Major brands have quickly learned that consumers drive today’s business environment and that yesterday’s efforts to create a customer-centric operating model are out of date. Consumers have also evolved to want more, so product and service personalization has now taken center stage.
According to Dassault Systèmes and CITE Research, eighty-three percent of consumers expect products to be personalized and are willing to pay over twenty-five percent more for these personalized products.[i] This means that financial institutions are looking for new approaches to move their products toward more personalization that will, in turn, improve customer acquisition and retention. To nurture digital-native customers and bring more into their customer base, these institutions are turning to digital-first solutions and the cloud.
The demand for personalized, digital experiences
Gallup surveys indicate that the most satisfied banking customers are those that feel their financial institution values their wellbeing above all else.[ii] Increasingly, consumers expect their bank or credit union to demonstrate their commitment through action, providing a host of products and services designed to support individual financial goals.
The last decade has seen a rapid proliferation of third-party resources like these. Mint, for example, allows customers to track spending and plan for the future by pulling data from all their accounts into a single application. Customers can seamlessly see money as it enters and leaves. They can even take advantage of specialized tools that help them put the lid on spending and save for the future.
Since satisfaction with many third-party services is quite high, these specialized tools may have an easy entry into traditional financial products and services, should they decide to take it. To understand the impact on the market, we can look at digital-first banks.
A recent study conducted by YouGov found that 1 in 4 consumers had used a challenger bank (smaller retail banks that provide more intimate and innovative digital offerings) alongside or in place of their traditional bank.[iii] This trend is gaining momentum. For example, Bank Mobile, launched in 2015, amassed 1.8 million customer relationships by 2019.[iv] Likewise, Chime has grown to own more than 2 million account relationships, following a 2013 launch.[v]
Cloud-based new product development
While new digital products will help curb customer defection from traditional financial institutions, developing the type of top-tier offerings that consumers are willing to use is an arduous task. Development timeframes are lengthy, and forty percent of new products don’t catch on with customer demand, leaving the organization to cover the costs. To halt a potential mass exodus to digital-first natives, traditional financial institutions are prioritizing the acquisition of digital-first products and services, using the cloud as the avenue toward accelerated success.
The cloud supports bank and credit union software acquisition efforts by first transitioning the financial institution to an open core. The process is fast and seamless and provides financial institutions with a potentially endless array of products and services.
The versatility begins with the plug-and-play nature of application programming interfaces or APIs. APIs provide a secure, but open, digital layer on which third parties may build new digital-first products.
Platform providers ensure that each product is tested and vetted for use within the bank and credit union environment before releasing it to the industry. Then, once a financial institution is connected to the API, it can easily adapt any of the associated new products. Just as easily, financial institutions can unplug from any product that isn’t meeting the needs of customers or members.
This approach eliminates many of the risks associated with new product adoption by putting the financial institution into a “fail fast” mode. Should a product fail to engage consumers, banks and credit unions are free to “unplug” the product and start again on a new solution.
The freedom of failing fast offers strategic advantages to most of the respondents to Finastra’s cloud survey. Sixty percent cited speed of innovation as one of the top benefits of cloud adoption.[vi]
The future of customer-focused financial services is in the cloud
Innovation is an integral component of a financial institution’s personalization strategy. By taking advantage of cloud-based offerings, banks and credit unions can enter an ecosystem of features, tools, and integrations. In such an ecosystem, financial institutions can easily customize their product stack to the needs and want of their customer base, providing for a more personalized banking experience.
As consumer demands for personalized service continue to escalate, the cloud will pave the way toward a new ecosystem of banking partnerships, allowing financial institutions to continuously scale to meet the needs of customers and members.
For more details needed to discuss the decision to move to a new core to your leadership, download this playbook, written by Microsoft and Finastra. Also, for more information on the Microsoft Cloud for Financial Services and how it brings together capabilities with multilayered security and comprehensive compliance coverage to deliver differentiated customer experiences, improve employee collaboration and productivity, manage risk, and modernize core systems, visit Microsoft Cloud for Financial Services | Microsoft and sign up for the public preview.
i Jim Vinoski. “New Research Shows Consumers Already Expect Mass Personalization. Time to Get Ready!” Forbes, Jan. 20, 2020. Web.
ii Andrew Robertson and Julie Griffiths. “Bank Customers Need Personalized Financial Wellbeing Support.” Gallup, Nov. 21, 2019. Web.
iii Todd Dupey. “Can Tech Companies and Mobile-Only Banks Win Over Banking Customers?” YouGov, Jan. 21, 2020. Web.
iv Bill Streeter. “Eight Challenger Banks Traditional Institutions Should Worry About.” The Financial Brand, Feb. 5, 2019. Web.
v Bill Streeter. “Eight Challenger Banks Traditional Institutions Should Worry About.” The Financial Brand, Feb. 5, 2019. Web.
vi “Cloud Banking – Innovation Without Limits.” EFMA/Microsoft/KPMG/Finastra. Retrieved from https://www.finastra.com/sites/default/files/2019-10/market-insight_cloud-banking-innovation-without-limits-report.pdf.