Digital banking: customer demands are rising – and so are the costs


Author: Jan Tissler

When it comes to complex banking services such as advisory and financing services, financial institutions are faced with a dilemma: not only is cost pressure increasing, but customer demands are also on the rise. Current studies give indications of possible ways out.

Amazon, Uber, Apple and other tech companies are specialists in making their offerings as simple as possible for users. The complexity behind the scenes of their websites and apps is not visible to the outside world. At the same time, they are constantly working to improve their processes to stay one or two steps ahead of their competitors.

When customers use digital banking services, they now expect a similarly comprehensive and seamless experience as with other online services. This applies not only to the occasional glance at their bank account, but also to extensive transactions such as construction financing. After all, for most people, owning a home is the biggest expense of their lives. Accordingly, they are particularly demanding and choosy when looking for the right partner to see them through.

This may seem unfair to bank managers, because they have a greater responsibility and need to follow many more rules, laws, and regulations than Amazon does when placing an order. But nothing can be done to tame this expectation.

PwC reached the same conclusion in its latest "Home Lending Experience Radar":

The question is no longer “Whether” customers want digital tools. It is now a question of “When,” “Why,” and “How” they want to use these tools.

Customer experience as the crux

And the status quo does not look good: According to a US study by McKinsey & Company, only 42 to 48 percent of surveyed customers gave their bank a good score when it came to construction financing. For non-banks, it was 52 to 67 percent. This leaves "plenty of room for improvement", as McKinsey diplomatically puts it.

The good news is that if the customer experience works and the bank earns a good reputation as a result, prices play a less decisive role in the comparison. This is also described by McKinsey in its study "Competing on Customer Experience in US Mortgage", according to which a particularly good customer experience is considered just as important as the best possible conditions; In fact, depending on the group surveyed, it can even be rated higher.

The potential here is enormous: more and more customers can imagine taking out a mortgage using purely digital means. According to the Boston Consulting Group in its "US Mortgage Industry White Paper", these customers account for up to 80 percent.

The costs often spring up in the back office

Financial institutions have already reacted to this development in recent years, with changes often affecting the visible front-end. Financial calculators, for example, help to make a first impression. There are also digital ways to make appointments or view the status of one's application.

This is good, but not enough. As various studies show, the problems often arise in the back office. From the customer's point of view, it then takes too long to get a response to a financing application. And from the banks' point of view, the costs per application are simply too high.

In general, the cost pressure for banks has noticeably increased. On the one hand, margins are shrinking due to increasing competition. Prospective customers can quickly research offers online, and often present themselves at the consultation armed with the results of an online comparison. On the other hand, the market is now spread across a greater number of providers than before: non-banks have been able to secure a bigger piece of the pie in recent years, for example in the USA: According to McKinsey, their share has risen from 25 to 50 percent in the last 10 years.

At the same time, the costs per application are rising. In the area of construction financing, 70% of these increases are due to staff expenses, according to the Boston Consulting Group. This doesn’t come as a surprise, because a construction financing application requires many manual steps.

This complexity is owing, among other things, to the large number of documents that need to be submitted and processed. In addition, we have communication between advisors of the financial institution on one hand, and prospective customers and clients on the other: This often occurs using the most diverse channels – from phone to email and text messages to personal conversations.

The studies agree: better and smarter tools are needed to relieve advisors and give prospects a better experience – from first contact to closing.

In a second article, we will show how the customer experience can be improved while at the same time improving efficiency in the back office.

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