Digital banking: customer expectations are rising - as are costs

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 expectations are also rising. Current studies point to possible ways out.

Amazon, Uber, Apple and other tech companies are specialists in making their services 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 in order 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. They are correspondingly demanding and selective when looking for the right partner for this.

This may seem unfair to bank managers, as they bear greater responsibility and have to follow more rules, laws and regulations than Amazon when placing an order. But this expectation cannot be changed.

PwC also comes to this conclusion in its latest "Home Lending Experience Radar":

"The question is no longer whether customers want digital tools. It's now a question of when, why and how they want to use them."

Customer experience as a sticking point

And the status quo doesn't exactly look good: According to a US study by McKinsey & Company, only 42 to 48 percent of customers surveyed gave their bank good marks when it came to home loans. For non-banks, the figure was 52 to 67 percent. This leaves "plenty of room for improvement", as McKinsey puts it diplomatically.

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. McKinsey also describes this in the study "Competing on Customer Experience in US Mortgage". According to the study, a particularly good customer experience is considered just as important as the best possible conditions - depending on the group surveyed, it is even rated higher.

The potential is enormous: more and more customers can imagine taking out a mortgage purely digitally. According to the Boston Consulting Group's "US Mortgage Industry White Paper", this figure is 80 percent.

The costs often arise in the back office

Financial institutions have already reacted to this development in recent years. The changes here often affect the front end visible to customers. Financial calculators, for example, help to get a first impression. There are digital ways to make appointments or view the status of the application.

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

In general, the cost pressure for banks has increased noticeably. On the one hand, margins are shrinking due to increasing competition. Prospective customers can quickly research offers online and it is not uncommon for them to come to a consultation with the results of an online comparison. Secondly, the market is spread across more providers than before: non-banks have been able to secure a larger slice of the pie in recent years. Take the USA, for example: 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. According to the Boston Consulting Group, 70% of these increases in construction financing are due to personnel expenses. No wonder, because a mortgage application requires many manual steps.

This complexity arises, among other things, from the large number of documents that have to be submitted and processed. Added to this is the communication between the financial institution's advisors on the one hand and interested parties and customers on the other: this often takes place via a wide variety of channels - from telephone to email and text messages to face-to-face meetings.

The studies are unanimous: better and smarter tools are needed to relieve the burden on advisors and give prospective customers a better experience - from the first contact to the conclusion of the contract.

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