The challenge of customer loyalty in the era of Open Banking

There is big change afoot in the world of retail banking. Over the past few weeks, the rollout of the much-discussed Open Banking Standard has begun. The new recommendations for the way banks share data could hold the key to transforming the way customers choose who they wish to bank with, by making the experience of changing current accounts or deciding their mortgage supplier more seamless and transparent than it is now. With global research by Bain finding that (on average) 29 per cent of consumers would switch from their primary bank if it were easy to do so, it’s never been more critical for banks to invest in the service and experience they offer customers.

In short, the Open Banking Working Group (OBWG) – set up in September 2015 at the request of HM Treasury – explored how data can help people transact, save, borrow, lend and invest their money. The OBWG has since set out an Open Banking Standard (OBS) to outline how open banking data should be created, shared and used by its owners and those who access it. Key to this is the breakdown of data barriers between banks; the Open Banking Standard recommends that open APIs need to exist for banking, to help provide open access to open data and shared access to private data.

The idea is that, by making it possible to share data that banks have historically held, the customer experience will improve as data can be used to build useful applications and resources to help people find what they need. This is a significant step forward for the way that major UK retail banks – including Barclays, HSBC, Nationwide and Santander – manage their customer data.

Empowering the customer

Over the last few years, we’ve seen the rise of the Empowered Customer. This shows no signs of abating anytime soon, as legislation and industry bodies seek to gives customers more autonomy and choice in the managing of their finances. Last August, the Competition and Markets Authority  took steps to address how banks are attracting new customers, and found the older and larger banks, which still account for the large majority of the retail banking market, “do not have to work hard enough to win and retain customers and it is difficult for new and smaller providers to attract customers”. Both the CMA and OBS hold a similar view of encouraging healthy competition between banks – and placing customers firmly in the position of power.

The OBS has been established to enable customers to choose the best financial provider to suit their particular needs. It will allow them to look for mortgages and investment accounts more easily, and to clearly compare and contrast the different products and services offered by banks. The OBS wants to ensure that consumers are fully aware of the choice available to them; it seems there is currently a lack of knowledge, as the CMA found the average customer would save £70 a year simply by switching to the cheapest current account in the market.

The rise of social media and boom in ecommerce over the past decade has been in part what has led to the Empowered Customer. More knowledgeable and connected than ever before, customers have their pick of an unprecedented number of products, brands and services across every industry. As well as this, customers’ voices have never been more public, with access to an array of digital channels to contact companies with questions and complaints – and an expectation of 24/7 communication to fit their lifestyle. This is all crucial to the way customers form their expectations, as they compare and contrast brands and service – irrespective of the industry.

Customer experience is now the benchmark for success: research by Gartner found that 89 per cent of organisations now expect to compete solely on this. What’s clear is customers want more from their banks than favourable interest rates. They want to know they are valued; they want a personal, quality service which has a record of the customer’s previous interactions and understanding of their needs. With customers able to switch more easily, banks now face an even larger challenge when it comes to standing out from the crowd and encouraging customers to stay.

Combining innovation with old-fashioned human touch

The banking industry is a fiercely competitive space where traditional banks and fintechs both seek to attract customers through increasingly innovative ways. In February, Santander announced it is set to become the first high street bank to allow customers to use their voices to check their bank accounts and authorise payments via its app. The OBS recognises the need for tech that is not only useful but exciting, and seeks to stimulate innovation in the banking sector.

Small and nimble start-ups such as Atom have a head start on digital transformation. The challenge for traditional banks is breaking free of archaic processes and bureaucratic shackles that prevent them from adapting at the same pace. And, in a world where customers no longer have the time or patience to wait for what they want, there is a risk threat to the customer base if they are unable to adapt. But I strongly believe that, after years of being a familiar sight on the high street, what traditional banks offer is an established, human experience.

People still like to talk to people. Indeed, a report by market researchers Vanson Bourne found that 91 per cent of respondents agree that there should always be a way to contact a real person, with the same number believing complicated issues are more likely to require a real person to resolve it. Digital innovation has hit the financial services industry and it has undoubtedly revolutionised the way customers manage their finances. But money matters are complex and personal. 

I would argue the personal and individual approach of a phone call or in-branch appointment will always be needed to deliver the best experience, especially when it functions in seamless conjunction and cohesion with the digital and non-human channels. Of course, managing data effectively in back-end systems is crucial to the customer experience delivered at the front end.  Banks must constantly look to innovate to ensure their employees are using the best systems and work-flow tools to manage data and deliver a great customer experience.

A new dawn for banking

As the rollout of the Open Banking Standard gains pace over the coming year, a new era for UK banks begins. It’s an interesting time, and I’ll be intrigued to see how customers, and banks (both old and new), adapt. I stand by my view that any bank, whether a six-month-old start-up or 60-year old high-street behemoth, must not lose focus on the experience they offer customers. With switching becoming easier, customers need to be given a reason to stay.