Customer experience: a high-yield digital investment

Long before the days of digital platforms, financial institutions knew that service defined a depositor’s perception of their brand. The banking industry uses high levels of customer service to gain new relationships, maintain them over the long term, and increase the number of products used by depositors.

As banks and credit unions seek to extend their service to large-scale digital interactions, they are focusing on how depositors are treated online, on an app, or via email. Most institutions know they want to continue to provide a great digital interaction experience with members or customers. They want to know how to design a large-scale service culture for delivery to digital platforms.

Executives can use a wide range of benefits to articulate results that are worth investing in CX.

For starters, institutions already know the benefits of preventing attrition. A 2% improvement in customer retention has the same financial benefit as a 10% cost reduction. Acquiring new customers can also cost up to five times more than keeping existing customers, according to Call Miner’s Churn Index report.

Preventing attrition, however, is only half the battle and offers significantly lower returns compared to a mindset of keeping depositors. Research by Deloitte and Touche, for example, found that companies that focus on customer-centric culture were 60% more profitable than those that did not.

Recent reports show that more and more banking organizations are focusing on the customer experience. CX leaders earn twice as many referrals and twice as many portfolios share those falling behind. Meeting competitive challenges, expanding relationships, reducing churn, and eliminating expenses are all benefits of an improved CX.

Develop an experience gauge

Metrics are a crucial part of improving anything. Metrics also help build organizational buy-in, as they allow teams to communicate results, set new direction when needed, and build momentum on successes.

Start by defining what a positive customer experience looks like. A “customer effort score” is 40% better at predicting loyalty than customer satisfaction. Position short surveys throughout various processes to gauge customer effort.

Another metric to consider is product penetration. Trends among customers or members, such as a frequent decline in product penetration as prices go down, are a point to focus on. For example, more than 80% of people who refinanced a home loan in Q4 2020 turned to a new lender, according to data collected by Total Expert. When an institution identifies a steadily declining trend in product penetration, it can respond by raising awareness among borrowers about their options and the impact of their financial decisions.

How to obtain interdepartmental membership

Improvements require leadership from the top, but the most effective approaches are not always top-down. Individual departments can often come up with ideas for initiatives that best contribute to improving the customer experience. The resulting plan, although a patchwork, can prove to be more productive in terms of experience gains across the organization.

When an institution did this for their lending process, that process changed dramatically:

  • The digital team implemented DocuSign.
  • The IT department has optimized the secure messaging portal to facilitate the transfer of documents.
  • Loan officers eliminated duplicate information requests.
  • Marketing created an awareness campaign for people who dropped out of an application.

The institution improved the CX because it focused its efforts on projects that improved customer interactions with this brand in a practical way.

As business models change from institution to institution, the formula used to set a budget for CX improvements is not universal.

Customer acquisition cost and attrition rates give a clearer picture of the revenue gains that can pay for experience investments. Financial institutions should also gather the information necessary to calculate the customer’s lifetime value. In its simplest form, CLTV is the average revenue generated by products and services, multiplied by the average purchase frequency, then divided by the average customer lifespan.

Since CX is also about serving customers better, it’s more of a journey than a destination. Once institutions take action like these, they will create fans that will generate more clients for an institution. The result can transform the future of an organization and make it a popular brand for its depositors and borrowers.

JJ Slygh is a customer experience consultant at Total Expert.

Learn more about lending opportunities in BAI’s executive report “Where Banks Fit into the New World of Lending”.

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