Technology advancements and the proliferation of consumer apps have created a new customer experience paradigm, where customers expect interactions to be simple, intuitive, and seamlessly connected across physical and digital environments. In banking, the branch is no longer at the center of customer engagement — the “center” is the consumer themselves.
That’s why banks are shifting to customer-centric models that leverage data to provide personalized, contextually relevant experiences. Already, 81% of banks base their most critical systems and strategies on data. But even as the amount of data available on individual customers has grown exponentially, many banks have not invested in the capability to verify data accuracy, let alone leverage data to its full potential.
As fintechs and digital service providers encroach on traditional consumer finance, banks must learn to successfully leverage data and deliver real-time, highly personalized service, products, offers, and relevancy consumers have come to expect from other industries. Only this new style of banking — contextual banking — will differentiate them from growing, nontraditional competitors.
What is Contextual Banking?
The connection between banking and the physical branch is weakening. According to McKinsey, deposits at the 25 largest U.S. retail banks have doubled over the past decade, while their combined branch footprint shrank by 15% over the same period.
As with other consumer behaviors, especially those associated with mobile technologies, banking is no longer an event but a fluid activity in the context of consumers’ broader life experiences. This ‘lifestyle banking’ places new demands on the technologies and capabilities banks use to provide desirable services and experiences to customers.
Engaging consumers has become complex and unpredictable for banks; meeting consumers’ financial needs in any given context is elusive. Banks must go beyond improving digital experiences. They must become participants in the context of consumers’ lives and embrace new services and data technologies that help them add value within any context a consumer chooses to engage them.
Although banks are investing in these outcomes, most have not yet turned the dial on their digital experiences from “better” to “excellent.” In its Q2 2019 review of the largest U.S. banks’ mobile apps, Forrester found that while leading banks have improved transactional features in mobile environments, only 3 in 8 have adequate content; only 2 support external account aggregation; and none provide contextual, actionable financial advice as often advertised by executives.
These elements are critical to lifestyle banking, where both routine and in-depth banking functions fit within the context of consumers’ daily activities. By these standards, personalized experiences become part of an ongoing customer journey, one in which content and recommendations are responsive to consumers’ personal choices.
Banks that understand this customer journey invest in improving every customer touchpoint, and endeavor to fit within the context of consumers’ lives are yielding results. In a February 2019 study, McKinsey found that in the U.S., top-quartile banks in terms of customer experiences have had meaningfully higher deposit growth over the last three years. “The few ‘experience leaders’ emerging in retail banking are generating higher growth than their peers by attracting new customers and deepening relationships with their existing customer base,” says the report.
The Benefits of Contextual Banking for Financial Institutions
Already, technology innovations in non-traditional sectors are changing customer expectations for convenience, security, and long-term benefits in financial planning and behavior. Digital-only players without legacy IT infrastructure can facilitate faster payments, account aggregation, and alternative payment methods that outpace traditional competitors.
Fortunately, banks can look to digital natives in other consumer sectors — such as e-commerce and entertainment — for differentiated experiences that have proven successful and then redesign their journeys for customers who increasingly prioritize digital as part of their personal behavior. Still, the financial segments of that broader personal journey have their own new and unique requirements. Leading banks know that improving the look and feel of digital environments isn’t enough. True transformation calls for back-end investments that integrate experiences across products, channels, and environments.
For example, banks cannot focus on consumers’ in-app experiences alone. Contextual banking doesn’t rely on any single technology. Rather, it’s a collection of seamless experiences that include multiple channels but uniformly elevate customer satisfaction as customers engage with a single brand. Banks must employ data-driven tools broadly, empowering consumers, teams, and technologies to facilitate consultative relationships — whether a customer is simply opening a new account or engaging in long-term planning for retirement.
Luckily, customer-centric business models have proven that they can drive real business results for banks. Banks that prioritize not just technologies but also systematically redesigning all high-impact segments of the customer journey have driven at least 15% to 20% increases in customer satisfaction, according to McKinsey. As we will find, investments in new data strategies and technologies, as opposed to interface improvements alone, are at the foundation of their transformation.
Adopting a Data Strategy That Supports Your Innovation Goals
Across B2C industries, there’s no shortage of consumer data, but companies face their own limitations in how they capture and validate that data, then convert it into actionable insights that create more contextually relevant experiences for customers. Already, 28% of banks typically do not validate or examine the data they receive from the ecosystem or strategic partners, Accenture reports, and 5% claim they do not validate consumer data at all.
Consumer attitudes will favor banks with sufficient data intelligence, which allows them to optimize how data is tracked, validated, and used to engage consumers within the right context. By integrating new data technologies, banks can build upon the existing trust they’ve established with consumers and provide superior alternatives to nontraditional third parties, whom consumers may not be willing to entrust with their personal information:
“By consolidating customer data from diverse sources across the enterprise … banks can generate a 360-degree view of customer interactions. With customer permission, this view could be expanded to include transactions and account information at other institutions.”
The right data strategy allows banks to make the contextual recommendations their customers want, at the times and in the environments most appropriate for those customers to take actions that drive desirable outcomes — be they short-term savings goals, for example, or building on long-term financial investments.
Ultimately, banks can integrate their data strategies with diverse applications to create not another banking app but a diverse customer experience platform that supports an ecosystem of services, providers, and end-users. As banks expand opportunities on these platforms, they create more touchpoints for customer engagement and increase the relevancy of their products and services in the context of a broader consumer journey. As that journey continues, banks generate not only greater revenue but also additional customer data they can leverage to further personalize and improve services and solutions — a continuous business cycle that affirms a bank’s role in the financial lives of their customers.