transactions and interactions with customers have shifted to the digital arena*: if in 2013, 23% of transactions and 58% of interactions were made through digital channels (online and mobile), in 2015 these figures increased by 31% and 11% respectively, reaching 54% in the case of online transactions and 69% in the case of online interactions.

(*Transactions, meaning customer actions and requests that lead to changes in account balances. Interactions include visits to branches, calls, log-ins by mobile device or any other contact initiated by the client that does not involve changes to account balances.)

How have the banks analyzed by BCG managed to obtain these figures? By encouraging customers to use digital channels to carry out basic transactions and resolve simple queries: online banking is actually much more easy to use and it is incentivized by offering higherinterest rates if products are purchased through any digital channels than if they are contracted in a bank branch.


66% of clients from the highest performance banks
enrolled using their smartphone.


Although customers want an increasingly easy means of carrying out online banking transactions to meet all their needs, they still seek face-to-face interaction with financial experts for the more complex transactions that require more personalized advice.

Therefore, there are still clear reasons to maintain traditional bank branches, although they must be completely renewed and their operating costs reduced without sacrificing excellent customer service.

Requirements for new branch procedures:

  • Value-added customer service
  • Paperless services such as electronic signatures
  • Videoconferencing with customers
  • Ability to make appointments

The key to achieving the above will be to first improve productivity: in 2015, leading banks had 45% of its full-time staff dedicated to giving advice, a whole 12% more than in 2013. Given that these employees devote 60% of their time to prepare meetings with clients, a key aspect for entities wishing to replicate their success will be through providing branches appropriate technological solutions to facilitate the rapid and efficient completion of all tasks that can be better carried out using digital tools.

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3. Effective organization and efficient procedures

Among the banks included in BSC’s study, those who have not been able to automate their back-office processes still have ample opportunity to improve efficiency in all administrative and account-opening procedures. These banks have clearly fallen short in terms of their productivity, efficiency and customer experience as can be seen in the average number of accounts opened by a full-time employee: while leading banks in the upper quartile of the study opened around 10,000 accounts per year per employee, only 4,000 were opened by middle-ranking banks.

The time required to take out a contract is much shorter in leading banks, and these times continue to decrease with the increasing automation of administrative procedures. For example, the cycle of taking out an unsecured loan has gone from 2 hours in 2012 to just 50 minutes in 2015.

Despite automating processes clearly having a positive impact on productivity levels within a bank, many organizations have not yet begun to redesign working procedures in order to incorporate tools to reduce sales times and improve overall efficiency. For most retail banks, introducing paperless tools and automated systems is still very much a pending issue.


4. Underlying capabilities

The last aspect analyzed by BCS was a bank’s underlying capabilities, that is to say, the state of its IT infrastructure and the use of analytical tools to have a comprehensive knowledge of customers.

The analysis indicates that leading banks have managed to simplify their technical infrastructure by automating core processes, getting rid of redundant platforms and consolidating overlapping capabilities - thus reducing their operating costs by up to 20% and improving both agility and efficiency.

These banks also use analytical and data management tools for integrating customer information into a single platform. This gives them a more complete knowledge of their clients far beyond the classic sociodemographic labels that, in this day and age, don’t shed that much light on the reality of people. A better, more unified understanding of customers translates into a range of products and services that are in greater alignment with their needs, behaviors, habits and preferences.

Centralized databases and good data analysis systems therefore allow banks to access specific information at any time and on any of the channels used by clients to contact the bank. Leading banks are also able to offer optimized customer experience whether the client is being attended to by a consultant at a branch or opting to bank online via their mobile phone.

Given the speed at which change is currently occurring, those banks that have not yet begun their transformation to digital simplicity will only be able to compete on the same level of those who are already above the average once they commit to revising the 4 areas highlighted in this post and take fast action to achieve the digital and operational excellence already enjoyed by the leading institutions in the sector.

This post is also available in Spanish.

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