Customers getting less than they expect

Financial services organizations have spent a great deal of time and money transforming their front-end systems to meet customer demands for enhanced services. They’ve invested in mobile and online banking and worked hard to create a seamless omnichannel experience. Most bank executives (92.6%) say that the main driver for their front-office investments is customer experience, according to Capgemini’s annual World Banking Report 2015 survey of more than 16,000 respondents. And for a time, those investments have been paying off.

But these investments won’t be enough to keep customers happy and loyal forever—because customer demands keep growing steeper.

“Customer expectations are increasing faster than what banks can deliver,” says Jean Lassignardie, corporate vice-president, and chief sales and marketing officer at Capgemini Global Financial Services. “Banks are improving, but the pace at which they can deliver new, better, and transformative customer experiences is not keeping up with consumers’ desire for personalization, engagement, and digitized services.” (The study is a joint project with Efma.)

Middle and back office need to feel the love

In addition to investing in the front office, banks need also to invest in their middle and back office systems to deliver a seamless real-time experience to customers, explains Lassignardie.

It’s a case of the emperor having no clothes: Although the front-end interface looks slick, customers soon realize that their account balance is different on the mobile app versus online banking, or that a transaction they made at the ATM is not reflected in real-time.

Even if a customer doesn’t directly contact the back office, many of the service issues they encounter are attributable to back office and middle office problems, such as slow processing times.

In a separate report Backing Up the Digital Front: Digitizing the Back Office 2013, Capgemini noted that 60% of customer dissatisfaction emanates from the back office.

“This is an urgent call to action for banks to pay new attention to the middle and back office systems, which they have historically ignored,” notes Lassignardie. “Middle and back office transformation is essential for elegantly responding to customer demands and new levels of customization and innovation.”

Customer Experience Index trends down

Lassignardie describes the Customer Experience Index (CEI), tracked by Capgemini, as a measurement of the difference between what customers expect from their banks and what they actually receive. This measurement has been in a slight decline over the past several years. In 2013, the CEI came in at 73.5 and decreased to 72.9 in 2014 and to 72.7 in 2015.

While that drop may seem insignificant, dig a bit deeper and you find a worrying trend.

“At the outset it may look like the CEI is stable,” says Lassignardie. “However, customers have greater choice in financial services providers from non-bank competitors such as Google, Apple, Walmart, and others. The result is that in addition to finding a slightly lower CEI, we’re also finding that customers are more likely to leave their bank.”

In addition to leaving their banks, there was a significant increase in the percentage of customers who are unlikely to buy additional products or refer someone to their bank. The percentage is highest for Gen Y customers (born between 1980 and 2000).

“Gen Y doesn’t care as much about having a deep relationship with their bank,” notes Lassignardie. “They value digital capabilities even more than previous generations and are less committed to a single bank.”

The CEI for Gen Y bears this out: Gen Y has the lowest customer experience level compared to those in other age groups, most likely the result of their expectations for instant access and seamless transitions.

Gen Y customers are the most likely to switch banks, with only 47.3% of Gen Y customers saying they were likely to stay with their current bank in the next six months compared to 69.8% for other age groups.

Not only were Gen Y customers more inclined to leave their bank, but they are also less likely to refer others.

Even if a bank is successful at keeping deposit accounts at their bank, they are less successful at keeping other products within their four walls. Only 62.1% of customers had their credit card with their primary bank; 59.6% their personal loans; and 52.5% had their mortgage with their primary bank. (Download Capgemini's infograpic "Banking Without A Bank")

How to improve the middle and back office

Bank executives are most likely to invest in middle and back office systems to simplify processes, mitigate risks, and reduce costs rather than as a way to improve the customer experience, says Lassignardie. But he says banks are missing an opportunity to enhance the customer experience by digitizing their operations.

Improving middle and back office systems is going to take some cash, says Lassignardie, even without a “big bang” type core replacement project. “Unraveling the spaghetti systems” in the back office is also time-consuming, and difficult to prioritize in the face of other pressing concerns such as compliance. However, Lassignardie believes that banks have no choice but to bite the bullet and make the investment in modernizing the back office.

To address high costs, banks can initiate projects in a phased approach. The goals of each project, says Lassignardie, should be to replace manual processes with digitized routines; simplify multiple system into fewer systems to enable faster time to market; and put in place the ability to capture and manage customer data effectively.

The other key is to leverage the data collected by middle and back office systems into better decision-making.

No time for complacency

Banks’ relationships with their customers are stagnant, putting banks at real risk of losing customers and stalling any plans for top-line growth, Lassignardie believes.

As the number of non-bank competitors aggressively pitching traditional banking services grows, banks need to step up their middle and back office transformation projects.

Ultimately, Lassignardie warns, banks must ensure that the areas of the bank that are less visible to customers receive the same focus as the front-end—because they “see” it all.

Download Capgemini's World Banking Report 2015