Three Reasons Legacy Banks Need Customer-Facing Tech Now

Digital solutions aren’t new to the banking world but some see them as a nice addition, not a critical element. Now, neobanks and other challengers are giving to banks in addition to the massive shifts we've seen mean that legacy banks need to adapt or see their customer base dwindle. Here I will discuss why legacy banks need to digitize their customer-facing processes now to survive and thrive, augmenting their strong interpersonal relationships with customers. 

The Urgency of Learning From Neobanks

When customers are interacting with banks, they’re comparing them to a slew of other consumer services they interact with on a daily basis. Those services are overwhelmingly seamless, digitized, and frequently even delightful. Unfortunately, they can’t say the same about many of their banking processes.

Here are three reasons why traditional banks should learn from neobanks and start adopting customer-facing technology. 

Retain Existing Customers (and Win Over New Ones)

The digital divide between what customers expect and what traditional banks offer has real consequences. Legacy banks that continue to rely on cumbersome processes with multiple touchpoints will not go unpunished by today’s demanding customers. 

Customers who fail encounter obstacles during banking transactions aren’t shrugging their shoulders in resignation: they’re making moves that actively hurt your bottom line:

According to Medallia research, after a negative experience with their bank:

Eight out of ten customers take some kind of action: 35% tell friends, family, or colleagues, 30% complain in person, and 16% reduce their use of the company. 

One in seven switch to a competitor. 

Many banking customers will continue to maintain a checking account with their primary bank — regardless of how happy they are with their experience — either due to perceptions of safety in having a traditional primary bank or simple inertia. This reality can create a misleading impression of good customer retention when in fact, customers are shopping around for mortgages, loans, and money transfer services at digital-first banks or specialist non-banks. 

By adopting digital frontend technology, legacy banks can stay competitive with fintechs and neobanks.

Take Digital Transformation to the Next Level

Most legacy banks have an app and website, but these channels often don’t offer the same full breadth of service as a branch. Not so with neobanks, for whom digital transformation is their raison d’etre. Instead of squandering budgets on high overhead due to paperwork, they’re putting money into making their customers’ lives simpler, not harder. In many ways, they are the banking equivalent of Amazon (or any one of the most loved brands out there). 

Here are just a couple of ways fintechs are attracting customers (legacy banks can feel free to borrow ideas):

Online mortgage lenders allow customers to go through the entire mortgage application process without ever setting foot in a physical location or filling out paperwork. Customer service and expert advice is just a phone call away, 24 hours a day, seven days a week (example: Rocket Mortgage). 

App-based financial management platforms put technology at the heart of everything they do. They boast an easy and intuitive interface, zero hidden fees, the ability to transfer money globally with minimal fees and no hassle, and handle everything at the touch of a button. Banking is actually made fun (example: Revolut). 

Contactless payment systems enable customers to make smart and fast payments with their phones. No credit cards required (example: Apple Pay).

When you consider that consumers are already glued to their mobile phones, it’s no wonder that these fintech solutions are a natural and appealing alternative to the heavy processes traditional banks are peddling. 

Conquer the Hearts of the Younger Generations

Generation Z customers put a premium on mobile banking, but just aren’t getting it. Generation Z, typically defined as the cohort of adults born after 1997, compose nearly 40% of U.S. consumers, and a quarter of the U.S. population. They represent $44 billion in buying power, thus presenting an enormous opportunity for brands who succeed in winning them over. 

Who are these young adults that are taking the economy by storm? While Millennials grew up during the transition to the digital era, most of Generation Z came of age when smartphones were already in the pockets of every American. Digital is their default. And anything else is just a strange and alienating intrusion on their instant, one-click-and-done world. 

But are banks succeeding in winning over this crucial generation? The survey showed that traditional banking is leaving Generation Z cold. While banks are aware that the younger generation is more digital than ever, a full, satisfying digital transformation has yet to be enacted. By forcing them to deal with banking matters offline, banks are dragging them outside their comfort zone. Ironically, digital convenience is even less available to Generation Z — despite the fact that they place a very high premium on it. 

For Gen Z interacting online, 64% have been asked to print and sign paper forms (interestingly, this is two to three times the rate of other age groups). Another 73% have been told to visit a physical branch.

Given that 82% of Gen Z would move to a different institution if it offered superior digital services, it’s worth keeping up with this cohort’s needs. They may not hold much financial clout today, but they certainly will in the near future.

The Bottom Line: Go Digital or Get Left Behind

To ensure continued customer loyalty, enact a true digital transformation, and win over Generation Z, legacy banks will want to learn as much as possible from neobanks. That means establishing the centrality of online channels rather than relying on branches. And it means servicing customers with end-to-end technology, from the initiation of a task to eForms to eSignatures, rather than one-off capabilities. 

Legacy banks needn’t become neobanks; they simply need to learn from them to offer their customers the best of both worlds: complete digital journeys and the reliability engendered by traditional financial institutions.

Benzinga's Related Links:

• A Beginner's Guide to Online Banking in 2021 • Benzinga
• 7 Best Banks in the United States for 2021 • Benzinga

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