Customer engagement
Customer engagement is an ongoing relationship-building process through value-driven interactions, whereas customer experience relates to the momentary emotional, physical, and psychological connection with a brand. While both are important, many industry experts argue that customer engagement is crucial for long-term success. It can lead to increased customer loyalty, brand advocacy, revenue growth, and a lessening of price sensitivity. But creating customer engagement faces challenges due to poor cross-functional collaboration, siloed data, and talent scarcity. Strategies to build stronger customer engagement include personalization, customer education, multi-channel delivery, and reward programs. These strategies can be enhanced by AI tools like ChatGPT that can improve customer engagement by answering common queries, providing information, and creating personalized communication and interactive tools.
Banking/fintech trends
Reports from the Money 20/20 event in Amsterdam highlighted key trends and challenges in the financial sector including embedded finance, open banking, payments, banking-as-a-service (BaaS), B2B tech solutions, and a particular focus on generative AI. In contrast, crypto, blockchain applications, and B2C tech solutions were less visible. Economic uncertainty and reduced venture capital availability also underpinned conversations, with many companies looking to form partnerships and collaborations or find funding for yet-to-scale solutions. An emphasis on leveraging data to understand customer behavior and personalize services, and the use of AI – though still in its infancy in banking – was broadly discussed. Another significant trend was the shift towards B2B solutions and away from customer-facing ones due to scale and revenue concerns. Embedded finance and BaaS solutions were identified as key ways for banks to innovate and meet evolving customer expectations. Lastly, the event highlighted the need for fintechs to differentiate themselves and communicate their unique value propositions effectively.
Artificial Intelligence
Generative artificial intelligence holds considerable potential for the marketing efforts of financial institutions by creating personalized, human-like communications at scale. One adoption path for generative AI would be to follow a crawl, walk, run strategy to ensure successful integration. In the crawl phase, financial institutions should experiment with AI on a small scale, using tools like personalization engines or AI chatbots. The walk phase involves integrating generative AI into existing systems and workflows, such as using AI to generate marketing reports or design strategies based on customer segmentation. The run phase denotes the full adoption and expansion of generative AI, using it to design customer journeys or create new financial products based on customer data. This phased approach enables institutions to leverage the benefits of generative AI while minimizing risks and maintaining value at each stage.
Fintech partnerships
Cross River Bank has been found guilty of violating fair lending laws and regulations by the FDIC, and the bank will now require FDIC approval for all new third-party relationships and credit products. This ruling will impact all of Cross River’s more than 80 fintech partnerships, which include Coinbase, Upgrade, Affirm, Best Egg, Divvy, Rocket Loans, and Stripe. The bank maintains that its growth won’t be significantly affected, as many of the required improvements have already been made. Banking-as-a-Service (BaaS) relationships such as theirs are seen as beneficial partnerships, providing new revenue streams for banks while offering fintech companies the infrastructure and regulatory compliance they need. Cornerstone Advisors predicts that by 2026, BaaS will be a $25 billion industry, with 300 banks offering these services in the US. To navigate compliance risks and avoid Cross River’s issues, banks are advised to learn the regulatory requirements, conduct due diligence on potential fintech partners, establish a robust compliance program, regularly monitor compliance, and stay updated on regulatory changes.
Customer experience
Former Barclays CEO Antony Jenkins has criticized traditional banks for their failure to embrace genuine digital transformation and characterizes them as “museums of technology” harboring outdated software and hardware. His comments accompany a study involving over 300 participants from banks across eight markets. The research indicates that banks are losing a significant number of customers to competitors due to poor customer experience. Approximately 12% of banking leaders stated they have lost 30-40% of their customers, with overall customer attrition rates at 20%. Jenkins argues that the banking industry has focused too much on products instead of customer needs. About 64% of senior decision-makers in banks acknowledged that their slow pace of digital transformation has resulted in missed opportunities to gain new customers.
Artificial intelligence
Mercedes is teaming up with Microsoft to integrate ChatGPT with its MBUX Voice Assistant in more than 900,000 vehicles. The carmaker will begin beta testing the integration starting June 16. Drivers can join the beta program directly from their cars using a voice command. The move is aimed at enhancing the natural language understanding of Mercedes’ voice assistant and expanding its response capacity. This development follows a collaboration announced earlier this year between Mercedes and Google to offer drivers access to Google’s Place Details function. Mercedes is not the only carmaker looking into generative AI, as General Motors is also reportedly exploring the use of ChatGPT in its vehicles. As generative technology use starts to grow in other industries, customers will quickly come to expect those capabilities across all their relationships. Including financial services . . .
Customer experience
The global digital banking market is expected to exceed $10.3 trillion by 2028. Traditional banking institutions, often hampered by legacy systems, are being outpaced by larger banks and neobanks that have invested heavily in their digital experiences. To profit from digital banking, financial institutions must prioritize user experience by providing easy-to-use tools and features and focusing on marketing strategies, not just tech upgrades. This includes providing financial education, delivering personalized messages, deepening brand experience, ensuring top-quality user experience, and leveraging data effectively. By doing so, banks can transform their digital investments into profitable sales and service channels. Those who do not risk falling behind in the rapidly evolving digital banking landscape.
ESG
Commercial banks can play a crucial role in accelerating the transition to a low-carbon economy by focusing on the companies they finance. To achieve this, they can follow three steps. First, banks need to prioritize due diligence and data analysis, including assessing the carbon footprint of their clients and their entire operations. This process can be streamlined using cloud technologies. Second, they should evaluate the business impact and risks associated with their emissions targets. This might involve rebalancing lending strategies and using scenario modeling to assess potential business outcomes. They can also incentivize clients to adopt sustainable initiatives. Third, banks need to monitor and report progress using real-time data. They should anticipate potential shifts in disclosure requirements due to evolving global regulations. Cloud technologies can automate this process, reducing the risk of data quality issues. By setting clear goals, assessing risks, and regularly tracking progress, banks can harness data to support their strategies for emission reduction.
