First published by Thomson Reuters during October 2017
Digital processes are being used more and more to distribute and service increasingly complex financial products. By their nature, financial services inherently lend themselves to digitisation, as has been seen across the market.
Consequently, what customers expect of financial services products, and how they want to relate to them, is changing.
In 2015, a report by the UK Cards Association stated that more than a quarter (27 percent) of online spending was in financial services. This spending included the taking out of domestic insurance cover, demonstrating the comfort and ease with which customers engage digitally with financial services.
The Financial Conduct Authority (FCA) is concerned, however, that the pace of this innovation, and the speed of transacting with firms in this way, could lead to poor customer outcomes. The regulator said in its Business Plan 2017/18 that: "it is important to consider the increasingly prominent role of technology and innovation in the financial sector, the impact they're likely to have on financial services and the risks they could pose".
The main driver for large firms' digitisation plans seems to be cost, perhaps with a mantra of "let's replace one process with a more digital one", but is that right?
Consumer trust in financial services remains fragile. It takes years to build, seconds to destroy and sometimes never recovers. The consumer's relationship with financial services providers is fundamentally an emotional one. Ultimately, what consumers want is for firms to help them to live well with capital. We want to buy a house, not a mortgage. A car, not a loan. While some products are bought in a transactional way, trust in the firm and the reputation of the brand are still at the heart of the decision to buy (or between switching providers or remaining loyal).
Historically, brand reputation and trust were built via human interaction; the focus on the competency of the firm's staff and their attitudes and behaviours by "doing what they say they will do". So how does this emotional "hearts and minds" engagement translate to a digital world?
The risk of approaching digital services provision from a "cost-out" perspective is that all digital platforms risk feeling standardised to customers (much as the architecture of many websites feels the same) and firms further lose their market differentiation, and have no human, trust-based interaction to fall back on.
Consequently, firms need to go back to their purpose: how does your firm help customers? What can you do to better meet customers' needs by reworking how you engage or transact with them, as opposed to simply digitising the existing method?
This is where fintech startups and disruptors are making ground, although there may be an argument to say that they are guilty of overly prioritising the upfront customer experience and failing to focus on the principle of providing a good outcome.
Experience and/or outcome
Too often, digitisation projects are led by either finance or technology, and because the purpose is "cost out", compliance tends not to be involved until a later stage. As a result, compliance-related checks and balances in the customer journey are applied to processes retrospectively, leading to a "clunky" experience. Compliance teams are forced to play keep-up to stop the regulatory ball being dropped.
There is a dichotomy when firms talk about customers, and that is between the customer's experience (essentially whether they liked/disliked what happened) and the outcome (did the right/best thing happen for the customer, and did they understand this?). Consequently, when firms rely on customer satisfaction metrics to demonstrate positive customer outcomes, these are of limited benefit because the customer may not have understood what happened. Getting both right, and measuring them properly, is critical.
Firms need to take a multi-disciplinary approach to solve this problem. With the greater ambition of better customer experience and outcomes, digitisation should be project-led by the customer teams within firms, with tech and compliance teams seeing themselves as "enablers". The roles of the technology and compliance teams should be to deliver the architecture and protect the customer, respectively, allowing the firm to deliver a seamless service that balances the priorities of cost, experience and outcome.
Balancing your priorities
The digital revolution in financial services needs to be driven by the right motivations. There needs to be greater ambition and purpose than simply "cost out"; the inclusion of compliance, with technology playing an enabling role, will result in an improved customer experience and better customer outcomes.
The firms that get this right and deliver such differentiation through a digital platform will be the ones who win both the trust and financial sustainability battles.