Three Ways to Lower Customer Effort and Increase Loyalty

I often talk to bank and credit union executives and the topic of increasing the loyalty of customers/members frequently comes up.

The typical reasoning is that increasing customer satisfaction by going above and beyond leads to increased loyalty. While it certainly makes sense, especially in a highly regulated vertical like financial services, it is not always the best area to focus on. Indeed, a different measure has been steadily gaining popularity and is often a better fit for banks: customer effort. If customers encounter difficultly in resolving their issue, they are much more likely to look for solutions from different institutions. On the other hand, if it’s easy to resolve their issue, they will appreciate the financial institution more. This, in turn, leads to increased wallet share and overall loyalty.

Customer effort, or CE, can be measured through survey results like customer satisfaction or net promoter score asking customers if they agree or disagree with the following statement: “[The institution] made it easy for me to handle my issue.” Customers score their effort on a range from 1 if they strongly disagree to 7 if they strongly agree. The individual scores are averaged to get the overall institution average; an average score of 4 or less is considered poor, and scores of 5 and higher are considered good. The advantage of CE score as compared to customer satisfaction and net promotor score is that it can be used to measure the experience as a whole, but can also focus on specific experiences: the usability of a specific page on the company website or interactive voice response that prompts customers to speak to an automated phone system.

The insights gleaned from deploying CE scoring can be quite interesting. For most customers, banking is a necessity and there are a plethora of institutions to choose from offering a similar range of products and services. This implies they choose who they bank with partially based on the perceived effort needed to use the services. Traditionally, this meant choosing the bank with conveniently located branches; increasingly, it means choosing institutions with robust online and self-service offering. The expectation is that banks should do simple things well and make things easy. When there is a problem, helping customers solve it quickly and easily is key.

Here are five insights from institutions employing CE scores:

  1. Customers dislike having to contact the bank multiple times and needing to answer repetitive questions multiple times. They also don’t like switching from one service channel to another to get their problem resolved.
  2. Majority of customers will start with lower effort channels — online and self-service — and only opt for phone service when needed. Calling is seen as a higher level effort.
  3. Customers are willing to put in more effort when there is a perception of increased value for the effort, like driving to a branch to discuss important life events. But as customer effort increases, so do their expectations.
  4. Experiencing complications in resolving their issues makes it hard for customers to believe they are getting value for their money. They will be more likely to consider products from other competitors.
  5. Negative outcomes of high-effort experiences significantly outweigh any benefits of easy or low-effort experiences. In other words, customers who perceive their bank is making things “difficult” are more likely to leave than customers who are “dissatisfied” according to an NPS or CSAT score.

Here are my top three suggestions for prioritizing changes that can reduce customer effort:

  1. Invest in self-service solutions. Analyze feedback on CE surveys to identify specific experiences on websites and apps that could be improved with self-service.
  2. Adopt an asynchronous service model. Asynchronous service solutions that do not require customers to actively wait or demand their full attention throughout the interaction, like messaging and call back functionally, can significantly reduce a customer’s perception of effort.
  3. Use video calls. Video calls can provide many benefits of in-branch visits but require less physical effort from customers, lowering expectations on the institution.

There is significant overlap in the above suggestions and suggestions on how banks can save customers time. That’s because an investment of time is just one dimension of a customer’s effort.

Measuring customer effort can provide actionable insights into specific process and service improvements and should be a part of any bank’s customer success story. Customer perception of a difficult interaction is a good predictor of customer churn; investing in more easy experiences can improve both share of wallet and long-term loyalty.

How Innovative Banks Are Reimagining the Core


core-7-10-19.pngNew developments in technology have heightened bank customers’ expectations of speed, service and customization from their financial institutions—and cores are struggling to keep up.

Consumer expectations for banks are so high that it’s difficult—if not impossible—to meet them using existing core banking systems. Luckily, the landscape of core providers is growing rapidly too, and some banks are already taking the plunge.

The “Big Three” core providers as they’re known in the industry—Fiserv, Jack Henry & Associates and Fidelity National Information Services—serve just over 71 percent of U.S. banks according to data company FedFis. They’re criticized for providing poor service and lagging significantly behind smaller, more nimble fintechs when it comes to innovation. And their recent acquisition streaks have bank clients worried that it could erode service levels, reduce choice and increase cost.

James “Chip” Mahan III, chairman and CEO of Live Oak Bancshares, described the situation aptly: “It just seemed like every time we wanted to do something, it’s impossible. It’s ‘stand in line and write a big check.’ And it’s really, fundamentally, putting lipstick on a pig.”

That’s why the bank, based in Wilmington, North Carolina, invested in an emerging competitor—Finxact—and courted creators and industry veterans Frank and Michael Sanchez out of semi-retirement to take on the challenge of reinventing the core.

Finxact is an inventory management system that’s been architected from scratch on Amazon Web Services. Finxact and other alternative core providers offer three key features that banks should demand from a 21st century core processor.

Open Architecture
Nearly every core has some type of application programming interface (API) that allows its technology to connect to third-party applications, though the availability of those APIs is still tightly controlled in legacy systems.

Most challenger cores embrace open architecture—a quality that stands in stark contrast to the situation with incumbent cores. Deland, Florida based Surety Bank wasn’t able to negotiate with its legacy provider to use a third-party remote deposit capture solution.

CEO Ryan James says that was “a deal killer” because the bank does a large volume of deposits with that provider, had tailored it to their needs and had undergone examinations with it as well.

“It just was absurd that [our legacy core] didn’t even want to take that file, because they were greedy. They wanted to charge the [remote deposit] rates on that even though they couldn’t do what we needed,” he says. “That was an eye opener.”

Surety Bank eventually chose to undergo a full core conversion. It only took four months for the bank to launch on a cloud-based system from NYMBUS at the beginning of 2018.

Cloud Native
In addition to featuring open architecture, many challenger cores are cloud native. Although most legacy cores have some ability to run some of their system within a cloud environment, truly cloud-native companies offer banks greater advantages.

“There are different services that the cloud provides that will enable you to scale without drastically increasing your costs,” says Eugene Danilkis, co-founder and CEO of Berlin-based core technology provider Mambu. “That allow [cores] to have the best practices in terms of security, in terms of disaster recovery and also the sort of operations you can support.”

One of the operational advantages a cloud-native system provides is the ability to deploy updates within a day or two, Danilkis says.

Being cloud native is synonymous with scalability; a system can handle one hundred accounts as easily as it can handle one hundred thousand. This significant benefit means core providers don’t need to charge banks for each new account or service they add, and often use software-as-a-service models or other simple, transparent pricing schemes.

Configurable
Perhaps the most important hallmark of a modern core system is configurability. Modern cores give banks the ability to create their own ecosystems, workflows and bespoke financial products that differentiate them from competitors.

Banks on a core like Finxact could build a new type of savings account that automatically raises its interest rate when the balance reaches a certain level. In contrast, legacy cores only offer out-of-the-box products that can be tweaked to meet a bank’s risk appetite or other basic requirements, without changing the product.

Changing the Game
Modern core processors approach banking technology in radically different ways from legacy core providers. They’ve built new systems from scratch, instead of bolting on acquired products. They run in realtime instead of overnight batches. They look and feel like websites instead of flat green screens. They’re open, cloud-native and highly configurable—and they’re finally coming into their own. Innovative banks should explore these options now so that they can leapfrog their peers in the near future.

Potential Technology Partners

Finxact

Currently in limited use at Live Oak Bancshares and engaged in discussions with several other U.S. banks.

NYMBUS

The SmartCore platform is powering at least one community bank, and its SmartLaunch product uses SmartCore to support digital-only brands for additional institutions.

EdgeVerve

The Infosys Finacle core is used in over 100 countries and made waves in the U.S. when Discover Financial Services left Fiserv to use this core for its direct banking business in late 2014.

Smiley Technologies

The SIBanking platform is currently in use in several U.S. banks with assets up to $1.3 billion.

Thought Machine

This London-based company wrote its cloud-native Vault core from scratch. The company states that it has clients in the U.S., but is unable to identify them publicly.

Mambu

Mambu has bank clients in 15 countries. In the U.S., current clients include non-bank lenders, and the company is planning to use its latest funding round, in part, to grow its footprint in the U.S.

Mbanq

The founder of NYMBUS just joined this operation to help the company expand into the U.S. They currently serve 15 banks primarily in Europe and Asia.

Learn more about each of the technology providers in this piece by accessing their profiles in Bank Director’s FinXTech Connect platform.

What Does Digital Transformation Mean Today?


transformation-4-17-19.pngFaced with macro-economic pressures, technology adoption decisions and quickly shifting customer expectations, banks are challenged in how to respond. Or if a response is even necessary.

But why?

For hundreds of years banks have existed to facilitate commerce, serving as a gateway to exchange and store value. Customers historically have chosen their bank for a combination of two factors: trust and convenience.

Financial institutions thrived by putting themselves at the heart of communities and centers of commerce. Branch networks expanded to be close to their customers, serving communities with products tailored to their customer footprint.

Then came the internet in the 1990s, and banks began launching online banking. By 2006, 80 percent of banks offered internet banking. Many banks believed they could begin to close bank branches, transitioning from fixed-cost distribution centers to low-cost digital channels.

But when it came to financial advice and large transactions, consumers still prefer branch locations. Instead of replacing costly branches with low-cost digital channels, banks are now faced with the upkeep of ever-changing customer expectations across multiple channels.

Pressure From Fintechs
The problem right now is traditional revenue from interest rate spreads are being strained by specialist digital providers. Instead of offering a breadth of services to customers, fintechs develop one product and continuously refine the single product to the user’s needs.

But how can a bank compete and offer the services customers want with the specialization fintechs can deliver across multiple channels?

The answer is open banking—a collaborative model in which banking data is shared with third-party services across an ecosystem of trusted providers.

As commentator and consultant Chris Skinner states in his book, “Digital Human,” “A bank that is truly into their digital journey would never build anything, but would curate everything.”

A digital transformation begins with extending bank capabilities through APIs (application programming interfaces), which open up an opportunity for banks and their customers to partner with fintechs.

But customers don’t want to vet hundreds of fintech startups. Instead, they’re looking for trust and convenience in their bank, which is the bank’s biggest advantage. While not immediately visible to customers, an important aspect of trust is the bank’s continuing role in ensuring third-party solutions handle their data securely and are in compliance with regulations.

Financial data is the currency of the next generation of banks, and the value of that currency is unlocked when segments are broken down and replaced with a platform. Only at a platform level can you extract the intelligence to deliver actionable, contextualized experiences for your customer.

In many ways, banks are already platforms, with multiple product lines around deposits, lending and insurance. APIs allow these platforms to interconnect, combining data to provide a complete financial picture of their customer. Even with the rise of technology, consumer surveys have shown they trust their banks more than Google and Amazon combined.

Customers want their bank to be at the center of their financial decisions.

The late Walter Wriston, former chairman and CEO of Citicorp said in the 1970s, “Information about money is as valuable as the money itself.”

Measuring Long-Term Success
Long-term success will be measured by the ability to refocus away from transactions in favor of becoming a trusted advisor. Banks that invest in gaining a deeper understanding of their customers’ financial lifestyle through rich data analytics can begin providing personalized, contextual advice to their customers—a valuable service customers will pay for.

Banks don’t have to embark on this journey alone. Institutions should look to technology partners equipped to allow them to think bigger by offering a customizable solution.

The bank of the future looks very similar to the bank of today—focused on core values of trust and convenience.