First things first: what distinguishes product-centric from customer-centric companies?
According to global consultancy Booz & Company, product-centric companies are usually “organized and equipped to treat clients as a set of discrete, unrelated transactions over time-a series of ‘events’” and as a result, they “have little insight into what motivated the customer to buy their product or service in the first place and even less information about his or her needs and aspirations moving forward.”
Customer-centric companies, on the other hand, develop a “holistic and continuous view of each customer’s evolving life-cycle needs as he or she moves through marriage, home ownership, parenthood, and other transforming life experiences.”
Armed with knowledge of their customers, customer-centric companies don’t push products; they partner with their customers to help them solve their problems, often through customized products and services delivered through a relationship that contains and advisory component.
The historical perspective
Historically, banks have largely operated as product-centric enterprises except for their most important customers. There are a number of reasons for this.
For example, prior to digital disruption, banks were blessed with a high level of customer lock-in and could rely on their customers to come to them for all of their financial services needs.
Need a personal loan? Go to your primary bank. Need a mortgage? Go to your primary bank. Need a credit card? Go to your primary bank. And so on and so forth.
Today, however, digital disruption has fueled an unbundling trend in which more and more consumers don’t turn to their bank when they have a need for a new financial service. Instead, they shop around, many times finding that upstarts are offering solutions to their needs that are more attractive than those offered by their primary banks.
Take, for example, online lender SoFi. It originally launched to provide student loan refinancing to graduates of top American universities who earned degrees in fields like engineering, medicine and law. With this focus, SoFi was able to offer refinancing solutions tailored to the needs of these highly-desirable, high earning potential borrowers.
Thanks to its early success winning this customer segment over, SoFi has since expanded to offer other loan products, including personal loans and mortgages.
Competition from fintechs has made it clear: the game has changed and banks have to change if they want to win. In simplest terms, the change required of banks is that they transform themselves from product-centric to customer-centric organizations.
Change is afoot in banking
The good news for banks is that their customers are still looking to them to offer solutions for all of their financial needs. The bad news is that banks largely aren’t yet fully taking advantage of the opportunity.
According to research from CGI, despite the fact that 20% of bank customers are willing to go so far as to pay their banks to know them better, less than a quarter of the customers it surveyed felt that their banks understand their financial goals.
Banks themselves don’t dispute this perception. Of the national American banks CGI surveyed, just 17% indicated that they are offering “advanced personalization technology including 1-to-1 customer guidance within our digital applications.”
The majority of banks (54%) said they offer only “basic levels” of personalization, and nearly a third “currently offer little or no personalized services with [their] digital applications.”
Research from GfK highlights just where banks are falling short. For example, 70% of bank customers want to know the ways they can avoid penalties and fees, but less than a third say they’re getting it. And over half want tips to improve their financials but less than a quarter say this advice is being delivered.
There are, however, signs of change, as a growing number of banks are taking cues from challenger banks and revamping their web and mobile experiences to better meet the needs and expectations of consumers.
USAA says that “being able to dynamically render an experience that demonstrates to the member that we know them” is a centerpiece of its mobile banking strategy. Its personalization capabilities are based on an internal customer profile, customer transactions and, where available, data culled from social channels.
Ultimately, USAA wants to know its customers well enough to group them into segments such as “first-time homebuyer”, which will enable the bank to offer them the financial solutions they actually need instead of a long list of products the bank sells.
Like USAA, Michelle Moore, the head of digital banking at Bank of America, says that the second largest bank in the US is “taking a customer-first approach to innovation” that aims to “deliver new, personalized experiences that make it easier for customers to achieve their financial goals.”
To that end, last month, Bank of America unveiled an updated version of its mobile app with a new Goal-Setting Tool that enables customers to create savings goals, prioritize their funds and monitor progress.
Australia’s AMP is even further along. Its goals-based advice platform, Goals 360, uses artificial intelligence (AI) technology to make personalized “Amazon-like” recommendations to its customers, directing them to the products it offers that are aligned to their financial needs.
As Wade Matterson of actuarial firm Milliman, which helped develop AMP’s technology, explained:
“The data informs the algorithms which will then drive the right product solutions and put them into the hands of the right people at the right time. This is the real power of these calculation engines – the applications become almost unlimited.”
Bridging the gap
Of course, despite the fact that banks are increasingly moving in the right direction, surveys like those conducted by CGI and GfK indicate that banks still have a long way to go to complete their transformation to customer-centric businesses.
Technology investments are just a first step. Ultimately, banks will need to find ways to deliver their technological innovation through digital customer experiences that resonate with their customers.
The coming months and years will see the banks that are able to do this successfully leap over those that aren’t.