One word summarizes the top financial services force in 2019: growth. Rates are rising and the race for deposits has become the number one focus industry-wide, shifting away from 2018’s primary focus on addressing regulatory compliance challenges. As part of the BAI Banking Outlook research program, BAI surveyed a combined total of more than 1,200 consumers and financial services leaders, their organizations ranging in size from community banks and credit unions to mega banks, to uncover the top trends and expectations for the financial services industry in 2019. These research-based insights provide a first-look into the top business challenges and opportunities that financial services leaders face and what they should work to improve in the new year.
Focus on digital growth
Building and retaining relationships in a digital era is not getting any easier, according to industry leaders. In 2017, less than a third of respondents felt it was easier to build and retain relationships in a digital era—while only a quarter agreed to this sentiment in 2018. Digital interaction with customers is one of the biggest gaps financial services leaders seek to close over the next two years but many remain unsure where to focus the efforts: deposits or loans? The short answer is that the focus should be on both.
Traditional banks risk losing market share as consumers rapidly shift their attitude toward direct banks. BAI Banking Outlook findings show that most consumers do not believe that their main bank will allow them to open accounts online over the next few years, but that they increasingly desire this feature. Most customers begin a new product search by visiting their main bank’s website or conducting an online search based on specific criteria. However, many customers who shop online do not actually open an account due to “time,” “gave up” or “waiting,” proving the shopping and opening process is difficult. This disconnect provides a meaningful competitive advantage to online or direct banks, as two thirds of consumers who said they opened a deposit or loan account via online channels did so with these outlets.
While digital account opening services carry a higher operational risk, financial services organizations no longer have the luxury of ignoring this clearly articulated consumer preference. No longer a “nice to have” feature, it is a necessity for traditional institutions to offer in order to increase or maintain retention among, millennials, Generation X and Generation Z.
Strengthen customer relationships by addressing the cross-selling dilemma
Another important growth area in 2019 is deepening relationships with existing customers. However, according to BAI Banking Outlook research, cross-selling actually hurts customer relationships and lowers net promotor scores (NPS). The average NPS for customers who have not recently been cross-sold is 36, while the average of those who have been recently cross-sold is 31. This means that cross-selling customers can lead to lower client loyalty, which is the opposite desired outcome of expanding customer relationships.
Not only does relationship deepening potentially damage the relationship a financial services organization has with customers, the industry’s average NPS is significantly lower than other industries. Satmetrix provides publicly available data regarding NPS across various industries. On average, the retail NPS score is around 50, while online shopping averages around 45. Department or retail specialty stores are on the high end of the scale at 62, and brokerages average 50. These figures are significantly higher than the banking industry’s average of 35. Even baby boomers, who have the highest NPS around 50, also drop below average after being cross-sold.
It is important for financial services leaders to address the cause of discontentment when they expand customer relationships through cross-selling. Across the marketplace, the experience of opening an account has a negative influence on loyalty. This brings us back to the issue of online account opening. Many consumers found that even if they decided which product they wanted during their online search, it is often difficult or impossible to open a deposit or loan account online and requires visiting the branch. Additionally, two thirds of financial services leaders reported that they cannot track shopping on their website that leads to account opening in the branch, or determine where the process went wrong for those who tried to open an account online. Financial services leaders should seek to address this disconnect between online channels and the branch, as it is a key part of low NPS.
The growing influence of fintechs on financial services organizations
While many signs point toward addressing digital issues in 2019, it may come as a surprise that 86 percent of financial services leaders stated that they have not learned any lessons from the fintech community that they can implement in 2019. The majority feel competitive pressure from fintechs to “some” or a “large” extent (64 percent). Although the majority of leaders feel as though fintechs are competition, 64 percent plan on collaborating with outside fintech companies, 28 percent are considering acquiring a fintech and 8 percent seek to build fintech capabilities internally in 2019.
Many fintech organizations prioritize agile processes as part of their innovation and product delivery processes, and consumer perspectives clearly indicate that financial services leaders should not ignore fintech developments. Financial services leaders should consider collaborating with fintechs to address growth challenges and speed to market, particularly related to digital experiences.
As deposit growth makes its way to the primary focus, financial services leaders should strive to address growing consumer expectations and demands. Consumer preferences are rapidly shifting toward online banking, and online account opening represents an integral part of this shift. Financial services leaders need to know how cross-selling impacts their organization’s NPS and address difficulties associated with the multichannel experience, including developing a seamless transition from online engagement to in-person interactions. Instead of viewing fintechs as direct competition, traditional financial services organizations should consider leveraging the advancements and insights from these innovative organizations. The financial services leaders that navigate these top concerns in 2019 are destined to retain their customers and shine among their competitors this year and beyond.
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Karl Dahlgren is managing director of research at BAI.
For more insights from Karl, check out our recent executive report: Decisions bankers need to make in 2019.