Financial institutions can make customers more profitable by applying iPod, desktop Internet and store strategy to banking.
The runway success of Apple's iPod and iPhone retail strategy is the perfect example of what happens when industry innovators give people the power to simplify and personalize high-value content: millions of lucrative transactions.
My company's research, involving over 220,000 respondents, confirms that consumers and business owners want more control over their finances and embedded controls to manage personal financial content.
Banking technologies and platforms have historically focused on putting providers' needs first, but what I term "customer-driven architecture" seeks to differentiate financial providers by enabling (rather than fighting) customers' inherent desire for control.
My customer-driven architecture model has seven attributes: It is always on, in real time, transparent, customer-controlled, integrated, safe and goal-driven.
Looking at the elements in this sequence provides financial institutions and industry technologists with a framework to maximize customer benefit, thus leading to increased profits and business opportunities in a difficult economy.
- Always-on access to accounts will cause consumers, small-business owners and even corporate finance officers to increase touch points with their financial accounts. Six out of ten consumers log into online banking each week, and one out of five smart phone bankers has developed a habit of mobile banking. And with the generation-long migration from "banker's hours" to always-on access, the foundation is laid for consumers to value real-time account updates. Financial institutions with always-on connections will be first in line for account inquiries and fee-based services.
- Real-time access to financial information will work with always-on connections to give people unprecedented awareness of their financial condition. Debit cards have eroded market share from credit cards (and certainly checks) for years with Generation X and Y consumers, who put more value on real-time updates to their financial position and the sense of control they bring. Diversified financial institutions will find themselves pressed to implement real-time capabilities for all business lines, particularly within the payment, consumer deposit, cash management and investment sectors.
- Customers with mobile always-on connections will reap maximum benefit from the transparency that comes from simple and intuitive transaction records. Consumers who frequently monitor their accounts will have no patience for confusing notations assigned to merchant names or service charges, leading to more service texts, e-mails, calls or even the unwanted branch visit. Transparency represents the need for a fundamental change in finance industry philosophy. To embrace the societal shift in expectations of control and personal entitlement, allow account holders to manage their personal affairs, and in turn enjoy the Apple-like record increases in revenue.
- The centerpiece of customer-driven architecture requires that control be ceded back to the customer, particularly with emerging population groups. The genius of the iPod and mobile music is how complexity is tamed by technology, allowing the consumption of more content and choices (and ultimately transaction fees) effortlessly. Embedded controls are completely applicable to financial alerts, as well as user-defined limits and prohibitions. Customers can sign up for electronic alerts and limits through a mobile device and can select customization choices online. As customers receive and filter their alerts, the bank's back-end systems can increase transaction volume by becoming the customers' personal financial assistant.
- Consumers and small businesses will not be able to resist the benefits of managing more accounts (deposits, cards, investments) and using more options (alerts, limits, paper turn off, automatic payments or transfers) through a single set of integrated controls. Expedited payments will take on more value for both provider and consumer and will encourage billers to rely more heavily on banks as their primary payment provider, thus driving consumer and corporate benefits. Branches will not be the "everyday" transaction centers of the future, but as with Apple Stores, physical locations will play a role in showcasing high-value upgrades and new services. Financial institutions will provide their clients an all-inclusive solution for content access and management.
Want to dramatically reduce fraud while improving the customer's peace of mind? Aim for zero fraud with the customer-driven architecture. Security offerings such as fee-based and fully integrated identity safety products (credit monitoring, fraud alerts and even anti-virus features) not only make sense as part of a banker's suite of offerings, but they also give account holders another reason to log in frequently. These offerings will also have higher renewal levels if they are acquired from the customer's primary payment provider.Security alerts, consolidated accounts with a primary financial institution and interactive messaging between financial institutions and customers will pave the way for increased security and confidence. The customer-driven architecture puts the control in the hands of the customer, allowing for the fluid setting of limits that reflect their actual habits and thus building a much more robust and accurate profile. Since half of all identity-related frauds are uncovered by consumers, and self-detection results in faster average detection times, identity fraud will plummet as the customer is allowed to think — and finally act — for themselves, saving billions in loss and mitigation expenses.
- As consumers increasingly rely on cards over checks and electronic monitoring, they crave both instantaneous and long-term financial assistance. What consumer or small business would not want targeted, personalized updates on their finances, with a no-nonsense ability to tailor future notifications and transactions for overarching goals (from a first mortgage to college or retirement) without having to sign up for the burdensome, time-consuming personal financial management technology? With a consolidated "dashboard" of activities and increased awareness of their financial picture, consumers will be better equipped to manage their finances and realize their goals. Financial guidance will help consumers focus on their needs.
Banking executives can revolutionize customer rewards by following Apple's multichannel retail strategy and revolutionize the industry. Customers will respond with loyalty and adoption of a multitude of revenue-based products and services.Customer-driven architecture follows the revolutionary premise that individuals will choose products, channels and providers that put them most squarely in control of their money, thus providing financial control just when they need it most.