The banking industry is slowly and surely disrupting itself due to two key drivers – customer experience and social banking. Traditional banks with branches have been facing pressure from direct banks (banks without branches) but now have a stealth-mode competitor in Social Banking (watch the video Fidor Bank).

/wp-content/uploads/2013/11/bankpig_323075.jpgThough the world’s first fully functional direct bank, First Direct, was launched in UK in 1989, it was only in the recent past that this sector started growing at a phenomenal pace. The“bank in your pocket” approach works very well for this sector due to the proliferation of smart-phones/tablets and the lack of IT legacy issues compared to traditional banks. “Banking with Friends” is the approach of “social” banks such as Fidor Bank, where the community takes care of sales, service, setting the interest rate, peer-to-peer lending, and more.

Marketers in the traditional banking sector will face more pressure compared to the marketers in the direct bank sector due to the businesses difficulties in embracing customer experience and social banking.

The impact of the customer experience

Customer experience is a matter of survival, and banks’ organizational and technology landscape will face increasing pressure due to key customer experience factors such as ease of use, accessibility, responsiveness, relevance, reliability, seamlessness, and frictionless experience. Though some of these factors will be addressed by omnichannel banking and straight-through processing, another key factor “relevance” is going to stand out. Relevance is not only about bringing relevant products from the existing portfolio and behavioral content based on customer interactions/insights, it’s also about bringing new added value products such as personal financial management (PFM), mobile apps, electronic wallet, and video advisory.

New revenue channels such as third-party advertising is gaining momentum – Australia’s U Bank has a Web site for PFM and new value propositions where customers can compare their spending habits with peers and national averages. This also then allows the bank to let third-party companies advertise on the site. Straight-through processing is gaining customer momentum – a group in Korea offers a mortgage product fully online from start to closing in 5 steps.

Marketers at traditional banks without the value added products would have to sharpen their digital focus on branding, communications to make it more relevant. The advertising industry is going through a sea change and banking marketers should adopt now – else play catch-up later. They can no longer afford to do a lot of broadcast marketing, including direct mail, print, TV, and radio.

Technology solutions – such as real-time predictive analytics with big data and in-memory computing – can play a key role in sharpening a banks digital business/marketing focus. And it also helps to have a marketing Center of Excellence (CoE) within the technology team or vice versa in order to turbo-charge awareness, adoption, execution.

Marketers need to stop treating mobile as a channel; it’s a customer’s companion – so marketing needs tighter integration with the business in order to deliver a better mobile experience. Mobile is creating a mind-shift for customers as they use it on the go for services across industries such as telecom, retail, media, and entertainment. Mobile experience best practices and expectations get carried over across industries (read Seven Factors Affecting Mobile Advertising And Payments).

The impact of social banking

The power of social networking is propelling some start-up banks, such as Fidor Bank, to surge ahead. At Fidor, customers log in through Facebook logins. And with 34 staff members, 200,000 people registered, 150,000 community members and no sales staff, sales, service is community driven including peer-to-peer lending, wisdom-of-crowd advisory. However, big banks are far away from social banking and are instead focusing on the community aspect for awareness and idea sharing by using social media platforms.

Marketers at big banks focusing on social media need a strategy that is social not a social media strategy and the challenge with a social strategy is it goes beyond the engagement layer of social media and impacts the business model and silos ( across functions, branch based P&L focus). Though some banks are citing regulatory issues as the reasons for their social media apprehensions, big banks like Citi are embracing social media from a customer service and loyalty perspective.

Think about customers choosing top traders based on their influencer level, track record, and number of followers on social media. Without fundamental changes in the bank, marketers will be left to focus on the communications  layer of sales, service by creating a fused replica of these banking functions on “social media,” instead of being “social’ media – for the customers by the customers.

Customer experience and social banking are not mutually exclusive, while the former puts more pressure on the traditional banks internal structures, policies, and product innovation. The latter cannibalizes the banks product and revenue streams through peer-to-peer lending, crowd-based advice, and others. The tipping point is when these two factors suddenly surge from being “cool” to “mainstream.”

Marketing will be about helping the banks’ senior management see the upcoming wave and coming up with necessary solutions to sail through. Five years after the banking crisis, too big to fail is not the name of the game anymore.

Follow Ramesh Ramakrishnan on Twitter, on Linkedin or Google+, Website: www.futuristCMO.com

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