People’s relationship with money is broken: They cite financial challenges as the biggest source of stress in their everyday lives. And financial institutions need to help fix this—but it will first require a deeper understanding of what’s wrong.
To glean consumer insights, Cognizant’s Banking and Financial Services practice partnered with ReD Associates to conduct a comprehensive, five-month anthropological study. Launched in the fall of 2016, it closely tracked the financial lives of 32 families and their social networks in the U.S., U.K. and Germany.
The study uncovered hidden truths about their behaviors, emotions and habits related to finance and financial institutions. Additionally, they surveyed more than 3,000 consumers and interviewed thought leaders in academia as well as the financial and FinTech industries.
The study consisted of a review of more than 100 reports on the future of financial services. But they were primarily focused on asking customers what they want. The problem is this: Your customers don’t know what they want, which hardly provides the kind of answers financial industry executives like you are seeking.
The study’s conclusion was simple: Financial providers should focus the next wave of digitization on people’s so-called slow money. Savings accounts, investments, pensions and insurance are examples of slow money.
But until now, digital innovation and FinTech have primarily focused on solving problems related to people’s so-called “fast money”—checking accounts, mobile payments, overdrafts, cash and other more transactional matters.
It’s their slow money, however, over which people tend to agonize. They struggle to translate their personal needs and life goals into financial targets and fail to understand whether they are on target to meet those long-range targets. They don’t trust their financial providers to make the best use of their slow money.
Helping consumers meet their slow-money challenges through digital finance does more than just provide them greater peace of mind. It can provide banks an enormous payoff as well.
Banks that digitize slow-money operations can realize a 14.2 percent annual increase in revenue. That impressive return on digital investment is a combination of reduced customer churn thanks to greater customer loyalty and significant cost reduction.
Making the investment is imperative in this age of digital disruption. If your bank doesn’t do it, the next financial institution or FinTech will. To help build unique and meaningful customer relationships, financial institutions should immediately consider these five steps:
- Activate data to recognize the customer
Most financial institutions have an abundance of customer data. Yet they consistently fail to recognize customers. This results in broken interactions and situations. The wrong products and services are being pushed to the wrong consumers. Build a system of recognition that remembers everything about the customer. Consolidate transactional, behavioral, financial and socio-economic data into one truth about the customer. Share it and use it at every touchpoint.
- Build predictive models for financial key moments
Most financial providers talk about life events. Yet the study didn’t meet one customer whose financial provider had systematically helped during such key life events as financing an education, marriage, parenthood, changing jobs or losing family members. Building better predictive models (while respecting consumer privacy) can help banks understand when their customers are about to experience life events with major financial ramifications. When you identify ways to be a relevant leader—not only in helping with life events themselves but also getting people prepared for them—you differentiate yourself from the laggards.
- Release the power of digital learning
Customers don’t want to become experts in finance. But they do want a sense of mastery when it comes to their money. Financial institutions must learn to motivate people to develop skills and sensibilities that fits each customer’s capabilities and situational needs without making them feel they are in school. Help customers by integrating guidance and data interpretation into the front end of existing digital platforms. Provide guidance at the moment they are making a financial decision.
- Digitize financial advice
As financial institutions continue to replace people and branches with digital offerings, there’s never been a greater need to develop tools that nurture good financial habits and guide customer decision-making. Financial institutions must turn their expertise into offerings that guide customers to healthier financial behaviors and interpret what their data means. Provide meaningful points of comparison to help customers understand whether they are on track financially.
- Organize around the customer
Often, financial institutions are structured in siloes, organized around product lines and departments, but not around the customers. They need to share data from across business units to provide a perspective on what matters most for customers. They must also evaluate performance based on the financial well-being of the customer rather than product or company satisfaction.
These are uncertain times in the financial services industry. On January 1, 2018, all banks in the European Union will lose a key competitive advantage. From that date on, they will no longer have proprietary access to data in their customers’ online accounts, including their transaction and balance history. In North America, regulators are exploring ways to level the playing field between banks and their non-bank competitors, which will lead to more digital disruption.
Executives from banks, retirement services providers and insurance companies told us they don’t view their customer relationships with the same confidence as before. They are thinking long and hard about ways to deepen relationships to ensure customers remain loyal and use more of their products and services.
By harnessing the principles and best practices of digitization, financial institutions can play an important advisory role in the lives of the customers. They must walk a fine line between overwhelming their customers with too much information and product options and becoming purely a utility provider with no meaningful customer relationship.
The best financial institutions will guide their customers though decisions about their goals for their money and translate their financial data into meaningful information.
Thus I suggest they take things slow—as in the slow money that holds a wealth of opportunities for the smart financial institutions that apply the lessons of digitization for the benefit of their customers.
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Edmund Lawler is a business writer, author of six books and former editor at BtoB Magazine.