It’s no secret that the emergence of financial technology (FinTech) providers has reshaped customer expectations and challenged traditional retail banks to evolve. But while FinTech has indeed brought innovation to the forefront of the industry, the notion of frictionless payments is not universally guaranteed. This poses an opportunity for the retail banking sector to not just catch up to FinTech but win back many of their customers.
Read on as we explore the impacts of less-than-frictionless payments, break down the true costs of service recovery, and discuss how retail banks can position themselves to win customers back from FinTech providers.
The Realities of Non-Frictionless Payments FinTech providers build their companies and stake their reputations on seamless, convenient, and rapid transactions. But the reality is that many consumers don’t meet the frictionless experiences they expect.
Surveys reveal that a significant portion of users encounter transaction delays, technical glitches, and occasional system downtimes. For retail banks, the challenge lies not just in mimicking FinTech’s successes, but also in recognizing and addressing the common pitfalls of the supposedly seamless payment processes.
Understanding the true impacts of non-frictionless payments is crucial for retail banks. Instances of payment delays or technical issues usually result in lower customer satisfaction (CSAT) and, in some cases, abandoning their transactions. Customer trust can be eroded when payments aren’t as smooth as anticipated, leading to negative reviews and social media backlash. Retail banks need to acknowledge these challenges and ensure they are actively working to mitigate friction in their payment processes.
The True Cost of Service Recovery When friction disrupts the payment journey, retail banks find themselves investing in service recovery measures, the true costs of which extend beyond the immediate financial considerations. Issues such as compensation and fee waivers are really just the tip of the iceberg.
The less-visible costs of service recovery are multifaceted and include the time and resources devoted to resolving issues, the potential loss of future business, and the impact on employees. Forbes reports that for every dollar spent on service recovery, companies incur an additional $3 in hidden costs. Therefore, retail banks must recognize the comprehensive nature of these costs and implement proactive solutions to avoid unnecessary financial and reputational burdens.
However, it’s not just the hidden internal costs – a negative experience for banking customers spans far wider. Data shows that 80% of customers will switch banks for a more seamless customer experience (CX), and even more alarming, 56% of customers who leave a bank say the institution did not even attempt to retain their business. And when a customer retention improvement of only 5% leads to a profit increase of 25-95% , keeping them around is crucial.
Winning Customers from FinTechs To compete effectively with FinTech providers, retail banks must adopt a comprehensive strategy that goes beyond simply replicating frictionless payment experiences. Recognizing that FinTech isn’t immune to challenges, traditional banks should prioritize offering robust, reliable, and transparent payment solutions.
Of course, retail banks have already made tremendous progress on that front. Pay-by-bank has become increasingly popular in recent years, and for good reason:
There’s a lower risk for fraud or customer data concerns Transactions are processed faster than on FinTech payment platforms It eliminates the need for a credit or debit card for online transactions
While pay-by-bank can be a more seamless iteration of a FinTech tool, it’s not the only one that can help retail banks retain and attract customers. Artificial intelligence (AI) is on the forefront of everyone’s minds – regardless of industry – and retail banks are not an exception.
With AI and automation imbedded within your banking processes, self-service has never been easier, while omnichannel support adds an increased element of personalization and emphasis on customer preferences. Similarly, machine learning can improve payment processes, enhance user education, and elevate customer support.
By creating a holistic ecosystem that not only facilitates quicker, safer, and more seamless transactions, but also provides better support and more communication channels, traditional banks can set themselves apart from the competition, retain their customers at a higher clip, and win back some of those they may have lost to FinTechs.
Meeting Real Customer Needs and Seizing Market Share Opportunities It’s not a stretch to imagine that retail banks simply understand their customer needs better than many emerging FinTech providers. After all, the retail banking sector has protected and managed customer assets for generations. And while customer needs have certainly evolved over time (it’s true that they prioritize speed and convenience like never before), many of the stalwart needs remain:
Financial solutions tailored to each customer’s unique situation A friendly, safe, comfortable environment that provides additional peace of mind A track record of regulatory compliance and a strong reputation
When retail banks remember their traditional offerings and couple them with the innovations that FinTech has created, they can adopt a customer-centric approach that allows them to seize a bigger piece of the market-share pie. Rather than focusing solely on the pursuit of frictionless payments, banks should prioritize a holistic customer experience that encompasses education, support, and reliability.
Conclusion The FinTech era has brought both innovation and challenges to the financial services sector. And while retail banks can (and should) embrace the benefits of the FinTech revolution, it still must address other challenges head-on. By recognizing the realities of non-frictionless payments, understanding the comprehensive costs of service recovery, and adopting a well-rounded approach to customer satisfaction, traditional banks can strategically position themselves to win customers back from FinTech competitors.
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