Executive Summary

Digital banking capabilities are playing an ever larger role in companies’ relationships with their commercial banks and selection of new banking partners. Unfortunately, many providers’ digital platforms still fall short of continuously rising customer expectations, which are increasingly driven by executives’ consumerized experiences outside of banking. Regular, seamless transactions with entities like Amazon, Uber and even Starbucks are spilling over to treasurers’ expectations of their digital banking experiences.

Banks’ opportunities for improvement in digital banking technology have been catalyzed by sharply improving B2C capabilities and customer experiences. Owners and executives participating in Greenwich Associates research express frustration with time-consuming, manual and often redundant requirements that make doing business with banks more difficult when other industries are racing toward simplicity. These realities are now reflected in critical customer satisfaction metrics, which have taken a sharp downward turn after a decade of improvement.

The good news is that banks recognize these challenges and are stepping up investments accordingly. Leading banks have set ambitious development timelines and are investing millions of dollars to build out digital platforms they hope will address the “ease of doing business” issues and ultimately strengthen the customer relationship. The ensuing digital technology race will pose a significant challenge to smaller and regional banks, many of which will lack the scale and in-house expertise required to create, deploy and maintain differentiated digital platforms.

As customer demand for convenience continues to accelerate, commercial banks should consider these implications:

  • Perceptions that banks are hard to do business with
  • Softening customer satisfaction and eroding loyalty
  • Vulnerability to non-traditional provider

Executive Summary

Digital banking capabilities are playing an ever larger role in companies’ relationships with their commercial banks and selection of new banking partners. Unfortunately, many providers’ digital platforms still fall short of continuously rising customer expectations, which are increasingly driven by executives’ consumerized experiences outside of banking. Regular, seamless transactions with entities like Amazon, Uber and even Starbucks are spilling over to treasurers’ expectations of their digital banking experiences.

Banks’ opportunities for improvement in digital banking technology have been catalyzed by sharply improving B2C capabilities and customer experiences. Owners and executives participating in Greenwich Associates research express frustration with time-consuming, manual and often redundant requirements that make doing business with banks more difficult when other industries are racing toward simplicity. These realities are now reflected in critical customer satisfaction metrics, which have taken a sharp downward turn after a decade of improvement.

The good news is that banks recognize these challenges and are stepping up investments accordingly. Leading banks have set ambitious development timelines and are investing millions of dollars to build out digital platforms they hope will address the “ease of doing business” issues and ultimately strengthen the customer relationship. The ensuing digital technology race will pose a significant challenge to smaller and regional banks, many of which will lack the scale and in-house expertise required to create, deploy and maintain differentiated digital platforms.

As customer demand for convenience continues to accelerate, commercial banks should consider these implications:

  • Perceptions that banks are hard to do business with
  • Softening customer satisfaction and eroding loyalty
  • Vulnerability to non-traditional provider

Introduction

Companies frustrated with cumbersome banking processes often ask the same question: Why can’t this be automated? Company executives spend a lot of time online. They’re well accustomed to retail order forms with auto-fill, one-click purchases on Amazon and real-time updates on car status from Uber. So why are they required to fill out the same information for the third time, in hard copy, which will then have to be scanned back to their banks?

These questions have become pervasive among owners and executives seeking ways to work more efficiently with their banks. In fact, frustration about time-consuming requirements, slow turnaround times and lack of progress updates are taking their toll on commercial banking relationships.

Companies’ perceptions of their banks and banking relationships had been improving steadily since bottoming out during the global financial crisis in 2008–2009. Many banks measure the quality of their customer relationships by tracking customer satisfaction or similar Net Promoter Score (NPS). “Excellent” satisfaction ratings topped out at the start of 2014, when 51% of middle market companies using one of the top U.S. banks rated their overall satisfaction as “excellent.”

That prolonged climb can be attributed to several developments, all related to the end of the crisis—in particular, the resumption of bank lending, companies’ easing concerns about the financial stability of their banks and the gradual waning of companies’ anger over perceived lack of support during the crisis. Together, these factors amounted to a gradual restoration of trust between commercial banks and their clients, and satisfaction scores reflected that.

That trajectory was upended in 2014, when evaluations declined. After a rebound in 2015, they fell again, dipping last year to 2012–2013 levels, with roughly 47% of companies giving their banks an “excellent” overall satisfaction level. The most recent drop represented a double-digit proportional swing from “excellent” client ratings to a far less resounding “above average” assessment.

Overall Satisfaction Among Top U.S. Banks

This raises a basic question: What happened?

The simple answer is that banks have become tougher to work with— or at least it feels that way. The recent drop in client satisfaction scores corresponds with another important shift in in the industry. Over the past several years, “ease of doing business” has climbed up the list of factors that drive companies’ satisfaction with their banks. In fact, it now ranks as the single biggest determinant of companies’ overall bank satisfaction. There are at least three main drivers of this trend:

  • Regulatory and compliance demands have strained interactions between commercial banks and their customers. KYC rules, documentation requirements, anti-money-laundering rules, and other aspects of post-crisis regulatory scrutiny make processes like onboarding and other basic interactions time-consuming and frustrating.

    Companies participating in Greenwich Associates research complain about the need to provide the same information multiple times on different forms, the manual nature of the work and a lack of transparency that makes it difficult to know where you stand in the process and when you can expect to conclude.
     
  • Since the end of the financial crisis, banks have been operating in an adverse environment.Elevated capital requirements have altered the economics of the business, cutting into profitability and budgets. This has taken place in a period of historically low interest rates that made it harder for banks to make money. In response to these conditions, banks shed billions of dollars in costs, resulting in lean coverage teams, while being forced to hire thousands of new legal and compliance professionals.

    Relationship managers (RMs) were pushed to spend more time on prospecting activities to grow the business and less time servicing existing clients. Some customers, meanwhile, were “encouraged” to use lower-cost channels for their day-to-day interactions with the bank. Often, these channels, including call centers and rudimentary online platforms, left many feeling inconvenienced and underserved, relative to the days of a quick call to their friendly banker.
  • Outside of the commercial banking industry, digital service is not only better, but in some cases, approaches great. Men and women who are owners and executives of small businesses and middle market companies by day are typical consumers by night. They buy household items on Amazon and make airline reservations on their mobile phones. Even in their personal banking, they use retail bank websites and mobile platforms that easily handle most routine tasks with a few swipes and taps.

    The digital capabilities of these companies help create positive customer experiences and build loyalty. But when these professionals go to work, many are forced to endure the comparatively arcane (often paper-based) procedures of their commercial banks.

Banks' digital channels do not yet foster an excellent customer experience relative to client expectations, which are based increasingly on experience outside the commercial banking industry

This dichotomy explains why companies see digital capabilities as key to their lives—including their bank relationships—and why bank satisfaction scores are declining. In most cases, banks’ digital channels do not yet foster an excellent customer experience relative to client expectations, which are based increasingly on experiences outside the commercial banking industry.

Compounding the problem are new fintech providers that market themselves as slick, sexy and customer-friendly alternatives to the slower-moving (regulated) banks. Although many of these entities are retail-focused and have unknown long-term viability, collectively they further highlight the widening gap between the customer experience in wholesale banking vs. other businesses and services employed by corporate executives today.

Roots of the Problem

Banks’ current situation is at least partially of the industry’s own making. While the banks clearly had little say in the strict new regulations and documentation requirements—and in cases, vigorously opposed them—most commercial banks have been behind in making the sizable investments needed to deploy state-of-the-art digital platforms.

There were legitimate reasons for this hesitancy. In the years after the crisis, banks were aggressively cutting costs, not making big, new strategic investments. Even when bank balance sheets stabilized, the market remained tight and competitive. In such an environment, the benefits of investing in seasoned bankers with a track record of delivering ROI were easy to see. New technology investments—especially of the scope required to develop and implement a sophisticated digital platform—were tougher to rationalize.

Although technology has obvious potential to improve the customer experience, it was less clear how technology investments would translate into growth, especially at a time when banks’ own research was telling them otherwise. Factors like trust and credit provision have traditionally been rated as more important than digital capabilities when it comes to determining levels of overall customer satisfaction.

Strongest Drivers of Overall Satisfaction, Key drivers of overall satisfaction and top 3 drivers of "ease of doing business"

All that has changed. Today, “ease of doing business” is the critical driver of client satisfaction in commercial banking, and digital capabilities are an increasingly important determinant of not only “ease of doing business” but also bank selection. The previous graphic shows the top three factors that play the biggest role in determining how hard or easy it is to do business with a bank. Having a single, responsive point of contact at the bank will always be important to clients. However, of almost equal importance are the emergence of “electronic banking options that simplify day-to-day banking.”

Digital Capabilities as a Driver of Bank Selection

These considerations are not just coloring companies’ perceptions of their existing banks, they are starting to drive companies’ selection of new banks. More than 3 out of 4 executives now cite digital capabilities as “important” or “very important” in selecting a banking partner.

Customer frustrations have the potential to undermine relationships, diminish customer loyalty and hurt retention rates.

The Demand for Convenience

Despite a slow start on digital technology, wholesale bankers have gotten the message and are rising to the challenge. They recognize the danger of softening customer satisfaction, engagement and loyalty. They understand that customer frustrations have the potential to undermine relationships, diminish customer loyalty and hurt retention rates. And they realize that technology will provide pathways to address the problems. For that reason, banks are making an aggressive push to catch up on the tech front, investing tens or even hundreds of millions of dollars to build and upgrade their digital platforms.

The biggest global and national commercial banks are continuously updating ambitious development roadmaps and making significant progress in execution. They expect to see the payoff in the form of an improved customer experience that reduces headaches and time demands for clients, while also driving a sustainable cost-to-serve model. For the most part, large providers are using their considerable resources to develop these capabilities in-house and only tying in third-party applications for very specific functionality.

Digital Banking Platforms: Big vs. Small

All this represents a challenge to smaller banks. Regional and community banks often compete against bigger providers on the basis of better and higher-touch service. How will the value of that service hold up in an era of “consumerized” customer expectations?

We urge banks of all sizes to beware of what we call the fast-follower trap. Those that wait to see what competitors are offering run a risk of starting the budgeting and planning process far too late in the cycle and falling further behind those that continuously innovate. The costs of this strategy rapidly compound as legacy systems and their partial upgrades miss customer expectations.

Global and national banks are already actively promoting technology that allows clients to perform routine banking functions easily and at any time online or on mobile devices. How will small banks compete against the scale of benefits produced by the largest players?

These questions are especially pertinent given that one important benefit large banks will derive from their new technology platforms is the ability for their RMs to spend less time on routine functions and more time on “higher value” tasks, such as meeting prospects and providing companies with business advice—advice that soon will be enhanced and enabled by artificial intelligence.

Faced with the growing importance of digital platforms, many regional and smaller banks lacking the in-house expertise to develop these capabilities internally are turning to third-party technology vendors for white-label solutions. It is imperative that smaller banks continue to press their technology partners for updates, expanded capabilities and ongoing development. Without this, they will fall behind.

A wildcard in this scenario is the movement toward open banking. Should the platform-coding market open up to startups and entrepeneurs, there could be a considerably different landscape in just the next few years. We look forward to tracking this evolution, first in Europe1 and then more broadly.

Conclusion

The consumerization of digital banking expectations is well under way, pushed along by comparatively superior digital experiences outside the commercial banking industry. Missed expectations and mounting frustration with outdated policies are eroding banking relationships. To satisfy the demands of their commercial clients, banks will have to do much more than provide tech fixes for largely manual documentation processes and other administrative tasks.

The magnitude of development currently underway is unprecedented in the industry. In the coming years, we anticipate tracking the race toward a digital customer experience that aligns with what we as consumers engage in daily. The big question will be to what extent the leaders will benefit and what the cost will be to those stuck in the denial of a “fast follower” mentality.

1Payment Services Directive 2 (PSD2) came into force on January 13, 2018 and will mandate European banks support open banking.


Recommendations for Banks

Banks need to view technology and investments as an ongoing commitment to the customer. Preferences are changing rapidly and an increasing number of executives are leveraging digital channels in both their personal and professional lives. Those banks that fail to create convenient, intuitive platforms will risk silent defection. This is particularly true in the commercial and corporate segments, where customers have visibility into the capabilities of multiple banks and shortcomings are difficult to hide.

Whether banks choose to develop in-house, acquire or tailor a hybrid solution, it is imperative that leadership teams understand where the market is headed and how client expectations continue to rise. A long-term strategy should:

  • Build a development roadmap that sets a course for the next 3–5 year
  • Understand the impact digital channels are having on overall relationship
  • Regularly refine digital stategy with customer inputs as well as a sober understanding of competitors’ offerings and trajectory

How Greenwich Associates Can Help

Greenwich Associates runs a range of digital banking benchmarking programs each year to compare platforms, development roadmaps and customer perceptions.

We can help your team determine if the bank’s current capabilities are in line with peers and whether the investment and deployment of new features will lead or lag those of competitors over the coming years.

Allow us to help you avoid the fast-follower trap and develop an appropriate understanding of the marketplace amid a steepening set of user expectations.

Make Better Digital Decisions and Improve Your ROI

There are a limited number of slots remaining for free assessments as part of the 2018 Digital Banking Program. Reach out to us to see if your bank qualifies.

For more information, please contact Chris McDonnell at +1 203.625.5187 or ContactUs@greenwich.com

Managing Director Chris McDonnell advises senior management at leading commercial, corporate and investment banks.


Additional Reports

Greenwich Associates Banking practice has written thought leadership pieces on a variety of topics. Published reports include:

The Analytics Arms Race

The Future of Banking—2025: Rise of Digital Banking Superstore

The Future of the Banker: Transforming Intellectual Capital Through AI and BI

Open APIs: A Disruptive Technology with Benefit

Agile Approaches: Best Practices for Digital Transformation in Bank