Financial services digital Customers: What will they need tomorrow?

March 2016
Financial services
digital
A publication of PwC’s financial services advisory group
Customers: What will they need
tomorrow?
CEOs of traditional financial institutions instinctively want to shift to a digital future,
and with good reason. But they face a dilemma as they try to balance today’s needs with
tomorrow’s realities – many of their current customers who drive a considerable part of
today’s business still want traditional, face-to-face banking.
Our recent retail banking survey finds that today’s customers are generally happy with
the products and services they are getting from their primary banks. However, relying on
this sentiment creates the paradox of disruption: the more banks satisfy their current
customers, the more likely they are to miss the very thing that their future customers
will want.
This is a real concern for the banking industry, which is ripe for disruption from nontraditional players (e.g., FinTechs and other technology companies) who leverage
technology to deliver customized, on-demand products and services to customers.
To make matters worse, some of the most desirable customer demographics (i.e.,
millennials and individuals with high incomes) are most likely to flock to these new
competitors.
This financial services digital publication examines customers’ attitude toward
financial products and services, the changing competitive landscape of the banking
industry, and what banks can do today to meet the customer expectations of tomorrow.
Customers are happy – or are
they?
Our recent survey of US retail banking
customers indicates that many people are
generally happy with their primary bank. At
least 70% of those surveyed described
themselves as satisfied or very satisfied with
their bank’s customer service, online
banking offerings, and branch hours and
locations. This is good news for banks, as
these areas largely overlap with what’s
important to customers: responsive
customer service, competitive pricing,
convenient branch locations, online banking
offerings, and convenient branch hours (as
shown below).1
What US retail banking customers want
Customer expectations are changing
Bank CEO concerns may seem to conflict
with current customer sentiments, but their
worries are justified. Although customers
are generally happy with the status quo,
their expectations are changing, often
through their experiences with companies
outside the financial services industry.
For example, when people compare prices,
purchase an airline ticket, check in, and
board a plane using nothing but their cell
phone, they start to wonder why banks can’t
provide them the same seamless, ondemand interactions for a wider set of
services. This type of implicit comparison
could be why we found lower satisfaction
ratings with banks’ customized products
(57%) and mobile banking offerings (also
57%) in our customer survey.
A new type of competitor is emerging
Solely based on these results, bank CEOs
should have confidence in their customers’
loyalty, but CEOs generally don’t have this
confidence. In our 2016 CEO Survey,2 56%
of CEOs in the banking and capital markets
sectors expressed concern about the threat
of new market entrants. Furthermore, 81%
were at least somewhat concerned about the
speed of technological change (which has
been the main driver behind industry
disruption), up from 68% only a year
earlier.
1
See PwC’s Consumer banking survey for m ore details.
2
See PwC’s 19th Annual global CEO survey (February 2 016).
Financial services digital
Further fueling bank CEO concerns, nontraditional players have started to offer
financial products to customers, largely
facilitated by digital technology. These new
players have an advantage as they don’t
have to support a branch network, a legacy
technology infrastructure, or a business
model that relies heavily on human
resources. They also generally enjoy a lower
cost of capital, as they are not burdened by
an increasingly complex system of
regulatory requirements.
Although our customer survey shows that
many customers remain skeptical about
turning to these non-traditional players for
complex products such as mortgages, a
significant portion of customers would trust
a technology company to provide simpler
products like credit cards (40%).
Furthermore, our survey results show that
millennials and wealthier customers, two of
a bank’s most desired target demographics,
are more likely to trust non-traditional
2
players. For all products and services
included in our survey,3 customers earning
more than $75,000 per year were more
likely to trust technology companies than
customers with lower incomes. Millennials
were similarly more likely than their older
counterparts to trust technology companies
for nearly all products.
Looking into the future paints an even more
sobering picture for bank CEOs. When
asked about the importance of banking
services five years from now, a significant
majority of customers (especially
millennials) rated mobile banking, mobile
payments, and peer-to-peer payments as
important or very important (as shown
below). Incidentally, these are areas where
non-traditional players have so far been
most successful.
Understanding the playing field,
reinventing the bank
To remain relevant in this new
environment, banks can offer innovative
products and tailored customer experiences
like non-traditional players, while
leveraging their brands and long histories as
a competitive advantage.
This entails adopting a customer-centric
business model that, rather than focusing
on selling specific products, is designed to
deliver to customers what they need, when
they need it.4 It can only be achieved by
bringing together customer, analytics, and
digital in a unifying business philosophy,
which we call the CAD Triangle.5
The CAD Triangle
Importance of banking services,
five years from now
Cust omer
90%
80%
70%
60%
Digital
50%
Insights
Analytics
40%
18-34
35-54
55+
Mobile banking
Mobile payments
Peer-to-peer payments
The CAD Triangle creates a seamless
customer journey from the initial customer
interaction through the final transaction,
with full integration of digital delivery
channels. This is done by integrating various
internal capabilities to better understand
customers and their needs through data
These are checking accounts, savings accounts, credit cards, loans (personal, auto, and student), mortgages, and
insurance.
3
Although this discussion is focused on the customer experience, digital transformation carries other benef its such as
reduced operating costs and improved quality control and regulatory compliance. See PwC ’s publication, Click on the
dotted line: How digital mortgage processes are streamlining the borrower experience (September 2 015).
5 See PwC’s financial services digital publication, Digital banking: A tale of two cities (Decem ber 2 015) for a m ore
detailed description of the CAD Triangle.
4
Financial services digital
3
analysis. From there banks can develop
products and services that specifically
respond to identified needs, and deliver
these products via their customers’
preferred – often digital – channels. 6
Consider for example the case of two
customers with average balances near
$2,000. It’s tempting to think of these two
similarly based on their average balance,
because the customer segment can be easily
defined. But take a closer look and the
marketing pitch gets more complicated. For
example, an analysis of the two customers’
behavior may show that one was a mobile
customer, and the other was one of the 81%
of customers who still care about convenient
branch locations. Deeper analysis may
reveal yet more differences between the two,
including what services they need, and how
they prefer to access them.
Utilizing the CAD Triangle, banks can
perform this analysis, use the results to
create customized products and services,
and deliver them how customers want them.
The challenge here is that shifting to this
customer-centric business model requires a
fundamental cultural change at banks that
often have strong organizational inertia, and
a belief that the status quo is working well.
To overcome this inertia and obtain internal
buy-in, CEOs should prioritize transformation
efforts that produce tangible results early-on.
For example, website/app testing and
optimization can improve customer
experience relatively quickly by easing the
most pressing pain points (e.g., confusing
website hierarchies and process-intensive
graphics).7
The road ahead
Our retail banking survey found that
millennials are about 50% more likely than
their older counterparts (55+) to trust
companies with a strong track record of
innovation. That’s the future: the mobilebanking, mobile-paying customer who
applies for a mortgage online instead of in a
branch. But the future isn’t here yet. At
present, customers still prefer to apply for a
mortgage in person.
The way customers are buying will continue
to change, and as technologies morph,
there’s no magic potion that will prevent
attrition. Customers will almost always
consider their existing provider – but even
with good products offered through the
right channel at a fair price, an incumbent
bank may find that its best isn’t good
enough. Traditional banks need to look
deeper into the future needs and
expectations of their existing customer base.
When you already serve a customer, though,
you’re in the best position to know what
customer values most.
Some banks may choose to bet it all on a
digital future. Others may carve out a niche
that emphasizes service over everything
else. Still others are likely to build
partnerships with disruptors as part of a
model focused on cooperation. There are
many ways to play, but they all require
change and the knowledge necessary to stay
one step ahead of customer expectations.
Banks that act now will be tomorrow’s
winners.
See PwC’s publication Making omnichannel work: The “ to do” list for banks (September 2 015) for m ore
information.
7 See PwC’s financial services digital publication, Path to purchase: Guiding customers through winding digital
roads (February 2016) for m ore information.
6
Financial services digital
4
www.pwc.com/finsrvcs
Additional information
For additional information about this financial services digital publication,
please contact:
Dan Ry an
Financial Serv ices Advisory Leader
646 47 1 8488
[email protected]
@DanRy anWallSt
Peter Sidebottom
Financial Serv ices Digital Co -leader
646 47 1 7743
[email protected]
Catherine Zhou
Financial Serv ices Digital Co-leader
408 808 2969
[email protected]
@catherinezhou
Arm en Meyer
Financial Serv ices Advisory Strategy Director
646 531 4519
[email protected]
Contributing authors: Ashish Jain, Doug Stotz, and
Roozbeh Alavi.
We would like to thank Stev e Norman, Cathryn Marsh, and
Kristopher Hoover for their additional contributions to this
publication.
Follow us on Twitter @PwC_US_FinSrv cs
The 2015 Consumer Banking Survey was developed with assistance from PwC’s
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