Customer Experience (CX) in financial services, especially in banks, is stagnating. Nobody is getting closer to the customer and nobody is delivering what customers want. That’s the belief of Forrester Research and they reached that conclusion after analyzing dozens of banks in the U.S. market.

Forrester also found that you don’t need to make customers happy to create a sense of loyalty, you just need to make the customer feel appreciated, respected, and valued. This has a greater impact on customer loyalty than any other emotion.

But every bank in the U.S. market has been commissioning digital transformation and other projects all aimed at improving the customer experience. How come the customer isn’t noticing all that CX investment?

McKinsey believes that they have some of the answers. A combination of regulation, fickle customer loyalties, and a wave of non-traditional competitors has created a banking environment where it’s extremely difficult to deliver exactly what every customer demands. McKinsey believes that 75% of the top 50 banks globally are in the process of transforming their customer experience.

But as financial services companies scramble to improve their service, there is a wave of new competitors in the market. A decade ago a bank would only ever need to worry about competition from other banks, today the global growth of Financial Technologies (FinTech) means that there are new competitors emerging all the time.

Some are offering a full suite of banking and financial services, some are just focused on a single service such as payments or loans, but most importantly these new competitors are being designed from scratch. There is no legacy. They are built entirely around the needs of the customer. Try asking your bank to transfer some cash to an account in another country in another currency and then compare their service to the ease of using a tool like Transferwise.

Even the way financial services and banks are regulated is changing rapidly. There was a time when the regulator was mainly interested in credit risk and capital requirements. Now they are monitoring customer complaints and customer service experiences because so many banks have a record of misselling inappropriate financial products.

For the banks, this is a perfect storm. The regulator is watching closer than ever, new competitors are emerging from all over the world, and customer expectations are changing faster than the ability of most to adapt. What can they do?

The first step is to consider these three questions:

1. If we could start again, like the new competitors, would our service look different?

2. Which new tools and technologies could help us improve our service to customers and which are just noise — just fashionable tech that will cost a lot?

3. How do we move fast — should we build new services, partner, or acquire?

The answer to question one will almost certainly be yes. Most banks have a legacy of branches and technology that goes back for decades or more. However, these new rivals will not pause to give you time to formulate a new strategy, so explore exactly what they are doing, and don’t focus only on the U.S. New market entrants such as Monzo and N26 are completely digital banks from Europe with an eye on U.S. customers.

Question two really requires a focus on the data you already have. You have so much data on your customers, but are you turning data into information and insight? Remember the comment from Forrester — your customer wants to feel appreciated and respected. Can you use data analytics and Artificial Intelligence (AI) to start analyzing customer spending patterns in a way that helps them to reach their personal financial goals? Show you care for their financial future.

Question three is really regarding operational strategy. You can’t beat the fintechs on service — they are building brand new solutions that are entirely customer-centric. So, can you build similar services or partner with one of them to improve a specific service — small loans or foreign exchange, for example? Can you acquire a company offering a great digital service and fold their service into your own portfolio?

The most immediate area that banks can explore is the use of AI to generate insight into customer behavior and spending. There are a number of different ways that this insight can immediately impact the bottom line. AI can highlight customers that the bank is at risk of losing, with predictions based on past behavior. Upsell and cross-sell opportunities can also be highlighted; for example, a customer with a consistently high balance in their checking account can be informed about alternative products. More importantly, the bank can improve its service by helping customers to achieve their financial goals. A customer may want an alert if they are spending too much this month in restaurants — think about how to help the customer manage their finances rather than just operating an account.

I’m going to explore some of these ideas around AI, automation, and data analytics in my next few articles, but if you have any comments on this introduction then please leave a comment here or get in touch via my LinkedIn.