Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- Commercial banks have typically focused their attention on supplying capital and developing complex products for their customers.
- Digital initiatives aimed at improving customer experience (CX) have been limited, resulting in subpar experience.
- With CX emerging as a key differentiator, it is imperative that commercial banks take targeted action across multiple dimensions to enhance CX.
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Overview
Traditionally, commercial banks have focused on supplying capital at competitive rates and structuring complex products for their customers.
This approach has resulted in limited attention being paid to delivering frictionless experience to customers. On the other hand, digital transformation has revolutionized customer experience (CX) in the retail banking segment—retail banks and fintechs have successfully leveraged technology to design innovative offerings, delivering delight through a balanced blend of digital self-service and human interaction.
Another factor at play is the inroads of fintechs into the small and medium enterprise (SME) and business banking segments, delivering agile service and superior experience. Large corporate entities are increasingly expecting banks to deliver service similar to that of new entrants.
Commercial banks have responded by trying to enhance CX through digitization and automation. However, these initiatives have largely been restricted to specific lines of business (LoBs) and rely considerably on relationship managers to facilitate seamless experience. Consequently, few customer journeys are frictionless, often resulting in dissatisfaction.
The evolution of CX in retail banking coupled with the quality of service offered by new entrants has raised expectations of commercial banking customers. Delivering superior CX is no longer optional, it has emerged as a crucial differentiator and essential cornerstone of success, especially given the similarity in the offering portfolio of competing commercial banks. As a result, commercial banks are under tremendous pressure to raise the bar and ramp up their CX quotient.
Meeting these expectations, however, is not easy given challenges such as a large number of stakeholders and interactions as well as the complexity of the customer entity, to name a few. These difficulties have contributed to limiting the impact of CX initiatives undertaken by commercial banks.
Although enhancing CX for commercial banking customers has developed into a strategic business imperative, operationalizing it is no mean feat. To better understand the challenges and propose a way forward, we administered a questionnaire to C-suite executives at a few of our tier 1 clients with an asset size of over $3 billion. These banks operate across major geographies and have significant business in the commercial banking segment. We analyzed their responses to capture key insights and draw inferences that can help commercial banks to define a robust strategy to win the CX battle.
Key findings at a glance
Our objective was to understand how our clients view CX and its impact on business outcomes.
We also wanted to get a handle on the impediments in delivering class-leading experience and whether a comprehensive CX strategy is the need of the hour.
- CX is the foremost factor in attracting and retaining customers: All the respondents were unanimous in their assertion that CX is amongst the top five factors in attracting and retaining customers with over a third identifying it as the topmost factor.
- CX encompasses all touchpoints across all channels: All the respondents agreed that CX spans all touchpoints spanning across interactions with relationship managers, branches, call centers, mobile apps, and self-service kiosks, contradicting the common fallacy that CX is limited to digital channels.
- CX improves business outcomes: 66% of the respondents believe that CX upgrades improve business outcomes leading to stickiness and higher wallet share. The remainder said they help marginally improve outcomes and/or customer retention but do not impact customer acquisition or profitability.
- Client onboarding is a critical stage for banks to demonstrate superior CX: 80% said that a simplified and efficient client onboarding experience is critical while 51% identified disjointed legacy estates, complex processes, and lack of end-to-end digitization as impediments to smoother onboarding.
- Diverse metrics, tools, and methodologies are used to measure CX: Half the banks measure their CX scores biannually across user personas while one-third measure transaction level customer satisfaction on a continuous basis.
- Bank-wide CX strategy preferred: An overwhelming 83% said banks must establish an overarching enterprise-wide CX strategy that dictates key elements of CX with 17% opining that the strategy should afford the flexibility to tailor CX for specific customer segments.
Identifying the gaps
An in depth evaluation of the detailed findings revealed several lacunae in the prevailing state of CX in commercial banks.
The evolution of CX in retail banking was expedited because customers expected the experience offered by other industries, especially e-commerce, high street shopping, travel, and hospitality. This nudged banks to introduce innovative products and services to offer a similar experience. In addition, banks invested in CX initiatives to enable omnichannel experience. While some banks adopted a comprehensive CX strategy to usher in this change, some others invested in ad hoc technologies and initiatives that did not always deliver the expected returns. Commercial banks, on the other hand, have been slow to invest in CX due to a deep-seated belief that ensuring availability of capital at lower rates and the ability to structure complex products are adequate to satisfy customers.
To enhance focus on CX and increase customer centricity, commercial banks must tailor solutions aimed at improving customers’ business outcomes. This will necessitate faster processes, superior support, and value-added actionable insights in turn increasing customer dependence on banks to drive greater customer stickiness and mutually benefitting long-term relationships. Our clients corroborated this—66% said that augmenting CX significantly improved business outcomes while the rest asserted that it had marginally improved outcomes and/or influenced customer retention.
In commercial banking, the CX problem multiplies manifold, given the many-to-many mapping of stakeholder interactions between banks and customers. Commercial banks have attempted to improve CX by introducing digital platforms, automating routine transactions, and enabling real time reporting. However, these attempts have largely been confined to LoB silos and are still heavily dependent on relationship managers to stitch the various threads together for the end customer. As a result, customer journeys are frequently fraught with friction, leading to dissatisfaction and poor CX.
Varying customer expectations further complicate the CX conundrum for commercial banks. Small corporate entities on a growth path prefer physical interactions and expect their banks to play an advisory role while large entities demand a higher degree of digital integration with a wider reach to products, geographies, and deep understanding of their sectoral needs.
The way forward for banks lies in mapping journeys by stakeholder type and catering to their unique needs. This includes designing digital models that facilitate proactive engagement tailored to each moment-of-truth.
A common misconception is that CX is limited to interactions and experience across digital channels. In reality, CX spans all touchpoints including relationship managers, branches, call centers, mobile apps, self-service kiosks, and so on. Further, there is a gap between what banks perceive as CX and what customers do, which results in a mismatch of efforts to customer needs. Although all the banks that answered the questionnaire said that CX goes beyond digital to cover all interactions, a staggering majority (83%) admitted that they are unable to offer uniform CX across both digital and non-digital touchpoints mainly due to data challenges. Encouragingly, 66% banks affirmed that their customers are satisfied with their digital channels though they are yet to see a fall in the use of non-digital channels.
The way forward for commercial banks is to define a unified CX strategy encompassing all channels and ensure uniform experience regardless of the product or service or the channel used. Commercial banks must also take steps to eliminate friction from digital interactions and enhance digital channels to meet all the needs of their customers.
Supplying capital and designing complex products for corporate entities have been the bedrock of commercial banking operations, in turn resulting in a rigid product- and process-centric mindset with scant attention being paid to CX. Consequently, the onus of compensating for the absence of a customer journey mindset that prioritizes experience is on already overburdened relationship managers. A closer examination reveals Conway’s law at play—the systems designed by commercial banks reflect and/or are limited by the underlying communication structures. So, essentially, the prevailing conventional mindset has led to the design of systems where CX has been given minimal priority; instead, supplying capital and designing complex products have ranked higher in the pecking order.
Banks must shift from a capital- and product-centric mindset and adopt a customer-centric approach. CX must form a major component of banks’ business strategies. While designing offerings, banks must incorporate features that deliver differentiated CX and compelling value to commercial banking customers, in turn resulting in high levels of customer stickiness.
Fintechs have forayed into the SME and business banking segments, offering innovative products and superior experience. Although it is difficult to imagine that large corporate entities will gravitate towards fintechs for their banking needs, there is increasing pressure on commercial banks to meet the service standards, product features, and agility of fintechs. Further, as SME and business banking customers grow and gradually migrate to banks, they will expect the seamless CX that they have become accustomed to.
We believe that collaboration is the path to be followed. Commercial banks must explore partnering with third-party technology companies and fintechs to enhance their CX levels. Banks must carefully evaluate and integrate new CX capabilities and features into their architecture. This will help build the ability to create superior experience that will become the bedrock of their value proposition. Building the ability to nimbly adapt to changing customer expectations and market contexts will help commercial banks to secure their client base and attract new ones.
Commercial banks continue to operate with parts of their IT estate tied to legacy technologies, both hardware and software. This is compounded by product and/or LoB centric IT application development causing fragmentation of CX, especially in access and interface.
Modernization programs often hit a roadblock as banks are forced to prioritize regulatory compliance and technical debt management (run-the-bank) programs, which absorb a major share of the technology budget leaving little to drive a dedicated CX overhaul. Concerns around jeopardizing existing revenue inflow from fee paying customers frequently stifle innovation and experimentation in product design. Consequently, banks end up channeling most of their energies toward servicing customers rather than transforming customer journeys to elevate moment-of-truth experiences, for example, in know your customer (KYC) processing and onboarding. While 80% of our respondents identified client onboarding as the most critical customer journey, 51% said legacy applications, complex processes, and lack of end-to-end digitization are impediments to smoother onboarding.
Digital ease, enhanced security features, intuitive interfaces, and AI agents to assist customers will go a long way in creating frictionless and transparent onboarding journeys for each type of product. Commercial banks must move away from conventional onboarding processes, ushering in a higher degree of automation to propel CX to the next level. Banks must leverage technology to automate and reimagine the application process, document capture and verification. These simple changes will make the onboarding process more efficient and create customer delight. However, operationalizing these changes will demand a modern IT estate. Similarly, deploying next gen applications that offer superior experience also require investments in legacy infrastructure modernization.
On the upside, our respondents confirmed a high level of maturity in measuring customer experience. While 50% said they capture metrics such as customer satisfaction (CSAT), net promoter score (NPS), and customer effort score (CES) for each customer bi-annually, 33% further augmented it with LoB or even transaction level feedback. The choice of tools used varied from in-house to third party, with some also using external customer research firms to gain a candid outside-in view through customer interviews.
Considering the multiple stakeholders for each customer, we believe that the measurements should embrace diverse stakeholder personas, products, LoBs, and customer journeys to help uncover the pain points and channel resources to improve CX. While the CX approach of individual banks varies basis what is critical to their respective customers, a whopping 83% confirmed that CX strategy should be designed at a bank-wide level, allowing for customization to specific customer segments and LoBs.
The way forward
To achieve success in CX transformation in commercial banking, the first step is to analyze the current state of CX and identify areas that need attention.
Next, banks must establish a robust strategy to address all aspects that affect customer perceptions. In our view, focusing on select channels and touchpoints will be myopic and fail to deliver the expected benefits.
Seven-pillar framework
We propose a seven-pillar framework (see Figure 1), which is a comprehensive mechanism to assess and analyze the existing state of CX across all moments-of-truth. This is critical to understanding why customers perceive their experience as they do.
Figure 1: The seven-pillar framework to evaluate CX
Leveraging the seven-pillar framework will help banks identify the process and technology gaps in the existing structure and arrive at the right CX transformation strategy.
Robust CX strategy
Banks must use the valuable insights delivered by the seven-pillar framework to think holistically and define a strategy that enables consistent CX across all touchpoints and journeys. To accelerate CX transformation and realize higher returns, banks must keep in mind the following principles while defining the strategy.
- Ensure support from top management to expedite CX improvements by allocating higher budgets to take up CX enhancement and empower the product owners to make relevant decisions.
- Cascade the strategy to the larger organization including product owners and IT leads.
- Elevate CX across customer journeys by classifying CX enhancement programs across specific areas. For example, instant payments is not a standalone product, it is an integral part of the larger trade, lending, and supply chain finance (SCF) customer journeys. Thus, a CX improvement program for instant payments should include enhancements needed for trade, lending, and SCF customer journeys.
- Upgrade internal processes and the underlying IT infrastructure that support customer journeys.
Last but not the least, technology will be the bedrock of any CX transformation strategy that commercial banks undertake. It is therefore imperative that banks build the right technical capabilities needed to deliver superior CX. In our view, banks must:
- Adopt cognitive technologies backed by AI and GenAI to improve CX in assisted and non-assisted digital and physical channels.
- Set up application programming interface (API) frameworks and marketplace models to transition into a connected enterprise and introduce insights-driven, hyper-personalized offerings.
- Invest in technology platforms to enable on-demand integration across front-, mid-, and back-office operations, which is critical to define customer journeys across diverse products and services.
- Restructure the data landscape, mine external data, customer data, and transaction data to curate contextual offerings.
- Craft precise data abstraction strategies using operational data stores.
While the quality of CX in commercial banking leaves a lot to be desired, some banks are making concerted efforts to enhance CX. Let us examine a few initiatives to understand the solution implemented to address specific challenges and the value delivered (see Table 1).
Invest in technology platforms to enable on-demand integration across front-, mid-, and back-office operations, which is critical to define customer journeys across diverse products and services.
Restructure the data landscape, mine external data, customer data, and transaction data to curate contextual offerings.
Craft precise data abstraction strategies using operational data stores.
While the quality of CX in commercial banking leaves a lot to be desired, some banks are making concerted efforts to enhance CX. Let us examine a few initiatives to understand the solution implemented to address specific challenges and the value delivered (see Table 1).
Client
|
Business challenge
|
Solution
|
Value
|
UK bank
|
|
|
|
US bank
|
|
|
|
Leading US bank
|
|
|
|
European bank
|
|
|
|
Table 1: CX enhancements initiated by commercial banks
Take the next step
Clearly, delivering superior experience to commercial banking customers is no longer a nice-to-have—indeed, it’s a must-have.
And this has been amply corroborated by our clients that responded to the questionnaire. It is a key differentiator of the value proposition that commercial banks offer to their clients. We believe that banks that enable superior customer experience through technological innovation will stand out among their peers—to make this a reality, banks must appoint a dedicated stakeholder to own the CX agenda.
However, the CX transformation journey will come with myriad challenges. Banks must consider partnering with the right service provider with the requisite technology and domain expertise to ensure trouble-free implementation. Given that CX has so far received comparatively limited attention, commercial banks must rapidly take action to remedy the situation.
