From process to experience: the next frontier is engagement banking

By Jonathan Stallard, executive at Backbase 

Jonathan Stallard, executive at Backbase

The traditional structure of incumbent banks, whereby each product is managed in isolation, along with the legacy technology that is entrenched into these companies, has left them in danger of losing not only new but existing customers to more technologically advanced and agile neobanks. Neobanks’ refreshing approach of putting the customer first, something that traditional banks have never prioritised, has left incumbents scrambling to catch up – but retrofitting innovative processes onto legacy systems has proved to be an almost impossible task. The solution for these banks lies in an engagement banking platform, helping to improve customer satisfaction and maximise efficiencies, and stemming the flow of current customers lost to the trendier challenger banks.

An industry at tipping point 

In recent years, challenger banks such as Monzo and Starling have brought – as the name suggests – a range of challenges to traditional banks, including the promise of lower costs for their customers, better technology, and a clear plan for the future that incorporates customers’ feedback. This disruption has been strongly felt across the industry and the innovative, agile approach of challengers has posed an uncomfortable threat to incumbents.

In fact, a recent survey from Which? ranked Starling Bank as the top banking performer across a number of areas: security, online banking and customer experience. At the bottom of the list were established giants including RBS, HSBC and TSB, all of whom scored below 60%, ranking particularly poorly in customer satisfaction. And it is this point that has accelerated the success of challenger banks, and the declining reputation of traditional banks.

As millennials and Gen Zs increasingly comprise a dominant portion of banks’ customers, this trend is only set to increase. Although 4 out of 5 people still have their primary account with traditional banks, according to a survey by Kearney, challenger banks are beginning to capture the most economically active demographic: those under 30. More than two thirds of traditional banking respondents under the age of 22 responded that challenger banks had advantages over their traditional banking provider.

Traditional banks were over-confident in their position; they didn’t appreciate the extent of the threat that the challengers’ approach would pose to their business. So they continued with business as usual. But neobanks proved that they are here to stay, and the established banks were slow to the party, believing that their market monopoly was strong enough that they could simply ignore the disruption of challengers. As a result, they have been left stumbling for a solution – and they need to act fast.

Customer is king

Challenger and neobanks have long been taking a more personal, emotive approach to banking, intuitively understanding that a customer-centric approach is the key to success in the 21st century. Meanwhile, however, incumbents are still in an era bygone, continuing to take an approach led by products, rather than the customer’s experience.

This is creating a worrying pattern for traditional banks, whereby customers are actively switching to the provider that puts them at the centre of their business. Even when it comes to products and services previously monopolised by traditional banks, such as mortgages and loans, challengers are beginning to become more prevalent – and if they can develop a successful digital offering in these arenas, there is a real possibility that traditional banks could be reduced in status to little more than behind-the-scenes utility providers – a trend that we are already beginning to observe.

COVID-19 has only exacerbated this problem and made acute the necessity for strong digital capabilities. As people become less and less likely to visit an in-store branch, a bank that can fulfil all their financial needs – from transferring funds to applying for a mortgage application – becomes all the more important. Traditional banks have struggled to offer this in a timely manner, and neobanks have reaped the rewards.

System overhaul needed 

It is clear to see why challenger banks’ splash into the market has been so successful and why they are able to take customers from traditional banks. For incumbents, then, the solution seems simple: change your approach and become more customer-centric. But while the solution is simple, it is not easy. The structure of traditional banks presents the main obstacle to success; they know that there needs to be a shift in focus, from process to customer – but their siloed, product-focused structures make this difficult to achieve. Until now, the client experience has been low on banks’ list of priorities, meaning that there is no connected customer process. With each product treated as completely separate, a fine-tuned process of recording customer’s needs, wants and experiences across all touchpoints – something customers have come to expect – seems almost impossible.

There is a roadblock that halts these traditional banks in their tracks: technology. The IT infrastructure of traditional banks is flooded with monolithic technology, which renders banks inflexible and severely restricts their ability to rapidly deliver new experiences, products and services. They are unable to keep up with the demand of customers today – the complete opposite to their younger, more dynamic and more innovative rivals. 

Retrofitting new processes onto old systems would be impossible, and completely replacing their current systems to an API centric system is a high-cost, long term journey, and one that banks don’t have the time or capacity for: they need results now.

Finding a solution 

There is an alternative route to outcome for traditional players, in the form of an engagement platform approach. An engagement banking platform, wrapped up in a solid cloud offering, can create a scalable, flexible and agile process that puts the customer at the centre, creating a seamless experience, no matter the touchpoint or product line, across the whole bank.

Not only will this enable banks to improve customer satisfaction and increase customer loyalty, retention and acquisition – a key focus for any bank – but it will also maximise efficiencies.

Banks will be able to upsell more effectively by accessing complete, real-time data on each customer, and every one of their interactions with the bank, all in one place – further helping to improve profit margins.

What’s more, a platform approach to banking drastically streamlines the employee experience, ridding banks of monolithic technology and reducing frictions, including manual processes, use of paper, and duplications, resulting in faster processing and lower costs. An empowered workforce further helps drive efficiency and customer satisfaction – creating a positive reinforcement cycle.

Although traditional banks are still holding onto their positions at the top table of banking royalty, their powers are beginning to wane – and challenger banks are filling the void. As the new generation begins to comprise a larger share of banks’ customer base, challenger banks’ agile, customer-centric approaches will continue to strongly disrupt the industry, and traditional banks need to respond and adapt – and quickly – or they will find themselves demoted down the pecking order.