It is no secret that traditional banking is currently being attacked from many sectors. The most innovative companies state attacking weaknesses: eliminating individual aspects of the banking experience and offering better value propositions.

Therefore, unless banks significantly improve the convenience and quality of experience, insurgent competitors will continue to gain converts and new customers.

To be sure, winning customer loyalty is harder than ever, as powerful trends benefit insurgents. Regulators have given non-bank companies access to existing payment networks, which has led to rapid growth of providers such as Kakao Pay in South Korea.

On the other hand, the “open data” laws launched in the UK, give companies like Monzo and Mint access to customer data that they can later use to expand. Combined with more flexible licensing restrictions, open data has led to the emergence of nearly 20 new banks in the UK in recent years.

GAFA also don’t miss a chance

Big tech and social media companies also are taking advantage of their huge customer bases. Ant Financial, for example, an Alibaba affiliate in China used its core e-commerce business to make payments, consumer loans, insurance, wealth management, credit rating, etc.

Many of these companies stand out for offering the simple, high-quality digital interactions demanded by consumers. In addition to their digital expertise, technology companies are moving towards financial services along with consumer confidence.

Companies like PayPal and Amazon have a level of confidence with consumers almost as high as banks in general, according to the new Bain & Company survey.

As the number and influence of the most digitized banks and technology companies grows, traditional banks find their interactions and commitments to customers diminish. When disruptors test products related to payments offered by technology companies, banks lose not only direct profits, but also frequent customer engagement and valuable transaction data.

The valuables that matter in retail banking

All of these trends put pressure on banks to improve the experience and gain customer loyalty. Going back to the beginning, it’s important to remember that loyalty drives growth and a better economy. Banks that lead the Net Promoter Score® ranking, which measures the likelihood of a consumer recommending the bank to others, outperform the laggards in net interest income growth.

For example, U.S. banks with a high net score, net interest income growth of 13% from 2014 to 2017 was a high- profitfrome rate, compared to 5% for laggards and 6 for banks with an average net score.

Many factors contribute to loyalty, but in essence, loyalty stems from the value that customers of each bank perceive. The quantity and nature of the value in a particular product or service is always in the eye of the viewer. However, there are universal building blocks of value.

They have been identified 30 value elements that fall into four categories in consumer markets: functional, emotional, life-changing and has a social impact.

Of course, in a given industry, certain elements are more important than others to consumers. In banking, the five elements that have the greatest impact on the Net Promoter Scoreare: quality, time saving, anxiety, simplification and relic (a good investment for future generations).

On average, consumers give their bank a lower rating on these items than major technology companies, such as Amazon, Apple, Google, or PayPal.

This will cause banks to have to close the biggest gaps in quality, save time, and simplify, especially because Amazon reportedly plans to launch a low-cost account with a banking partner.

Large technology companies have the cash, digital expertise, consumer confidence and strong performance fulfilling “value elements” to advance more banking services. However, some banks have successfully defended their position by reorganizing the way customers experience their products and services.

Payments, the road to success

Retaining customers through a successful experience is indispensable, however, it is not the only way. There are precedent how banks have competed with success with non-bank companies, especially around payments.

Alternative payment methods are gaining ground in many countries, often with third parties such as Mercado Pago in Mexico and Argentina or Alipay in China at the helm.

However, banks have managed to maintain their own payments in other countries, especially in Sweden, Poland and Singapore. The Swiss Swish app, launched by a consortium of seven large banks in 2012, now dominates peer pay and merchant purchases. The application benefits from Swedish law, which does not require retailers to accept cash. Swish transfers funds instantly at no charge to consumers.

In Poland, for example, insurgent payment solutions companies PayU and Przelewy24 lead adoption among respondents. But Blik, an application launched by the country’s six largest banks in 2015 and now available in the nine dominant banks, has also taken off, based on its robust functionality.

These experiences suggest that, while the payout episode shows some characteristics that the winner takes it all because of the effects of the network, the winning position remains fluid in many countries. Banks can catch up with major insurgents if they come together to create an industry-wide platform that is highly functional and consumer-friendly.

Simple and digital

Another indispensable point of value to win over customers is the simplicity with which banks and companies interested in financial transactions show their digital elements.

This partly explains why banks such as ING outperform traditional banks in securities classification. For example, 92% of the direct banks are highly qualified by customers for time savings, compared to 28% of the more traditional banks.

It also explains the rise of online financial companies such as Quicken Loans, which has grown from 1% for mortgages in 2008 to almost 6% at the end of 2017. In addition, Quicken Loans recently overtook Wells Fargo to become the mortgage leader in the United States. When the company launched Rocket Mortgage, Quicken Loans said a team of 500 software developers took three years to simplify the mortgage process. That’s a level of investment that most banks are hesitating to commit to.

According to Bain, more traditional banks can make some movements that allow them to increase loyalty and improve their economy, so as not to lag behind large technology companies and Fintechs:

  • Accelerate digital migration :

Evidence shows that customers schanging to digital banking have greater loyalty to their main bank, especially because of the profitability they get. It is true that they buy more for additional banking products, however, once they accept those conditions, they tend to commit more to their bank, leading to a higher net score.

Keeping up with digital advances requires the ability to adapt quickly. For example, it took only three and a half years to reach 30% home voice assistant adoptions since Amazon launched its Echo in November 2014, compared to about the 5 and a half years that elapsed until the adoption of smartphones ll ego to 30%.

A large part of consumers in many countries are open to banking through a voice assistant, which means that the sooner more traditional banks take on this technology, the higher the percentages of customers will be able to retain.

  • Partnering or dying:

To compete with Fintechs, large technology companies, and other disruptors, banks may need to collaborate on common solutions. Payment markets make this clear, only national and multibank payment platforms have allowed banks to stay on the lookout for consumer adoption of their applications.

Fortunately, many banking brands are strong enough to partner with third parties to build ecosystems that provide additional services. And in some cases, banks will need to take a stake in a technology company or acquire it directly to gain the right capacity or people, as Santander, Goldman Sachs, JPMorgan Chase and Barclays have done.

  • Cultivating emotional elements of value :

Banks need to perform better on some functional elements, such as saving time and simplifying, as well as improving the quality of their services. But banks have the opportunity to rise up the hierarchy and further increase loyalty by reducing customer anxiety and selectively adding other emotional elements.

Delivering an Emotional Element Boosts Net Promoter 1 Score, 5 times more than adding a functional element. The key is to determine which elements will be most important to customers of an individual bank, and whether the bank can deliver strong performance on those elements. To that end, the network of bank branches can be a source of emotional connections.

New branch-based roles, such as first-time homebuyer coaches or small business advisors, can elevate customer feedback on that branch to a higher level.

All these components reinforce each other in an endless cycle. Each bank will thrive or decrease according to its capacity of deliver elements that generate greater loyalty, incorporating digital tools where possible in order to improve the customer experience.

To be sure, technology companies and direct banks will continue to move forward, some of them substantially. Therefore, banks that miss this opportunity run the risk of staying with profitable customers and a dlower share.

And what about the workforce?

How a bank manages employees through branch evolution also will make a difference in how quickly you can progress. Reducing the number of employees gradually becomes less important than redistributing employees so that a superior experience is built.

Employees will play different roles, many of whom will move from narrow service or sales positions to broader relationship coaching roles and with digital fluidity, both within the branch and outside their four walls through video chat and other virtual channels.

With this in mind, banks should start planning the new skills, training, incentives, and behaviors required.

Compared to what most banks are doing today, the team-of-teams work model involves very different ways of working across the organization. And teams will require new types of digital support, ranging from virtual assistants with AI engines, who can anticipate customers’ needs and get employees to target them, to systems automated processes and forms.

Conclusions

Gaining consumer loyalty is harder than ever for banks, as insurgent technology companies hoard products such as mortgages and payment services.

54% of the consumers trusts at least one technology company more than banks in general, and the 29% trusts at least one technology company more than its own main bank.

Trust affects a customer’s willingness to test banking services offered by technology companies. For example, customers who give Amazon greater confidence are more open to testing a bank account with the company. With benches under siege, a high priority is to improve the comfort and quality of the experience for customers.