New era in banking after pandemic

Senior advisor Ahu Karageyim at Qorus writes about upcoming changes in the way we bank and how financial institutions can position themselves to be leaders in the new era.


Transformation of consumer trends and marketing applications

The banking industry underwent a profound restructuring after the international financial crisis of 2008. As research indicates, the globalization of markets, regulatory measures and socio-economic changes have led banks to mobilize and evaluate different resources and capabilities. Now, we see a huge transformation of the banking industry owing to the coronavirus pandemic.

A shift in consumer sentiment and behavior during the coronavirus pandemic due to extraordinary conditions and safety regulations affected almost all industries. Consumer behavior in financial services has changed dramatically due to new priorities, concerns and preferences. Customers moved to digital channels faster than they did in the past. A BCG report indicates that online banking use increased by 23% and mobile banking use is up 30%.

Banks and other financial services companies are formulating new strategies based primarily on technology, AI, digital systems, mobile applications. The majority of them are related to contactless transactions and solutions with less human contact.

This article tackles the challenge of creating future competitive advantages by describing different strategies related to customer engagement in the financial service sector. Banks are operating in a highly competitive environment composed of fintechs, Bigtechs and financial services institutions. These newcomers are also providing innovative solutions and financial services owing to technology. This environment is also extremely difficult in terms of customer loyalty. It is not easy to create and maintain loyalty in customers. 
 
One reason for this is that customers are more demanding and empowered to perform many of the activities that banks previously handled. Customers are knowledgeable and aware of many competing alternatives. This forces banks and all financial institutions to shift their perspective on financial service offerings. Emphasizing customer satisfaction and loyalty is important. Customers are no longer only passive perceivers and recipients of banks marketing activities. They are now real independent value creators, who use different service providers for banking and investments.

Customers 

It is also important to understand the evolution of consumer behavior in order to identify new trends and to formulate efficient strategies. First of all, we are all in a difficult situation as human beings due to coronavirus. We are still trying to understand the virus and protect ourselves and our loved ones from the pandemic. This has changed almost all priorities and routines related to daily life. On the other hand, recent reports prepared by McKinsey and BCG provide enough evidence about the latest preferences of consumers in banking. The latest surveys indicate that consumers in Europe are more optimistic despite ongoing lockdowns. 
 
We know that consumer behavior is largely impacted by inner processes (motivations, drives, needs, perceptions, learning) and social groups (culture, sub-culture, family and reference groups). In addition, the digital era has already altered the preferences of consumers and this shift towards digital affected all industries. Customers are now more connected and demanding, thanks to the internet and social media. Simple, fast, and user-friendly solutions with transparency are preferred.

Here are some strategies to help your bank stand apart.

• Customer engagement 

Building long lasting relationships with customers has always been an important strategy for banking. Today this is even more important because digitization and new technologies changed the traditional landscape for banking.
 
In this highly complex environment, customer engagement is critical for developing sensations, emotions, learning, behavioral responses and true experience with the brand. Customer engagement is closely related to emotions and customer satisfaction has always been a critical strategy for retail banking. It has a significant impact on loyalty. There has been a dramatic reduction in the use of branch networks during the pandemic. In this highly digitized context, new and innovative approaches for better engagement and for better customer relations are increasingly necessary. There is a huge investment in technology in banking but influential and innovative strategies are important for loyal customers and long term and profitable customer relationships. A strong emphasis should be put on customer engagement during and after pandemic.

• Omnichannel marketing and chatbots

The methods used by customers in order to communicate with firms have changed tremendously due to technology. Banks and the financial industry are now offering different channels to their customers for interaction and transaction. The integration of different platforms and different contact points has been one of the critical strategies in banking in recent years. Managing the progression of customer interactions across digital and non-digital channels relies on accurate real time customer data. Digital channels are now an integrated part of banking. Digital platforms are also empowering customers and they are facilitating consumers’ lives.

Omnichannel marketing assists in the personalization of customer service and is also useful for creating a high-quality retail experience. There should be more emphasis on this strategy since it is strongly preferred by customers. 

Assessing customer satisfaction with digital platforms, such as chatbots, is an important issue for banks seeking to create a competitive advantage in the contemporary digital era. In many countries, particularly in emerging and developing ones, chatbots services are still in the introduction stage. Banks should be aware that with chatbots, customers can anytime and anywhere interact with machines/applications (e.g. text messages, voice chats) to ask for information, make an appointment, inquire about a product/service, etc. Thus, chatbots can contribute to offering personalized and customized assistance. Banks may greatly benefit from this trendy service, which can have a significant influence on customers’ satisfaction by providing fast and prompt personalized digital services.

• A new value proposition based on customer “benefit” 

The latest surveys and academic research indicate that consumers need simple solutions that facilitate their lives in this highly complex world. The pandemic has also highlighted this need since it has changed so many things in our lives. It limited our behaviors, our physical interactions. In this context, we see that banks focus more and more on simple solutions that promote customers’ lives. In this highly dynamic and competitive context more specific and effective solutions are also needed to interact with the customer.

One solution is to offer a new value proposition designed to make the customer's life easier. 

An effective customer journey with simple and automated processes should be designed for this new value proposition. Now brands need a new value offer based on “benefit”, “convenience” and “facility”. The primary purpose of this new value proposition is to make lives easier.

Fintechs and Bigtechs are providing simple and fast solutions to bank customers. Even big and traditional institutions are launching interesting mobile applications. New apps for children, new apps for better saving, and investment options are launched by digital banks. Newly developed accounts that help save money or manage finances are also good examples of this new trend. 

New value propositions targeting different customer segments, teenagers, generation z, and elderly people may be a good solution for better engagement.

• The rise of new segments and new consumer groups in banking 

Are we ready for new customer segments? 

Banks are operating in a highly dynamic and competitive environment. Almost all financial institutions are experiencing great changes due to globalization, new technologies, the pandemic, and competition. Banks are also feeling more pressure because of increasing customer demands. One reason for this is the emergence of different customer groups in the industry. Customers are changing and banks need to understand these current changes.

Market segmentation is an important technic used by financial services institutions in order to better serve their customers. Traditional segmentation in banking is generally based on socio-demographic, economic or psychographic variables. There are some additional segmentation methods developed by banks that use service usage rates, customer purchase decisions, or customer life cycle. Although these variables are still used by bank managers for classification, we see that traditional segmentation is not effective for understanding today’s customers’ preferences and priorities.

Consumer behavior has changed significantly during the pandemic. New preferences and new lifestyles have emerged in every industry and we see new groups of customers in banking. Actual segmentation strategies use customers’ attitudes, interests, opinions and personality traits as variables in order to identify new groups. Even the use of technology and adaptation to mobile banking may be an efficient way of understanding and serving some customers during the pandemic. Generation Z, underserved communities, immigrants, professionals or doctors can be good examples of these new consumer groups.

Banks, especially digital banks, are accounting for these new preferences, concerns, and lifestyles.

Latest academic research reveals that customer emotions and customer commitment may also be effective variables for segmentation in banking. Customer lifestyle and consumption habits may also be cited as a descriptive segmentation variable. A different value proposition can be prepared considering these new trends and priorities may be an important tool for achieving a competitive advantage.

The launch of super applications based on lifestyle and commitment segmentation may be a good way to enhance customer loyalty. In addition, emotional segmentation is clearly a good method for increasing emotional bonds and commitment of bank customers. Banks should identify these psychological differences and new trends in consumer behavior in order to prepare tailored products and better solutions.

In light of these technological developments we see that future strategies will focus more on new partnerships for building platforms and ecosystems in banking. Banks must adopt a flexible approach for understanding new customer groups and for developing innovative solutions. Even before the pandemic retail banking strategies were digitized with huge technology investments. The pandemic accelerated the digitization. The majority of banks use chatbots powered by artificial intelligence for communication and quick answers. Digital wallets, digital assistants are making our lives easier providing best solutions, advice and convenience. These new strategies with less human contact are transforming retail banking and facilitating customers’ financial activities. The pandemic is also incentivizing customers’ shift away from traditional branches to digital channels. This shift means it is imperative to find new ways of increasing engagement with customers in a highly digital and contactless environment.