While banks have been successful in some of their customer retention strategies, there are a few market-centric challenges that they need to consider, and develop their strategy accordingly, to have a sustainable and profitable customer relationship.
The biggest challenge faced by banks is the development related to the PSD2 regulation. With the regulation mandating banks to provide third-party providers (TPPs) access to their customer data, they (the banks) face the risk of losing direct customer contact and getting disintermediated.
This risk is relevant for both traditional as well as challenger banks who are facing competition from large non-banking technology brands including data aggregator platforms, e-commerce platforms, insurance groups, etc. such as Check24, Amazon, Lufthansa Miles, Allianz X, etc. that take on the role of TPPs and own the customer interaction.
These TPPs have the advantage of superior UI and UX as well as the advantage of starting with the strong financial backing and large customer data sets of their own which when matched with bank customer data allows the TPPs to offer unique and valuable services to customers.
Strategic Imperative: As the roles of production and distribution of financial services become decoupled with open banking, banks may choose the role they play and even become a TPP themselves.
In either of the roles, banks will need to prepare technology infrastructure that acts in real-time internally and be API ready to connect with fintech companies and other big companies, and effectively facilitate seamless integration with internal and external systems.
In a digital banking ecosystem where banks are competing with fintech companies, a large part of a bank’s customer acquisition and retention strategy is hinged on attractive pricing and cash-backs.
With a persistently low-interest rate environment, banks in Europe are struggling with margins and profitability, which limits the capacity to spend heavily on customer rewards and loyalty programs.
Strategic Imperative: Currently, digital banks have an advantage over traditional banks on two aspects – the user experience and an attractive pricing proposition for their products/services.
However, with a lower margin of interest income, amidst difficult macro-economic conditions, challenger banks will inevitably have to start charging fees for some of their services in order to sustain their operating model.
The eventual convergence in pricing will result in challenger banks and traditional banks competing only on superior user experience.
Customers today increasingly expect digital experiences from their banks that match those of eCommerce and information service providers such as Amazon and Google.
Additionally, in this age of digital everything, customers are hit by an explosion of digital marketing campaigns every day. With innovative brand positioning and calls to action, maintaining the customer’s mind share is becoming more and more challenging.
Strategic Imperative: The end game for banks and other financial institutions will be to retain the customer by becoming a one-stop shop for all their banking and non-banking needs. Banks can explore these new business models such as marketplaces, banking-as-a-service, etc.