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Banking on Digital Strategy

Do banks “get it right” when it comes to digital strategy?

We recently posed that question to somebody eminently qualified to provide an answer: Aaron Dignan, CEO and founding partner of New York City-based Undercurrent, a digital strategy firm noted for working with some of the largest companies in corporate America. Dignan will appear in October as a general session speaker at BAI Retail Delivery 2012 in Washington, D.C.

Dignan’s response could be characterized as “yes, but …” He says banks have made progress in using social media for marketing purposes but urges them to pursue the next big opportunity in “building experiences that use digital to make something better, to solve a problem.” Specifically, he recommends that financial institutions use digital technology to improve service quality and product functionality.

“Banks have a long way to go in terms of adopting digital service techniques that become very real-time and multi-channel,” Dignan says. “Just having simple, seamless and clean digital experiences would be a great step forward.”

Q: The banking industry has tried to embrace social media and digital marketing in recent years and many institutions are now operating on Facebook and Twitter. Based on your own personal observations, do you think that they are starting to get it right or do they still have a long way to go in this area?

Dignan: What financial institutions have done is embraced the digital marketing side of the equation. There’s been a diligent effort to get that right. But I think there are a couple of dimensions of going digital that are being missed or under-served at the moment, partly because of the regulatory environment, and partly just because they require new capabilities. Those areas include service and functionality.

There is a whole new generation of customers that would love to be able to get instantaneous feedback and service through channels like their mobile phone and Twitter. That’s different from being able to call someone on an 800 number, which you see the big banks advertising. For someone who’s 16, calling an 800 number is kind of an archaic idea. So, I think banks have a long way to go in terms of adopting digital service techniques that become very real-time and multi-channel.

With regard to functionality, I feel like the biggest and most interesting thing about the “digital revolution” is that it’s focused on building experiences that use digital to make something better, to solve a problem. An example is Uber, where I can request a Town Car on my phone in half a second and have it come pick me up where I am because it tracks me via geo targeting. The payment rate is also predetermined so I don’t have to negotiate or argue with the driver, who is rated by passengers on the service he provides. The amount of friction that’s being taken out of that system is pretty astounding. We see that in digital innovations across the board.

What I haven’t seen a lot of yet from the larger banks is that attitude or posture where they ask, okay, where are the friction or points for our customers and how can we use digital to solve those? That’s why we see upstarts such as Bank Simple, Mint and Square coming in. Those players are showing how to take a focus on a customer problem and solve it with actual digital functionality, as opposed to just more messaging and more noise. I think if you sat a customer experience expert down with most major bank digital platforms and interfaces, they would find a myriad of things that are difficult, challenging, confusing or under-served in those experiences.

So, I think that’s the next frontier for the financial services industry: to focus on being as elegant, seamless, simple and functionally-driven as possible. Down the road, I also think there are opportunities to be smarter about helping consumers better understand their finances. But for now, just having simple, seamless and clean digital experiences would be a great step forward.

Q: Just thinking about the way you personally interact with your bank, where could those improved digital experiences most make a difference?

Dignan: I think some of that stuff is starting to bubble up already, like the ability to take a picture of a check and deposit it. Technology like that really does have a qualitative and quantitative impact because the customer doesn’t have to go to the branch or deal with an ATM. Putting banking into the palm of my hand is really what I’m looking for. Making such transactions as money transfers and checking account balances really instantaneous and mobile-accessible would be very interesting to me for sure.

Beyond that, banks should be able to help coach me on not only spending more or less, but also on spending smarter. There’s a whole realm of advice and insight that’s possible.

Q: As you know, the banking industry right now is sort of in the doldrums, in terms of customer image and customer trust. Do you think an improved digital experience could help banks recover just a little bit of the high ground in that arena?

Dignan: I do actually. I’ve had a working theory for a while that memory is shorter on the Internet than in the offline world. If you do three really smart things online, you can change the opinion of a big part of the population. Conversely, if you do three silly things or stupid things online in a row, you can quickly turn that the other way. What all businesses have to focus on is making sure that the last three moves they made, whether that involved a new product, mobile app or marketing campaign, were really sharp and beneficial to the user. If you can do that, people are going to focus on what you’re doing for them now – not what happened five years ago.

Q: In your recent book, Game Frame: Using Games as a Strategy for Success, you argue that corporations can use some of the behavioral principles from gaming to become more successful or better received by customers. Any thoughts on how these principles can be applied to financial services?

Dignan: The reality is that the financial industry as a whole is already a game in that a lot of the mechanics used to incentivize employees, particularly traders, are very much in line with what you’d see in an online game environment. The question is, just what do we want to encourage? What behaviors do we want to incentivize?

It’s really about balancing the equation. If you have everybody incentivized to produce revenue and profits, which most businesses do, that’s great, but there also needs to be a balance with other things. Do we care about consumer satisfaction? Do we care about trust? Do we care about economic stability over the long term? What are the other levers that matter and how do we balance those levers? That’s the way a game designer would think about it.

So, I’ve been thinking for a long time about the fact that we need to incentivize the bank as a whole to make sure that its user base, that its customer base, is moving in the right direction. Imagine how interesting it would be if, in addition to being incentivized to produce earnings, bank employees were also incentivized to improve the credit scores of their customers or certain segments of those customers. Indicators like that that speak to the overall economic health of the community.

Banks need to take a little bit more of a global stakeholder posture; they need to feel responsible for the overall health of the system in which they play a big role. While that’s a big mindset shift, it could actually result in economic benefits over time. If your user base is getting smarter about their money, if they’re getting more credit-worthy, if they’re earning more, if they’re using their money in a more intelligent way, on a long-term scale, that becomes really beneficial for the business itself.

Mr. Cline is managing editor of BAI Banking Strategies. He can be reached at [email protected]