Augie Ray is a customer experience professional at a F100 financial institution. We caught up in Manhattan and had a fascinating discussion about the disruption currently occurring in financial services. Some parts of this article have beenrepurposed from Augie’s blog.
All thoughts are his own and don't necessarily represent the view of his employer.
What are your thoughts on the current state of financial services? Is it really being disrupted or is this big hype?
It depends on which products you are focused on. If you are involved in low-engagement products like life insurance, you’re not going to see heavy impact. However, you’ll see big changes in other areas such as P2P, wealth management, payments, lending, and more. See the CB Insights graphic here to understand just how broad the disruption will be:
Many people do not realize how much disruption is happening. Some in the finserv category are in the same situation as Kodak when it was entering the digital era. Kodak had long had marketing budgets and acumen that marketers held in high esteem. It was the leader and pioneer. But it struggled as digital rose, and it was amazing how quickly this powerhouse brand got disrupted. Their business was slowly eaten away over 10 years, before a critical mass was reached and then it was game over. Financial institutions are not too far away from being in the situation.
One of my favorite sayings is, “Cannibalize yourself, before others cannibalize you.” Financial institutions need to move beyond just their current strategy and think about their true value.
When looking at strategy, should financ
ial institutions be focused on price, product or customer service?
It doesn’t really matter. The most important thing is that financial institutions find a strategy that works for them and they stick to that. The issue is that most financial institutions are stuck between all three and don’t have a mission, purpose or unique selling proposition that is clearly defined and differentiated.
One single approach isn’t best, but brands can’t succeed by being all things to all people. The retail vertical offers an interesting model for financial services. There is room for Walmart (great price), Tiffany (great product) and Norstrom (great service). The retailers caught doing a little of each are the ones that are in trouble. Finserv firms needs to focus on differentiation and execution, and there is no one answer.
Given that your expertise is in customer experience, let's talk about the current state of customer experience in financial services...
It’s no secret among customer experience (CX) professionals that most CX efforts fall flat. Forrester found that only 25% of CX professionals say their companies’ CX programs actually improve customer experience, and Avaya recently published a study indicating that 81% of organizations have seen their customer experience management (CXM) initiatives fail in the last three years.
Here is the pyramid I came up with that shows specific examples of how Uber and Amazon have changed the game in their industries:
Why are so many customer experience efforts failing?
The problem is that most companies view customer experience as a program and not a purpose — something to be assigned to a couple of employees while the rest of the company goes about its business improving efficiency, acquisition and margins. Most of today's CX initiatives focus on incremental change in existing processes, which limits those programs to solving the least important needs at the bottom of the pyramid (reactive).
Why should institutions be focused on being proactive vs. being reactive?
Things are moving way too quickly to be reactive and make incremental changes. While it’s important to know your customer service or product problems and fix those, brands really have to think from the top of the pyramid and be proactive in order to succeed nowadays. The most powerful companies today simply rewrite the customer experience from the top of the pyramid down, leapfrogging established competitors by delivering experiences that are more integrated, robust and powerful. For more on this, read the full customer experience article.
But what about fixing existing customer service problems?
I think customer service is important — you have to get it right when the phone rings — but when you think about companies that have come out of nowhere to become sizable successes in the past 10 or 15 years, they have not done it with better call centers or reactive customer care. When was the last time you needed customer service at Uber? When was the last time you needed customer service at Amazon, Nest or Square? The companies that are succeeding don’t need a consumer to leave the experience and get customer service to help them fulfill their wants and needs.
Of course, the reality financial institutions face today is that we can’t merely stop answering the phone or ignoring customer needs sent to our brands on Twitter. The number one reason people are calling many finserv call centers is to ask, “What is my account balance?,” which is just mind-blowing in this age of digital and mobile. This demonstrates that not every customer is ready for digital or mobile tools, or maybe it means our digital and mobile tools still need improving.
Still, when you look broadly at brands that have really succeeded in recent years, they generally have not done so with responsive customer care, advertising dollars or marketing; they’ve done it with a better mousetrap. This means a better overall customer experience.
“The best brands know the best customer service is no customer service.”
The challenge today for finserv companies is that new competitors like Venmo and Square don’t need a huge customer service presence, but large traditional financial institutions have thousands of people on the phones. It is increasingly not economically sustainable. Everyone in the industry is working to find a way to get people off the phone and encourage account holders to be more digital while not sacrificing engagement and opportunities to sell. That is a real challenge now.
A lot of people reading this have to think about the existing customer base and the older demographics. Do you think you companies should segment by being reactive to solve for the existing base and then be proactive to attract younger customers?
Maybe. But in periods of rapid innovation, segmentation can run the risk of making the changes look less urgent than they really are. Look at JCPenney, Sears, etc. They are struggling even though 93% of retail sales still occur offline. Only 7% of retail transactions happen purely online. The companies serving the 93% are struggling while the ones focused on the 7% are succeeding. Why? There’s a lesson in retail that financial institutions can learn from. Segmentation can give false confidence that a slow, measured approach works.
Sears could look at the offline segment and say, “let’s segment that, get the store experience right, and we’ll win!” But that’s not working, as fewer people opt to spend time in malls.
It’s hard to imagine that Sears is going to save itself in the offline world in the next four or five years. Segmentation can give the illusion that you are doing the right things, but you are still being cannibalized by someone who has thought about the future from start to finish.
I like to remind people that Borders failed the same year Forrester declared it had the best customer experience in the US. No brand wins by providing the best CX in a way consumers no longer desire. Segmentation tends to be more about serving today’s customers while innovation is about preparing for tomorrow’s.
“Financial institutions need to think tactically about their customer service, but strategically about their customer experience.”
So what about alienating existing customers? Should financial institutions risk alienating their existing customer base?
I think it depends on your market and brand, but ultimately I do think brands need to considering alienating some customers — the ones who require more hands-on and expensive service — in favor of customers who are more self-sufficient and profitable. If Sears had a time machine, what would they do different 10 or 15 years ago? I think they might put less emphasis on the customers in their stores and invest more to serve customers online. I think, given the chance to do it over again with perfect hindsight, Sears would have alienated some customers in order to build what Amazon has now.
But not only were they unwilling to shift investments from offline to online at the dawn of the ecommerce era, no leader at Sears would have been allowed to make the same decisions that Amazon did. Everyone looks at Amazon as this great model of success, but Amazon lost $3 billion during the dot-com era. Three billion dollars! No one at Sears would have said “We should do the same thing!” The shareholders and board of directors would not have let them.
This really points to why big companies have such a problem making shifts in periods of rapid innovations. The investors in startups don’t care about the bottom line each quarter, while the leaders at publicly held companies live and die in three-month cycles. Despite this challenge, finserv firms must find ways to serve a younger audience, and this may mean pushing their older base to give up some service paradigms that are not economically sustainable. You can’t be all things to all people.
But I admit that is easy for me to say — I’m not a CEO trying to convince the board of directors that my firm will pursue a strategy that may result in the loss of 10% of its over-50 customer base in order to stay relevant to a younger base that is less lucrative today but may furnish a higher lifetime value. Still, how many companies and leaders wish they had the last 15 or 20 years to do over again so that they could more rapidly shift from offline to online, from paper to web, from older customers to younger and, most importantly, from serving today’s customers to preparing for tomorrow’s?
Speaking of Wall Street and the pressure from quarterly earnings to drive short term results, do you think financial institutions need to let go of that kind of thinking?
No one at a publicly held company can simply “let go of that that kind of thinking,” of course. Still, I think financial service companies often need to deal with facts and challenge assumptions.
For example, insurance firms often will say that “our agents are the backbone of our customer strategy because they build trust.” That sounds pretty sensible, but then why is USAA, a company that sells directly and has no agents, the most trusted company in insurance? I think there are a lot of assumptions that have been around a long time, that need to be challenged, particularly in this period of rapid innovation.
I’m certainly not saying every insurance company needs to fire every agent, but they need to push for more. For example, too many agents are quick to pass off customer service needs to the home office so they can focus on acquisition, but those customer service opportunities are exactly the sorts of trust-building opportunities that both insurers and agents need. Perhaps insurers should consider compensating the field force not just for acquisition, but for service as well.
To succeed in the long term, the agent has to care and if the agent cares, then the company cares. If you focus only on the short-term, companies and agents don’t do the right things to build trust and future business. It comes down to having the right long-term metrics.
Let’s talk about metrics. How does that fit into this idea of customer experience?
I believe the key to successful strategy is excellent metrics. The problem with most companies is they are chasing the wrong metrics. I’ll use social media as an example. A lot of people talk about engagement, but anyone can game engagement. You could say, “click here if you like puppies.” That sort of engagement may deliver bigger numbers for a social media scorecard, but it does not create brand value. At the end of the day, I’d rather have 10 of the right people have a valuable brand-building engagement than 1000 of the wrong people like a post that asks people if they are happy it’s Friday. The wrong metrics drive the wrong strategies.
In terms of specific metrics, is net promoter score the metric? What should companies be focused on?
I think NPS is great. People were up on it ten years ago, now people are a bit down on it, and today there is more attention on Effort Score. I think that’s great too. We can debate which one is better, but I’d suggest either one is fine because both are good leading metrics. My argument is rather than focus on which metric is marginally better than another, the important thing is for a company to choose a long-term metric and stick to it.
Whether its NPS, Effort or something else, find the long-term metrics that are important and commit to them. Too many companies focus only on short-term metrics, such as top line growth and acquisition. Those are important for today, but someone needs to stay focused on the leading metrics that are important for tomorrow.
“You need to understand your leading, concurrent and lagging metrics. All three are important, but not all three get attention at most companies.”
Advocacy is always a leading metric, and it deserves more attention. Many companies are counting fans and likes as if they are important metrics, but they are only a means to an end. If you focus on leading metrics such as consideration, loyalty, likelihood to purchase and likely to recommend, it will drive different and better strategies. Anyone can get people to click on a puppy picture, but only brands doing the right things earn improvements in the leading indicators that matter.
It’s about balance. The whole company cannot focus only on short-term or lagging measures like quarterly financial results. The company also needs people who think and invest in the long term and deliver on leading metrics. It’s not about saying no to anything but about balance. Many companies simply have not struck the right balance between today and tomorrow.