Have Traditional Banks Lost The Human Touch?
For the past decade, bank branches in the US have been closing at a rate of about 3 per day. The Covid-19 pandemic has reduced teller interactions by about 40% this year so analysts are now predicting a tsunami of branch closures - possibly 20,000 more branch closures in the near future.
It’s logical that the traditional banks should take this course of action. Restrictions over social distancing and stay-at-home orders have made it difficult to keep branches operating as they normally would. But there is another change taking place and that is a consumer preference for online or mobile banking. Customers want the bank to come to them.
Most customers no longer feel that the branch experience is something desirable - in fact waiting in line to be served usually has the opposite effect. But in-person interactions in branches has been the focus for how traditional banks created a bond with their customers. Can they replace this experience?
They can try, but the reality in the 2020s is that financial technologies - better known as fintech - is changing the rules of the game. New banks can be launched with a focus on app-based services, no need for branches, no legacy of decades-old systems to be maintained. These new services can be entirely designed around what a 21st century banking customer needs.
It’s not just about the technology, it’s the attitude and focus on customer centricity.
Varo Money is a good example. Varo is the first US fintech to grow into a national bank. They just announced that they have saved their customers over $100 million in overdraft fees through their policy of not penalizing customers who temporarily dip into the red.
The Center for Responsible Lending has reported that the largest US banks took $11.7 billion in overdraft fees from the accounts of American consumers in 2019 - the report was even titled “Banks Must Stop Gouging Consumers During the COVID-19 Crisis.” This isn’t about banking on apps, it’s an entirely different approach - building a supportive relationship with customers rather than milking them for every cent.
Did the traditional banks ever have this approach? Their processes have been designed over decades of operation. You know what it’s like going to a bank and asking for an auto loan. Paperwork, process, and time. Explore the various fintech options and you will find the complete opposite. Often the traditional banks appear to be going out of their way to make fees and penalties a normal feature of the banking experience.
Chime is another great example of a different way to create and manage a banking service. The service is focused entirely on offering accounts that can be accessed using an app and debit card. There are no charges to the end customer - they generate revenue from interchange, which is the fee merchants pay when they accept a card payment. It’s a simple, easy to use, completely free service and it has become the most valuable US-based consumer-focused fintech company after a recent Series F round that injected $485 million into the business. Chime now has a valuation of about $14.5 billion and the company only launched 7 years ago - this valuation has increased by 900% in the past 18 months.
Chime recently launched their Credit Builder credit card. It’s a fantastically simple idea. You give the customer a credit card, but only allow them to spend on credit if they have the cash on deposit in a savings account - so the card issuer is guaranteed that the bill can be paid. It allows customers with a poor credit history to build a solid track record of responsibly using a credit card - why didn’t any of the traditional banks think of that?
Companies like Chime just get it. It’s not banking, it’s a consumer service. What are you offering that makes the life of your customers easier?
Traditional banks are going to struggle to compete with these rising fintechs because there is a new approach to the customer that focuses on the lifetime value of building a long-term relationship - not just pricing what you can earn from each loan or credit card transaction.
But the fintechs, like Chime and Varo, also need to think carefully about how their own customer experience (CX) strategy matches up with their customer-centric approach to designing services. If a customer hits the ‘chat’ button on the app and gets a bot that understands nothing or a human agent that’s just following a script then it will feel like the time that Toto the dog pulled back the green curtain revealing the Wizard of Oz to actually be a wizened old man.
Transcom has a similar attitude to the fintech approach. Build services around what the customer needs. Make customer-centricity the central focus when designing CX. Our US-based team is entirely work-from-home so we don’t need to hire people who live near a contact center - we can choose the best agents from anywhere.
Traditional banks need to revise how they continue to manage the human touch in a digital age, but even the fintechs need to think carefully. You can’t design a great app and then let the customer down right at the moment when they call for help.
Let me know what you think about CX in banking and how the fintechs can deliver on their promise to stay close to the customer. Leave a comment here or get in touch via my LinkedIn.