Universal Banking Solution System Integration Consulting Business Process Outsourcing

Customer Experience-ledApproach to Transformation

Banks worldwide are facing a crisis of confidence.According to a nationally representative survey inthe US, less than half the customers had confidencein the financial security of banks – not afaith-inspiring number when you consider the factthat this survey was conducted a week before theLehman Brothers filed for bankruptcy. Thesub-prime fiasco, Madoff scandal and subsequentmarket downslide have destroyed customer faithand trust in financial institutions. They are worriedabout their savings and investments and will notthink twice about pulling out their money from banksif they fear its safety is at risk.

Unfortunately for banks, this erosion of faith hascome at a time when customers have also becomemore demanding. They expect outstanding service,customized products, anytime-anywhere accessto their money and real time alerts on theirinvestments and transactions across channels.Their loyalty is directly proportionate to how wellbanks perform on these factors. Any sign that banksare slacking, and customers will simply turn to thealternate bank they perceive as better equipped todeliver.

Therefore, customers play a major role in a bank’ssuccess or failure. As simple as the logic ‘Keepthem happy and survive. Make them unhappy andperish’, may seem, in practical terms this is not aseasily achieved. How do banks anticipate customerneeds and respond to them? How do they retainold customers while seeking new ones? And thattoo at a time when their margins are stretched andthe very foundations of trust have been shattered?

However, very few banks are in a position to keeptheir customers satisfied on all counts. For otherstruggling banks, it is because while the bankingbusiness has changed dramatically, banks havenot adapted their IT systems and software to keeppace with this change.

A 2008 survey by a consulting firm points out thatalmost all top retail banks globally use legacysystems from the 1960s and 1970s. Theseout-dated systems lack the requisite agility, flexibilityand scalability and cannot be relied on to meetpresent-day challenges. Despite this, if bankscontinue to stick to legacy systems it is because

of the high risks and costs involved in the transition.Core banking transformation demands enormousIT investments and involves substantive businessrisks in case of failure. A bank must also investigatethe impact this transformation will have on all itsstakeholders – customers, partners and its ownstaff.

Banks choosing to take this big step have gone forone of two approaches. Those with smaller andlimited operations find the ‘big bang’ approach,which allows for enterprise-wide core transformation,more feasible. However, data migration, changemanagement and knowledge transfer areproblematic areas in this approach.

The other approach is a phased rollout where thebank tries out a pilot project in a specific area, tostudy its impact before a wider rollout. This approachhas the obvious advantage of minimized businesscontinuity risks but has other drawbacks of its own.

Phased Approach to Risk-managed Transformation

Knowing how important core banking transformationis to their businesses, it is clear banks cannot affordto do without it. But how do they deal with the risksinvolved? The secret is to pick an approach thatmitigates the risk and maximizes advantages at allstages. That approach is a phased transformation.Different from the phased rollout, such atransformation is divided into several phases. Thebank has its own parameters on what these phaseswill entail, based on criteria it believes to be themost important, such as business volumes orsegments, values and priorities.

This transformation can be approached from threeinter-dependent perspectives:

• Product & Services Innovation-led Transformation• Process-led Transformation• Customer Experience-led Transformation

While a bank may start off with any of theseperspectives, it will have to concentrate on eachone of these at different points in time during thetransformation process.

At the same time, the bank in the process oftransformation must always:

Customer Experience-ledApproach to Transformation

• Adhere to regulation and compliance norms• Make simple but vital changes and ensure that

these changes are visible to stakeholders in asophisticated manner

Product and Services Innovation-led Transformation

Banks have changed from a very product-centric,one-size-fits-all approach where the customer wastaken for granted to a more customer centricapproach. To succeed in today’s hypercompetitiveenvironment, a bank has to tailor its products andservices to individual customers or customer-segments. At the same time, banks must re-aligntheir products to meet their business objectivesand strategies.

Process-led Transformation

This approach streamlines and optimizes bankingprocesses across the institution with a view toincreasing productivity and enhancing customersatisfaction.

Customer Experience-led Transformation

Customer experience-led transformation, the focusof this paper, is based on the premise that thecustomer is king. Customer patronage is paramountto a bank’s survival and if customers today demandmore of everything, it becomes incumbent uponthe bank to honor those demands or risk theirdisapproval, and subsequent loss of business.

What more do customers want? They want productsto be customized to their requirements, ask formore simplicity, convenience and integrated offering,expect more transparency and demand that banksare more perceptive to their needs. How well abank scores on all these fronts determines itssuccess or failure.

A recent survey of customers from top US financialinstitutions revealed that more than half their clientsfelt that their bank was not doing what was in theirbest interest. This clearly shows that banks needto know what is on the minds of their customers,understand and know them well if they have torespond to their needs satisfactorily. This kind ofknowledge can help them design productsaccording to specific customer profiles, thus helpingthem sell the right product to the right customer atthe right time, and allowing it to meet the most

stringent of customer demands.Embarking on the transformation journey, focusedon the customer experience-led approach, the bankmust make a vital decision based on its businesspriorities. It must clearly outline the customersegments that will first be impacted by thetransformation. Some examples could be:

• High net-worth individuals• Mass affluent customers• Rural customers• Customers the bank has engaged with lesser

number of products vis-à-vis those engagedwith a larger spread

• Corporate customers

Having established this sequence of priority, thetransformation, with a robust core banking systemat its heart, can enable the bank to:

• Consolidate customer information• Leverage actionable data• Develop customer strategy• Redefine customer experience

Consolidate Customer Information

Banks must have an idea of who their customersare and what they expect from the bank, so thatthey can fulfill customer needs. The first step thatbanks must take when starting on a customerexperience-led transformation is to consolidateinformation about their customers and manage itjudiciously, so as to provide them with the productsthey need.

A bank must realize that managing customerinformation effectively allows it to delight customers.Hence, it must build a knowledge repository ofcustomer information that permits a holistic viewof the customer. Such a view will also help banksgauge the reasons for certain customer behavior.

Information could be gathered by carefully listeningto customers during their numerous interactionswith their banks. Customers could also be askedfor their active feedback and suggestions. Oneway of incorporating customer feedback is througha customer advisory board where the banks sharetheir plans and seek customer opinion on them.Such an exercise will help a bank gain credibilitywith its customers.

Customer Experience-ledApproach to Transformation

This intellectual capital of consolidated knowledgeshould be centralized, allowing no room forduplication, and shared with all stakeholders – bothinside and outside the bank. Armed with suchknowledge, all bank employees across all branchesand channels will be in a position to matchcustomers with products.

It is also imperative that banks respect thesuggestions and feedback of customers, not justto gain their loyalty but also because such feedbackcan provide valuable inputs on its own standingwith respect to competition. Customer informationand feedback are invaluable in understandingchanging market dynamics and reacting to them.

Much of the turmoil in the world banking scenariotoday is because of a fatal error on the part offinancial institutions – that of not doing a thoroughdue diligence on the customer and his repaymentcapability. This led to the granting of loans to thosewho had no way of paying them back. An exhaustivecustomer profile can help prevent a recurrence ofsuch disasters.

Leverage Actionable Data

However, of what use is an extensive repositoryof customer knowledge, if it is not utilized by a bankfor its benefit? This customer data is an intellectualcapital which should be mined to shape the bank’sofferings to specific requirements, and leveragedto define customer segments to make profits.

At a time when customers are ready to shift loyaltyat the drop of a hat, acting on customer preferencescan maximize a bank’s competitive edge, allowingit to offer specific customer centric products beforethe competition does. Once a customer’s profile isconsolidated, it is a simple matter of interpretinghis/her requirements and delivering on them asquickly as possible.

Banks must also use their integrated customerprofile to sort out customer irritants as quickly asthey occur. Integration of a bank’s multiple channelshelps provide a 360-degree profile of customers,their interactions, accounts, transactions, andpreferred products and services.

Banks must also leverage their consolidatedknowledge to educate existing customers aboutthe bank’s prospects and products and to empowerthem financially. This can also be used to attractnew customers.

Develop Customer StrategyThe next step for the bank is to develop a customerstrategy which helps in forming a preferential pricingframework and prioritizing customers based onvarious segments. This ensures that customersare sold products suited to their profile, while atthe same time fulfilling their financial needs. Forexample, a bank may bundle a savings bankaccount and an insurance scheme for seniorcitizens, offer custom-bundled products created bycustomers for themselves, treat existing customersand their families to preferential deals or bundle alow-risk product with a mortgage to anothersegment.

A good customer strategy must also respect thecustomer’s request for flexibility and convenienceand distribute offerings to a wide range of customers– from the affluent class to the economicallybackward, and from the old to the young.

Transformation approached from the customerexperience perspective must necessarily includea phased plan to relook at products and servicesmarketing strategies, sales strategies, and supportstrategies, from the vantage point of the customer.

It is also important for banks to adopt a strategy toeducate customers about their products andservices, empower them to take the right financialdecisions and get customers to recommend thebank’s products and services to friends and family.This will enable banks to extend their reach toprospective customers.

It is also critical that banks inform and educatecustomers about the transformation agenda. Thisis critical, especially in the event of a temporaryservice interruption, as the bank progresses on thetransformation journey.

In fact, a resourceful initiative would be to conducta small but focused formal or informal survey amongselected retail and corporate customers

Customer Experience-ledApproach to Transformation

AuthorRajashekara V. MaiyaProduct Manager – FinacleInfosys Technologies Limited

(representating of various segments, age groups,regions and channel users), at the onset of thetransformation initiative. This will be useful to helpdetermine the top 10 desirable and the top 10avoidable service components, from the customerperspective. A similar exercise can also beconducted among the bank’s relationship managersto obtain their feedback to create the best possiblecustomer experience.

It will be useful to add to the transformation agenda,small but useful innovations that the customerperceives as value-additions in the near term. Agood example is that of online real-time alerts fortransactions. These interventions will serve to buildcustomer confidence and enthusiasm.

It is key that the bank focuses on making customersfeel important and appreciated. This will go a longway in ensuring customer loyalty.

Redefine Customer Experience

For any bank, holding on to its customers entailsdelivering compelling customer experiences. As afirst step, simple but vital process changes thatimpact customers by bringing in more simplicityand convenience, with greater efficiency andefficacy for transactions, can be undertaken. Thesewill serve as a precursor to the positive changesthat help customers view the bank’s transformationjourney in a positive light.

With customers using multiple channels to interactwith their banks, it is critical that they are minimallydisturbed and are impacted by no loss of existingfunctionality. In the event that the bank augmentsthe back-end driving the channels, it is importantto ensure that the user experience at the front-endis not impacted, unless positively. Presentingcustomers with a unified and consistent experiencethrough multi-channel integration is of paramountimportance. This also helps customers choose themost effective, user-friendly and convenient channel.Also, uniform interactions across channels ensurecustomer delight, leading to their loyalty.

Banks must keep all promises they make. This willensure that customers stay with them and makelarger investments.

Technology

For banking transformation to succeed, the businessplan has to align with the right technology. Service-oriented Architecture (SOA) is the best approachin this context.

SOA enables bundling and cross-selling of productsand customization of services. SOA helps banksuse data mining techniques to understand customerbehavior. Banks can also introduce value add-onsto offerings, like personal financial planning toolsconsumer online banking sites and real-timereporting and analytics for corporate cashmanagement solutions.

Conclusion

Customers are vital to a bank’s survival. To meetthe needs of this core component, banks musthave a complete profile of customers which will, inturn, help in selling the right product to the rightperson at the right time.

Banks must use the right technology that helpsthem analyze customer behavior and serve theirrequirements through a customized and consistentbanking experience at every turn.

Reference:

‘Consumers Less Confident in the Strength of theFinancial System’, Morpace, Sept 29, 2008

Customer Experience-ledApproach to Transformation

Join us on Twitter, LinkedIn and Finacle Whiteboard at www.infosys.com/finacle/networking.asp