Sector By Sector – Retail Banking Part 1

Retail banking - Image of a person holding ATM cards

In our new “sector by sector” series we will be looking at different industries in each installment. We will look at the key challenges these industries face and how they can offer better commerce experiences.

For the first installment, we will be looking at retail banking. An industry that affects us all. The retail banking sector will face some serious challenges over the next few years. Including market pressures related to the recession

But how can banks respond to these challenges, serve their customers and still meet business goals? How can they improve customer experience both on and offline? If retail banks are going to weather the storm and maintain profitability while doing it, they may need to rethink how they do things. 

Let’s find out how retail banks can offer better commerce (and customer) experiences. There is a lot to go over. So part 1 will focus on some challenges. Specifically around changing customer expectations and issues with engagement.

Summary Of Challenges For Retail Banks

  • The rise of FinTech brands have drained some retail bank core business
  • Changing customer demographics mean there is a low tolerance for bad customer experiences in banking
  • Banks have looked to establish digital-only banking brands to deal with disruption
  • But these brands do not tackle underlying issues
  • Lack of customer engagement is harming long-term CLV (Customer Lifetime Value)
  • Retail banks are not engaging customers enough, post-onboarding phase
  • Customer re-acquisition (using incentives) is a must to retain core business in a recession
  • The re-acquisition process builds relationship strength, increasing CLV and profit

Retail banks - Image of someone using a smartphone

Using New Brands To Meet Changing Customer Expectations

It is fair to say that some retail bank brands have been slow to adapt to digital. This slow movement has seen retail banks lose ground to challenger fintech players such as Wise, Starling Bank, Venmo and Monzo. 

While retail banks have improved their digital offerings, especially with the outbreak of COVID-19, there is still some way to go. This is a huge challenge for retail bank brands, as customer demographics are as forgiving as they used to be.

There are many reasons for this. One of them is down to demographic change. There are now more digital-native customers out there. The expectations that these customers have around their experience is very high. They will not put up with downtime, unplanned maintenance or poor user experience on digital banking channels. 

Some retail bank players have decided that the solution to this is new, digital-only, banking brands. This is when a well-known retail brand sets up a digital-first challenger bank to appeal to younger customers. This has happened in Thailand with brands like TMRW (from UOB), in Spain with Imagin (a brand from Caixabank) and FRANK (from OCBC Bank in Singapore).

For an established retail bank brand that has trouble appealing to younger people, this is a very attractive proposition. But success is not guaranteed. Launching a new digital bank is a huge undertaking. Aside from building the product, a retail bank must look at other factors. Such as organizational structure, whether its back end systems can work with the new digital bank or even if the new digital bank should be independent.

So setting up a challenger digital bank brand is one way that a retail bank brand can manage changing customer expectations. A digital bank brand can help a legacy retail bank to move in a more agile way.

But does that cure everything? Or are there other issues that need to be addressed.

Customer Engagement With Retail Banks

In Velocity Solutions’ research, most people are actively engaged with their bank in the account opening and onboarding phase. This seems to be common sense and unsurprising. But the drivers around what makes people choose one bank over another are surprising.

We spoke about younger, digitally-native customer expectations earlier. But did you know that 21% of Gen Z bank customers choose their bank based on if there is a physical location close to them? It seems counterintuitive, as they are seen as “more online”, but 21% of Gen Z and 27% of millennials choose their bank based on physical proximity. A “better mobile banking experience” was important for 23% of Gen Z and 34% of millennials respectively. 

The findings also showed that older customers (over-55) had one main reason that would make them open an account. But younger customers often cited multiple reasons.

When talking specifically about digital channels, the findings show exactly why retail banks need to get their digital offering right. People in the Velocity Solutions survey seem to suggest that onboarding experiences are getting better. Web pages, welcome emails and printed materials all have good satisfaction numbers. But, after that initial burst of engagement you can see where problems lie. Customers in the survey who have opened an account recently could not remember if the bank asked them any questions, at all, about their banking needs or preferences.

This is very bad. People, by and large, are still very loyal to their primary retail bank. But they now have more options than ever (including those digital-only challenger banks). They may even shift some of their business to these other banks. So if retail banks are not making an effort to understand their customers, why should a customer stay loyal to that bank?

This is the key problem with the lack of engagement. It’s why retail banks now have to spend a lot of time (and likely money) re-acquiring customers that they already have.

Photo by on Unsplash

Customer Re-acquisition

In a recession, it is vital for retail banks that they keep their core business. Looking at the numbers from Velocity Solutions, that means re-acquiring existing customers. It also means stopping the bleeding to fintech challengers.

Banks need to win back customers that have started using fintech challengers for other services. They can only do that by offering a comparable user experience, that’s convenient and cheaper. But how can they start doing that?

Focusing on payments and onboarding could be the best way to start a long process.

Retail banks should give more incentives for customers to choose them as their mobile payment solution, and not a challenger service. Or get them to associate their new payment methods with the retail banks (only 61% of frequent Apple Pay users associate their primary banks’ card with the payment app).

Onboarding processes for new customers, both digital and in-branch, should be optimized to boost long-term engagement. This will help to increase customer lifetime value, which will boost profits. The accounting opening process is the best chance to get a customer engaged with a retail bank. Better onboarding that gives customers a great experience is more likely to increase financial product take up further down the line.

Come back soon for part 2 where we will look at how retail banks can increase footfall in branches. And why branches are still important. In part 3 we will focus on why better security and risk management are good for the overall commerce experience and that horrible recession that is looming on the horizon. How did banks navigate the last recession? What does that tells us about how banks might navigate this one?

Contact us via

Talk to MAQE

Are you in retail banking? Do you need help creating digital and in-branch commerce experiences? Talk to MAQE. We have experience building products in the financial sector. We have worked with compliance rules before and we can build exciting experiences your customers will love. Get in touch via [email protected].