Can social media save banks from disruptive customer expectations?

The financial crisis of 2008 inflicted a serious blow to customer trust in financial services firms, and things haven’t exactly improved a great deal since. Scandals and large fines continue to make headlines and damage trust—for example, the Co-Operative Bank recently admitted to losing customers following revelations about its now-disgraced former chairman. While banks and financial institutions languish at the bottom of industry trust ratings, they are simultaneously being squeezed by increased regulatory costs and intense competition from outside their industry.

Disruptive companies like Paypal, Square, and a host of startups are redefining how financial transactions are handled, diminishing direct contact between banks and consumers. Others like Mint, Moven and Simple are attempting to take over the customer relationship, and using innovative experience design to meet customer expectations that are higher than ever. Traditional firms have found their influence over the customer experience waning as a result, even as more financial business is conducted on digital channels.

As we enter the age of extreme customer expectations, financial services firms no longer have the luxury of taking a “wait and see” approach. In days past, banks and insurers could take their customers for granted because it was too much hassle for customers to switch. But recent regulatory changes and technology improvements mean this is no longer the case—customers are more liable to switch than ever before. One experience disappointment, and customer lifetime value can plummet to zero faster than you can type 140 characters.  A recent study by Lithium and Millward Brown found that 38% of Twitter users feel more negative about a brand if their expectations aren’t met, and 60% will voice their dissatisfaction. That’s an online conversation you really don’t want to be having, and what’s more, disappointed customers can often take other customers with them on their journey out the door.

Financial services firms must accept that the customer journey has changed in fundamental ways. Eighty-nine percent of customers search the web before they buy and 67% search the web before making a service inquiry. With 95% of all customer interactions in retail banking expected to be digital by 2020, there’s no more skirting the fact that the primary location of the customer experience is now online and that the customer is in the driver’s seat. Banks that focus all their efforts on branch transformation, for example, are ignoring the fact that consumers will do the majority of their research online before they ever set foot in a branch to purchase a new product or service from an advisor.

Forward-thinking financial services firms recognise they must find a way to reclaim the customer experience and own the customer relationship while still providing a personal, humanised connection. Increasingly, they’re turning to digital and social channels to differentiate their customer experience. Nurturing these customer communities can scale quickly, provide relatively high interaction, and deliver “big data” insights on consumer behaviour, opinions, and needs.

Crowdsourcing

The best way for financial services firms to gain these insights is not on public social networks like Facebook and Twitter but on their own web properties. While public social networks can be an effective reach channel, they don’t allow the degree of management, control, and customisation that is required both to tailor customer experiences and to meet regulatory requirements in financial services. Creating truly unique social experiences for customers means they will identify with the brand and not, well, with Facebook. When you connect customers with each other, a vibrant customer community full of sharing and passion, and innovation follows. 

These communities are also a key element in crowdsourcing, a prime resource for garnering customer opinion and a place to develop and test new products. One example of a financial brand that has already used crowd-sourcing to form the basis of an innovative approach to social is Barclays, and they’ve done it in two unique ways:  the “Your Bank” initiative in the UK, and the Barclaycard Ring credit card in the US.

Recognising that rebuilding trust in a beleaguered industry was a top priority, Barclays launched “Your Bank” across the UK asking for advice from customers and potential customers on how to better “shape everyday banking for everyone.”  In another trust-building move, they also introduced the Barclaycard Ring credit card - essentially a crowdsourced product underpinned by an active community which has direct influence on decisions that affect them. The Ring card gives its customers a voice via a forum on its own website, shares profit and loss figures with the community each month, and lets the community decide what to do with their share of profits - like a virtual co-operative or credit union.

The results? Engaged members pay on time and don’t close accounts, customer retention improved 25% and complaints decreased 50%. Barclaycard claims a $10 million annual benefit from these and other customer experience initiatives.

We have far exceeded the point where merely having a social ‘presence’ is enough - we are now well and truly in the Age of Extreme Customer Expectations. With customers being more demanding than ever before, it is clear financial services companies need to address hitherto stale customer experiences with innovative social strategies that engage them where they want to be engaged - online. With the industry ripe for a fresh approach to social, companies have the perfect opportunity to steal a march on competitors that are still lagging behind. Those that move now stand to gain big. Those that stand still will fall by the wayside as customers vote with their feet.

Michael Schanker, VP of Strategy at Lithium Technologies.