Will Banking Become Commoditized in 2021?

Why a Bank’s Customer Experience (CX) Must Reflect Its Brand and Values

Commodities are widely available products that are bought and sold, interchangeably. In the early 19th century, the economist David Ricardo noted, “The exchangeable value of all commodities rises as the difficulties of their production increase” and this remains true today. At a time when there is much talk about the commoditization of bank services, we must remember that commodities sell on price alone, regardless of how difficult they are to produce. This blog considers how strategic investments in the Customer Experience (CX) enable banks to stand out in the eyes of consumers and avoid the commoditization trap.  

The COVID-19 pandemic has changed banking forever. Customers have formed new habits and distance banking has become the norm. Digital banking services will undoubtedly be compared with other online services, and we all know that the tech giants have redefined the notion of a great customer experience. Banks that fail to offer an engaging experience run the risk of losing their emotional tie with customers and may increasingly be regarded as commodity providers.

In the digital age, technology is a bank’s chief brand ambassador. A bank’s brand is a shortcut to all that’s good about it, showing what the bank stands for and what makes it stand out. With challenger banks popping up everywhere, incumbents must build on their brands and their position of trust. In practice, trust is a powerful emotion, creating a sense of loyalty and belonging that’s earned over time (but can be lost in an instant). Established banks must safeguard their position of trust zealously, harness technology to increase customer engagement, continually add value, and withstand the forces of becoming a mere commodity.

A Digital Odyssey

Digital transformation is a journey, not a singular event. Most banks begin the journey with CX initiatives, and rightly so. Almost all banks now offer some sort of digital customer experience, though some are more basic than others (such as viewing account balances and supporting funds transfers and payments). The reality is that customer expectations increase continually, and the CX must evolve to reflect their evolution. Today’s premium service quickly becomes tomorrow’s commodity. Forward-thinking banks will counteract this by providing a unified CX that continually exceeds customer expectations.

Clearly the push for digital transformation is upon us. It’s important to note that the pandemic has introduced a new wave of customers to digital banking. Recent research from McKinsey shows that age is no longer a differentiator for channel preferences in banking (Figure 1). Nearly 75% of customers, regardless of age, have adopted digital means for everyday transactions.

In thinking of the Amazon experience, customers just assume they can choose between email, SMS, or in-app communications to receive updates on their accounts. However, more often than not, that isn’t the case with their banks. Modern banks must support the entire customer journey, including the transaction itself, and, just as importantly, provide meaningful and timely communications, in real-time and digitally, in the method of the customer’s choosing. Each and every interaction is important.

Figure 1: Age is no longer a Digital Banking differentiator

Not surprisingly, research shows that financial institutions have named digital banking transformations and improving customer experience as their two top priorities for 2021. As noted in my Elevating Customer Experience with NextGen Communications blog post from June 2020, 75% of enterprises aim to compete and win by offering a digital consumer experience that removes friction and is truly personalized. 

What key elements are absolutely necessary to create and maintain a strong foundation to support this? I’d propose they include the following:

(1) A modern core system

(2) A unified web and mobile digital platform

(3) Pre-integrated Customer Communications Management (CCM) services across core, digital, and all ancillary systems

This will generate unified communications (as opposed to fragmented) as shown in Figure 2. Addressing these three components in the right way can be the difference between retaining your customers or encouraging them to consider other options – of which there are plenty.   

Figure 2: Unified CX Communications

While core renewal and the digital experience are a priority for banks, CCM is a crucial component. If CCM remains a disjointed afterthought, there will inevitably be friction in terms of operational efficiency, governance, and the CX. Without a unified approach to CCM, the CX will suffer – and customers will soon exit. This topic is explored further in the white paper noted below.**  

Keys to Success

Successful bank transformation requires commitment and perseverance to ensure banks meet rising customer expectations. While core technologies and the CX are key, an integrated CCM Platform is part of that foundation. Banks that ignore this, do so at their peril for they are on a path towards the commoditization trap.

* Source Figure 1: Copyright © 2020 McKinsey & Company. “Reshaping retail banking for the next normal”

** Source Figure 2: CEDAR CX Technologies, Improving Customer Experience with NextGen Communications