One of the main challenges for banks and financial institutions is gaining and maintaining customer trust – especially during turbulent times. SunTec’s Madhur Jain discusses what FIs need to do to manage compliance while meeting customers’ evolving needs.
Today’s customer landscape is rapidly evolving, and the rate of change is accelerated exponentially by the current market disruption. Financial institutions are racing to meet customers’ short-term priorities and are already bracing for long-term shifts in customer priorities and loyalty. Savvy organizations are developing strategies now to solve the looming challenges to brand loyalty and trust that will ensue following the COVID-19 pandemic. Consumers today are increasingly expecting a seamless, personalized experience and high service levels, and they will unapologetically leave behind any businesses that can’t offer that.
Irrefutably, the market is moving away from a product-based economy to a customer-based one – and regulatory bodies have responded accordingly. We have seen rapid and aggressive legislation to regulate financial services and other industries, with a specific focus on consumer data, fairness and transparency. As the customer-first, digital economy gains more momentum, regulators are attempting to keep pace with the velocity of evolution and tighten their scope of control.
Tech Engages Bank Customers by the Day
Today, the global COVID-19 pandemic favors the agile business models of banks that are truly digital, and they are set to scoop even more market share upon return to normal conditions. While customer deposits may continue to aggregate in larger, traditional banks due to the perceived stability associated with them, as the pandemic situation normalizes, many customers will migrate to challenger/agile banks and big tech companies (like Google, Apple and more that have crossed into the financial services market). These companies have built their business model on personalization, prioritizing user experience and the customer journey to maintain their own customer base while grabbing increasing market share from banks and other traditional institutions. These tech companies provide the ultimate, personalized experiences by leveraging customer data to not only suggest but predict the customer journey – a tactic that has been proven almost foolproof in setting the standard for consumer expectations.
With this personalization comes consumer trust and remediation. In fact, recent research found that 29 percent of businesses say they now trust challenger brands and fintech providers more than traditional banks. Challenger banks’ service-first model instills consumer trust and encourages loyalty while traditional banks are not only losing existing customers, but also losing valuable insights that would help them gain new customers.
In the wake of uncertainty, customer centricity can be the ultimate deciding factor for customer loyalty – creating opportunities like digital banking, instant payments, etc., that cater directly to customer needs in times of crisis. Add to this the chaos and unplanned risk factors that can throw banks’ priorities into disarray, and the stage is set for agile competitors to shine. Banks must assess their risk factors across the board – including the cost of losing customers to competitors and the costs of falling out of compliance.
Regulatory Demands Heighten with Evolving Customer Needs
The challenge for banks is catering to the needs of customers while meeting regulators’ demands. Regulations in recent years have steepened both in volume and demand. Financial and privacy regulations, including General Data Protection Regulation (GDPR), Markets in Financial Instruments Directive II (MiFIDII), anti-money laundering, know your customer, open banking and conduct risk, require strict reporting and precise information points. Keeping compliant with these ever-evolving regulations is increasingly complex in a landscape of disruption and digitization.
Banks must bring complete transparency to enhance trust and engagement while also maintaining compliance. However, their ability to keep being compliant is hindered by several factors: For instance, they must stay consistent with regulator expectations due to the pandemic – including continuity plans and risk management planning – while constantly navigating unimaginable conditions. Furthermore, social distancing measures driving aggressive digitalization and economic stimulus present additional challenges that banks must prioritize, accounting for political factors that previously held little weight for compliance teams. Challenges aside, maintaining a healthy business stream, catering to customer needs and focusing on regulatory burdens must be of equal priority.
Data Accelerates the Shift from Product to Customer Centricity
There is good news for banks, though: Customer centricity and compliance can not only be reconciled, they can be synergetic. Banks and other financial institutions can leverage data to effectively improve customer centricity and simultaneously ensure accuracy in compliance efforts. The solution is simple, accessible to all business and often overlooked. Data is highly undervalued as a line item, yet it is one of the most valuable assets a business possesses; every business decision, calculated risk or investment is fueled by information.
Banks – and every other organization – can access this data by building a digital core layer, which uses personal information, purchasing patterns and data from every customer interaction to help them own the customer experience by setting up a system of engagement with enhanced personalized product innovation capabilities, enterprise pricing and partner ecosystem management. This way, banks can leverage their customers’ data to meet their unique needs; create and bundle products, services and offers for any customer segment; and adopt relationship-based pricing strategies and new business models while ensuring transparency for compliance reporting. Data’s true value can only be unlocked if leveraged to fuel automated, insight-driven decision-making for every operation and interaction.
Regulations like GDPR, Payment Services Directive 2, anti-money laundering, conduct risk and open banking require controls on pricing that banks can easily comply with by employing digital processes that quantify and qualify customer data and transactions. Implementing enterprise capabilities and functions like relationship-based pricing and “platformification” will help drive tangible returns and offer personalized products and service models to customers, encouraging loyalty. With a laser focus on transparency and customer centricity, banks will begin to create models that bring real value to their customers, rather than simply driving the next transaction. In return, this hyper-personalization will encourage customer retention and longer-term, deeper insights that feed banks’ data stores, completing a value cycle that is set to be business model of the future.
Months and years down the road, customer centricity will continue to drive the market, and in a world of evolving technologies, a new digital landscape and increasing personalization in every arena of our lives, regulators will inevitably amplify the rules surrounding ethical use of these modern conveniences.
By creating and maintaining access to consolidated data on transactions, pricing and more, banks can streamline customer data to ensure seamless workflow and analysis across the customer and product lifecycle. Tapping into data and maximizing its benefits will not only create transparency for regulators, but for customers as well. Banks that champion transparency will then be able to strike the ever-challenging balance of meeting regulatory benchmarks while meeting the needs of customers and ensuring service-first experiences.
Smart businesses will plan their long-term strategy now, leaving plenty of room for evolution and unexpected disruption. Keeping one of the most underrated assets – customers – at the center of your contingency and growth plans today will pay dividends for business growth tomorrow.
Madhur Jain is Senior Vice President & Global Head of Solution Consulting at 
