Episode 61
Bruno Pešec, a business consultant, compared the most significant obstructions traditional banks face on the journey of digitalization. In the full episode. he talked in detail about the common causes for digital dropouts, the emphasis on psychological safety, and why traditional banks have lower customer satisfaction than their digital rivals. This article focuses on the paradox Bruno has identified, as well as the two most popular mistakes made by legacy banks when competing with digital challengers.
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Episode 61
Episode Summary
The paradox.
Although legacy banks offer more customer support services, challenger and neo banks are perceived to be more customer-friendly due to the way they communicate with their customers. Legacy banks present their services in an archaic language and through difficult pathways, causing customers to feel lost and clueless on the several services they could get. Meanwhile, digital banks have a more direct way of communicating, which makes customers feel like they are getting more value. In this case, perception is everything and can outweigh the number of services available to customers.
Digitalization: inside out or outside in?
Another mistake legacy banks make when investing in technology is focusing on what digital challengers are using and not how on they are working. Most of the time, challenger banks are successful due to the way they use technology, not only because they use the newest tools, which is where traditional banks are mistaken. Moreover, according to Bruno, every institution should start from their goal, to then identify key services and start digitalizing. Contrary to popular belief, the transformation needs to start from the outside, meaning from the customer-facing steps, and then move to the inside of the organization. This way customers are not left waiting until the internal transformation is complete, and their satisfaction levels can immediately increase.
Capturing and using data effectively.
The common issue legacy banks are facing is a digital dropout, and according to Bruno, it has to do with data and accessing the right data. Most legacy banks are not even aware that digital dropout exists because they are not measuring those metrics, and even when they are aware, they are usually not monitoring and using that data effectively. Instead, neo banks have a modern approach to conversion which allows them to monitor the entire customer journey and understand where those dropouts are coming from.
Listen to the full episode to get more insights and real-life examples on how legacy banks can compete with digital challengers.
This article summarises podcast episode 61”How Can Traditional Banks Compete With Digital Challengers" recorded by CX Insider. For more information, listen to the episode or contact our residential banking expert Alex Themistos.
Written by Alessia Trabucco
Full episode transcript
Bruno: When you start looking at the challenger banks and neo banks because they started from zero, they could pick what infrastructure to build and most of them have picked not to have large support centers, for example, for customers. They decided to deploy technology instead of in order to scale their service. What do I mean by that? Different chatbots, different online chat functionality. There is a human at the end, but there are not three thousand people in the call center. There might be one person responding to multiple queries and giving, let's say, the same perceived level of service as the legacy banks that have large call centers.
Valentina: Hello, everybody, and welcome to the first episode of CX Insider in 2022. I hope you all had a lovely Christmas time and celebrated the New Year properly. Today's episode brings comparisons of traditional and challenger banks in terms of delivering a great customer experience. So, enjoy the episode, and don't forget to subscribe to the podcast on your preferred channel.
Bruno Besets, born in Croatia, based in Norway, is a business consultant and certainly an expert on business innovation. We invited Bruno to our podcast to talk about a common perception across countries, and that is that digital banks have higher customer satisfaction than traditional banks. So we asked Bruno why and what he thinks traditional banks could do about it. But firstly, who is Bruno?
Bruno: So, in terms of my professional journey, I always like to say that I'm one of those lucky people who know from an early age what I want to do and from a very early age. I actually didn't know what I want to do, but I knew I was very curious, and I always pursued my interests. And what that led me is basically as a kid, I started studying robotics, aeronautical, engineering, then starting as an engineer and I was always following my interest. And then what happened? I started my career in the defense industry and I was working on some very revolutionary products, and one of them actually failed miserably, not because of technical difficulties, but because of marketing, sales, and lack of understanding of what the customer will be willing to pay for. Because technically it was absolutely the best product in class. It was, in fact, so good. No one believed us. So, we actually had to convince customers that this is real. And then from then, I had this realization that was an aha moment for me. That innovation isn't just about technical side product development, but it's also about human side understanding. What do we value in life? How do we talk about things and so on? And what happened from then on? I traveled the world. I worked in many different industries, including the financial sector, which I guess will be the topic today. And I managed again, I say a lucky person experience a lot of different industries, a lot of different people, different places of work and a lot of successes and failures as well. But as they say, you know, smart people learn from mistakes. Wise people learn from the mistakes of others. I cannot say I've always been wise
Valentina: Considering the massive shift to the digital space. It is evident that digital banks are gaining momentum. But the question is what are the underlying reasons for lower customer satisfaction rates in traditional banking? And what do challenger banks do differently?
Bruno: So, we have to remember that financial institutions are, in most cases, cornerstones of stability and especially economic stability in every country. So, they do have a lot of expectations on them, from regulations, from the government, from customers as well. So, what the legacy banks have taken in their approach is to protect ourselves first and then, you know, deliver value to customers. It's not that they were deliberately ignoring the customer, but they were primarily concerned with self-protection. And you can see that from the way they communicate, from the way they explain the products, from the way you know, if you go to a private banker or even a corporate banker and you ask them anything, it will always be, I am not allowed to advise you as a financial advisor, but this is what I can say and then make you make up your own mind. What also happened was in order to improve their operations, legacy banks did sacrifice customer experience by a large margin, and you can see that in the type of support they provide. Now, this is where the paradox starts to happen when you start looking at the challenger banks and neo banks because they started from zero. They could pick what infrastructure to build, and most of them have picked not to have large support centers, for example, for customers. They decided to deploy technology instead in order to scale their service.
Bruno: What do I mean by that? Different chatbots, different online chat functionality. There is a human at the end, but there are not three thousand people in the call center. There might be one person responding to multiple queries and giving, let's say, the same perceived level of service as the legacy banks that have large call centers. And no, I don't want to spend too much time going into the inhumanity of some call centers. That's a topic in itself. But why did I call it the paradox? Because when legacy banks look at their level of customer service, they don't understand why our challenger banks are perceived as more customer-friendly when in fact they offer less customer support than legacy banks. Because in the legacy bank, you can go to a branch, you can call a person, you can have a private banker, you can have a corporate banker. There are so many venues you can get through, but you as a customer, don't actually know that because of the way they communicate and present. All of that in archaic language and in difficult pathways while in the neo banks challenger banks, because they have only one approach and they're following that approach, the customer feels that he's getting much more value and that he has this availability. And is this perception that is so different and that's why I call it a paradox.
Valentina: Bruno also mentioned why traditional banks often cannot innovate as well and as fast as their digital rivals.
Bruno: Legacy banks do have the legacy infrastructure, which is usually very expensive, but also what people often forget when they say, Hey, just go and copy a neo bank or challenge your bank. It involves a lot of humans. So a legacy bank does have I don't want to say, excessive, please, because I think that that's very ugly wording. But the thing is, they might have a lot of workforces that is doing a task that can be automated. So then there is a moral and ethical responsibility to find new work, new opportunity for those people to create value. And sometimes legacy banks just find it easier to remain inefficient and not deal with that issue. But ultimately, it is the customer experience that suffers, which then again reflects on the bottom line. So it's a no win situation.
Valentina: Unfortunately, with all these obstructions, how good traditional banks innovate while having the customer in mind, every
Bruno: Institution is a bit like a bank or a challenging brick. They should always start from the goal, from the outcome when investing in technology. So, if we want a better customer experience, let's have that as a starting point. A common mistake, especially for Legacy Bank, is seeing one of these neo banks and saying, Well, that's a cool piece of technology. That's why they're successful. Let's go and buy it. That's not true. They're successful because of the way they use technology and of the way they integrated technology in their business. So again, the big differentiator between challenger banks and legacy banks is the challenger. Banks don't have the infrastructure. They compile new infrastructure from the twenty-first century. So, a legacy bank cannot ignore their own infrastructure and say, Hey, let's just buy new shiny technology and pretend that we have a completely new customer experience, completely new customer journeys, etc. What's a much more pragmatic and prudent approach is to realize, OK, these are the critical processes. These are critical customer relationships, and let's start digitizing, not from inside out, but from outside in. Let's start with the customer-facing step. Are they getting letters? How can you replace letters, for example, in-app communication and digital communication? Then we can start flowing slowly inside. Do we have a person that's literally physically carrying a letter from one side of the building to the other? How can we digitize because the opposite is usually the approach? Ok, let's figure out the internals and then the customer. So what? You're going to wait five years until your transformation is done. The customer is going to suffer for five years. So that is always my advice to any bank is, you know, look at the outcome and then pick the technology, don't pick cool technology first and then figure out how to use it because banks have a little bit of a problem. They have a lot of money so they can go on the shopping spree relatively early. And if they are too trigger-happy, they might end up with a bunch of I.T. systems that aren't used. They don't talk to each other and cost a lot to maintain year to year.
Valentina: One specific challenge banks face in the digital dropout. The processes get complicated, stressful and people abandon their application and have a negative experience. What could do banks do about it?
Bruno: So, what we're talking here about is data and access to data. Legacy banks do not recognize in most cases, that this dropout even exists because they are not thinking about measuring such things because in their opinion, and now I'm talking from the experience of four different European countries. In most of them, the way to become the customer is either download the form and if you're lucky, there's an email to send it to or download the form because that's their digital level. Fill it out and deliver it to a physical branch so they don't really consider you downloading a form and never showing up is any type of dropout while they really should. And the benefit here or the enjoy benefit from challenger banks that have fully digital onboarding and signing up is that they can actually see and feel this digital dropout. So we really are talking about two different problems for Legacy Bank. First, they're not even aware that they are losing customers in that channel. And then second, even when they are, they are usually not monitoring or measuring that data effectively while in neo banks. Because they have that, they understand the, let's say, modern approach to conversion. So you have had a full customer journey and they're able to recognize when they're dropping out. And again, any legacy bank can go. I'm an employee of a legacy bank can go and check Revolut, TransferWise, N26.
It's easy to check that you can see, you fill out forms online, you put in your data, KYC happens, the person can get their card functioning within minutes, sometimes not, not days. For example, in a Nordic financial institution, you sign up, first, you need to sign up for signup, then you get the date. If you're lucky next week when you can show up in one of the branches because they have been closing branches for the last five years. So good luck having it in your neighborhood. Then you finally show up there. You're giving your paperwork, you're like, 'Here it is'. If you're lucky, everything is there. And then if you're lucky again in two weeks, you will get the letter telling you that you will get the letter with the card. And unfortunately, that isn't a rare case. So if you travel to Europe, I mean, I'm focusing in our call, mostly on European institutions, but it's not very different across the world. So if you travel to Europe, unfortunately, this story will be repeating itself over and over and over again. So we are talking about digital dropouts. While the reality is that half of the companies aren't even aware of any dropout rates. So the first step, you know, start measuring it, and then we can start actually doing improvements.
Valentina: Speaking of which, Bruno also mentioned a Real-Life example and explained how they tackled the situation.
Bruno: Financial institution-specific type of a mortgage, the institution has been on a digitalization journey for some years now, almost actually a decade, which means that there were different I.T. systems so the customer didn't realize it. But on the bank side, the customer would actually go to three different systems. So even though to the customer, it felt like they're actually on the same website all the time, they, in reality, weren't in the back end. It was basically a patchwork of different, different digital solutions. Why am I giving you these technical details? Well, because on the customer side, the customer did not understand why do they need to type in the same private data in the same process? Several times it confused them, while on the bank side, the people actually approving mortgages were blind to the customer journey because it was a patchwork of several different Type kit solutions. They didn't know where the customer drops off. So what we did is, well, let's leverage all these customer call centers. Let's leverage the old-school approach, so let's actually call the people and be on the phone with them while they're working through these forms. And let's see what is actually happening. And that was really, really easy, I would say, or really simple, maybe simple is better than easy. So imagine a bank person, I'm going to call it a Bindman bank person sitting together with a call operator.
And then they're on the call with the customer filling out the mortgage application process, and they're literally helping them out and seeing how do they fill out the form and what they learned was after what was it? Around 15 calls. What they learned was that a lot of people will drop out after filling out all the forms. And what was even more valuable is they learned that the people would drop off after filling out all the forms because they were not sure that they filled the forms correctly and they were afraid to hit submit because they were afraid that if they filled out something wrong and they fill, submit and they get rejected, that they wouldn't be able to apply the same bank, that they would have to repeat the process. But with a different bank, that was not the case. The customer was wrong, even if they did something wrong. The normal process was that the bank would actually call them and check personally with them if the data is correct. So the bank had a failsafe process, but the customer did not know that. So you see how trivial this example is just through several calls with the actual customer. Now, the bank people could actually see the data for themselves and how customer experiences this whole mortgage application process, and they could tweak it.
It was an easy tweak. Just add a little bit, you know, a small checkbox, add in a different color. Hey, if something is wrong, we will check it and we will call you, it will not be an automatic denial. It's a bunch of small things. And that's it. Voila. It was an over 80 percent completion rate improvement, and I actually love your invitation. Like you invited us to zoom very much in. And this is the thing that neo banks find much easier to do, not because they are so smart or they can see the future, but because their whole customer journey is digital. They can see that data as it happens. If you install Google Analytics or whatever analytics platform you can see, you can see a customer. I don't know it's Greg or Bruno, but I know there's a customer there and suddenly they disappear and then I can take action if too many people disappear. I can try to call them up. I can try to reach out. I can try to understand. But if I'm blind to what the customer is actually doing like, it often happens in the legacy banks, then I'm almost powerless to take action. So there's a bridge to cross and it's not that difficult. Of course, follow all the legal procedures.
Valentina: In many cases, the reason for digital dropouts, as Bruno mentioned, is the fear of uncertainty, and when it comes to financial services, psychological safety is a priority. So, what could banks do to make sure customers feel confident in their journey?
Bruno: I'm not a psychologist. I'm speaking from the experience of someone that's worked with psychologists and neuroscientists et cetera. So, my experience and interpretation is, especially in the financial sector, it's all about wording and in the financial sector. I want to add something because it touches upon people's livelihood. It's very, very important not to abuse that because it's very easy. So, there's nudging science. The B.J. folks work on tiny habits and changing people's behavior. There's a lot of work on how to nudge people to make better financial decisions. Unfortunately, with such power comes great responsibility because you can also nudge people to, well, buy your product and you don't want people to be overly adapted so that decide psychological safety and financial institutions manifests primarily in how the wording comes and how it is framed. So, for example, as I said earlier, legacy banks were primarily concerned with protecting themselves. So, the contract you get is very adversarial. I mean, if you read your customer contract with your bank, you will be like, Well, yeah, if they lose my money, I forget it. It's their money. But if I do something wrong, if someone accidentally sends me money wrong and they have to take it away, I need to pay an interest rate on that. It's like there's a lot of horrible stuff. If you start and start looking through it, you go, you want to apply for a mortgage and then you get like three pages of disclaimers that are written in very aggressive language.
Ok, I understand the financial institution must protect the assets. We respect it. But how you communicate that to the customer and how you create psychological safety, you can communicate in a much, much softer way. So, we touch it in that example before. Let me share another example. Elderly people, elderly people use financial services not much different than necessarily younger people or even middle-aged people, so they're used to paying at the local branch. They're used in paper processing. They're not really used to using their browser or let alone using an application to pay for things. So what do you do with them? Do you force them? Do you add fines to the way they do things? Do you try to develop something for them? So one institution I work with have decided to develop something for them. So they call it simple banking. Let's call it that way. And they did a lot of testing with elderly customers. They try to figure out, OK, how do they actually see financial services? How do they actually see transfers? Do they have trouble reading the invoices if they have trouble reading the invoices? What do they it in? What did they actually find out was that most elderly either fell into two groups. They either did learn how to use online banking, or they had a child coming and paying for all the invoices.
So they actually decided not to do anything different, but to have specific messaging because obviously, your institution knows your birth date so they can have a specific type of information. So they added a bit softer wording that isn't degrading but condescending. That isn't condescending. It's not like feeling lost. Should we guide your hand? But it was more, you know, they know that payment button is often seen, so it would get magically enlarged. The customer would know this is happening because the system is detecting that they're a bit elderly so that the button is a bit larger and all these things. And I know that psychological safety is a large umbrella, but all of this falls under it and it is contextual. So what feels safe to one group might not feel safe to another group in no way at all. So it's very important if you're going in that direction to actually, I don't want to say bucket or bracket, but that is what we were talking about. Basically segment the customer groups because they have different requirements, the person doing investments into stocks, funds, etc. Their take on psychological safety is much, much different than the person who doesn't even know what the stock is or real at the mention of the world. Like, No, no, no, no, this is my salary account, and that's everything I do.
Valentina: Another issue financial institutions often face is that there are too many product offerings and too many different kinds of services. So switching to a different topic, we ask Bruno to advise financial institutions on how to develop their product portfolios.
Bruno: As we said, it really depends on what kind of player you are. You basically have financial institutions that provide a whole range of services and then you have specialized financial institutions that may be just mortgage, just loans, just business, just wealth management, just insurance. So, there is a difference between these two, and I will focus a bit more on those that have multiple product offerings, offerings versus just one. So, one easy way or one easy area always for product development is simplifying the product portfolio. So financial institution has been unbundling for a really, really long time and that came after a decade or two decades of bundling. So it was normal. You know you come to a bank, I want to open a seller account. How about the savings? How about insurance? How about non-life insurance? Well, why don't you just take everything from our bank? So that was happening for a long time, and then it started. The big unbundling started and that was primarily and still is driven from the challenger and neo banks. Oh, there is a bank, and the only thing they do are transfers, transfer rights. Well, there's another bank and the only thing they do are checking accounts. Ok? Oh, there's another challenge you don't think to do is blah blah. So you have this paradigm of where some institutions are still bundling.
You have the neo banks that are bundling. So what do I do? Well, here's what you do. First, you have to be really clear on your financial institution and what are the customers that they're serving. And I know this sounds very trivial, but no matter how many institutions I visit, I'm still surprised by them saying, well, everybody, everybody needs an account. Yes, sure, everybody needs an account. But I mean, unless you are a national bank and you're expected to always be there, you have to have some sort of focus. If there are two leading banks in the country, then they have to have different value propositions. One might be everything for everybody and another one might be the best interest rates. You cannot have two of those at the same time because if you could, then we would have the leading financial institution in the whole world. So that aside, looking at the existing product portfolios is really the best approach to product development for one simple reason usually for legacy players, you will go in and you will see 50 card products, 30 loan products, I don't know seven mortgage products and etc. And when you go to the pension side, you will see pensions. And there's I know, I understand there are legal requirements. You cannot just turn off someone's pension, that would be unethical, but you don't need to offer thirty-one-year-old pension products to new people coming right. It is something that it's easy to fix and someone might say, well, Bruno, that isn't product development, OK? Its product portfolio optimization? Sorry, but it brings the most money, the fastest, and you develop new products because you want to improve financial results. That again aside. Since we were talking about customer experience, really the best way is to go to the existing customers and identify gaps both in the customer experience and in your financial portfolio product right now. So if someone has a salary account and they're saying, that's easy, you want to capture those that aren't having salary accounts with you, why aren't they having them? What can you do for them, not how you can incentivize them by giving them the best interest rate or taking something out of your pocket? But the other way around, how can we get them without giving them anything extra? And I know I'm giving her questions because if I had answers, I would be having thousands of millions of euros in my pocket. The thing is, it's contextual. What works in Norway might not work in Germany. Heck, what works in Norway might not work in Sweden? Let me give you an example.
In Sweden, they spend their lunch money differently than in Norway. So, a company financial institution that was very successful in partnering with a voucher company in Sweden completely flopped in Norway because Swedes have different lunch habits than Norwegians. Silly example, but companies that are present in multiple countries like IAG, you cannot apply what has worked in Belgium to Turkey and vice versa, and large companies forget that they just try to slam it like we develop the new product now bomb sales campaign all over the world. The same goes for smaller institutions that are, let's say, just in Germany or the just UK. You know, we have a new product. Let's start marketing two hundred million euros. Everything goes in marketing and then it flops. So you must understand why is customer exactly buying and how is it exactly using the solution and the same for their customer journey? And we had this conversation just 20 30 minutes ago. If you cannot see the customer walking from the beginning to the end, you're powerless to react. Doesn't matter how great your product development process is, if you cannot capture that customer data, you're going to fail 50 percent of the time. And I'm being generous. It's actually 70%. But OK, I don't want people to get too depressed after hearing this.
Valentina: Lastly, our team recently decided to implement a new feature in each episode, and that is rapid-fire questions, as these are the most fun. So here are some rapid-fire questions for Bruno. So the first question is, what has been the most exciting project you've ever worked on?
Bruno: I can't tell you that because it was in the industry. So let me tell you the second, it's exciting. The customer came and asked for the impossible. I was fresh out of college and I was working in the Department of Young Engineers. We took it very personally. We took it very, very personally and we made the impossible possible. I don't want to say other people in the company hated us, but let's say that we made the thing that's very difficult to manufacture. So that was back in my engineering days. It was very exciting. You know, sleepless nights so pumped up. So happy when it was finally done. And then
Valentina: That's great. Ok. In one word. Tell me, what do you like about living in Norway?
Bruno: One word.
Valentina: Yes.
Bruno: One-word respect. Should expand beyond one word. Yeah, you can explain. Ok, OK, so I was browsing the proper word. I'm not even sure that respect is the right thing, but what I remember was before I came to Norway. So I first came here as a student and people told me, You have to be careful. Norwegians are very cold. It's very difficult to integrate blah blah blah. And I came here and I found it very easy to be here. You need help. You ask for someone on the street. They help you out. You get stuck. People help you out. Yes, they will not just jump to you and start chatting with you, but it's so easy. When I came the first time to a Norwegian company, they told me, Bruno, we respect what you learned at university. You're here to help us out and we are here to help you out, to help you grow. And I was like, Wow, like, wow, is this how they treat each other here? I felt respected. And I mean, I've been brought up to always respect the elderly, to always respect others. But it was just amazing to experience it, you know, in a different country. And it made it so easy because then I was just like, It's easy to be fearless when you know that people respect what you have to share, no matter where you're coming from. Even if you're a kid from uni, from another country, they're really going to hear you out. And to me, that was just amazing and magical.
Valentina: So happy about that. That's nice. I'm sure our colleague, Sophie, who's from Norway, will be very pleased to hear that. Ok, next question. What don't you like about living in Norway?
Bruno: Well, that's easy, I mean, the standard is really high, the prices are really high as well. I mean, I can't complain too much because the standard is so high. But as a creation coming to Norway, I still remember like, what's this? Chicken is 10 times more expensive. It's like, My God.
Valentina: Yeah. Everyone says that. Monzo or Revolut?
Bruno: Uuh... Neither, I’d say TransferWise or Wise now,
Valentina: I guess also it depends where you are. I feel like most of my friends from the Czech Republic, have Revolut by bus and they have Monzo. And my last question is, where do you aspire to be in five years?
Bruno: What do I aspire to be in five years? Well, physically I don't really care. I consider Europe to be a small country. I consider both Norway and Croatia, as Norway is my adopted home and Croatia is my real home. So, I hope to continue living on that relationship professionally. I hope to continue pursuing my curiosity and interest. I haven't stopped so far, but you never know what might happen in life. So that's pretty much it. As I said earlier in my life, I will only work with people that really want to change something, and I have followed that. And as long as I can wake up, look myself in the mirror. I'm living life properly, so I hope I'll be in the same place for five years.
Valentina: I hope you enjoy the episode. And if you did, please don't forget to give us a like-share comment or subscribe to the podcast on your preferred channel, and I will see you in two weeks.
