Thinking premium

By Anthony Ianniciello

Have you ever thought about why you’re willing to spend $5 for a latte at Starbucks when you could get a decent cup of coffee at McDonalds for less than half the price? One word: experience.

Coffee beans themselves may vary a bit in quality, but for the most part they’re a commodity. The real difference is in the experience of making the coffee and where the consumer gets the coffee. Once that becomes a commodity, you get to that point where you’re willing to pay Starbucks $5 because of the experience—the couch, the music, everything else that goes along with the brand.

The concept laid out by B. Joseph Pine II and James H. Gilmore in The Experience Economy is even more applicable today than when they wrote it in 1999. As things become commoditized, people are willing to pay more for experiences. Think Apple.

This is the key to how financial institutions can differentiate themselves from their competition.

Financial services are highly commoditized and bank customers are often looking for the same set of services, so the primary differentiation must come through experiences. In fact, Forrester’s US 2021 Customer Experience Index found that companies that focused on improving customer experiences during the pandemic “grew revenue, profits, employee engagement, and retained customers at more than twice the rate of other firms.” The index also found that customers of the firms that scored highest are “2.4 times more likely to stay with them, 2.7 times more likely to spend more with them, and 10 times more likely to recommend them.” And most significantly, loyal customers will pay up to 200 percent more for a preferred brand.

Once it’s relatively easy to pay for an experience such as a concert or meal, we move to the next level, where people are looking for transformation. Take Peloton for example. It’s no longer the experience of riding a bike that is attractive, it’s the resulting transformation of who you are, to a better appearance or a healthier lifestyle, that consumers are willing to pay for.

When we think about how banks can grow and serve their communities, it’s about understanding the transformations their customers want. They want to start families, buy houses, start second careers. A lot of things that people want to do with their money are really about transitioning from where they are to where they want to be.

Take a page from streaming

Banks can pull together a picture of their customer with data that looks at behavior and reflective moments in the customer’s financial journey. We then personalize those experiences back to the user so we’re going on the journey with them. If you can offer that point of reflectivity to somebody along their normal journey, especially in the financial space, they start to think differently about their goals, and that’s how to develop loyalty in your customer base. You’re the one helping them assess where they want to go and helping them get there, and that’s how you provide experiences that become transformational.

We can understand these traits using behavioral analysis. We start with a bank balance; that’s data. Then we show the balance over the past 60 days; that allows for analysis of cash flow. But instead of asking the customer to develop a budget, which conceptualizes the data, we look at their behavior and present the budget to them—much like Netflix and other streaming companies use behavioral data to serve consumers targeted content. Then we have behavioral traits to operate on and we can anonymize the data to create buckets of groups that are similar to each other.

We can also use behavioral analysis to offer specific financial products that will deliver transformation. For example, we can use data to identify somebody who might be financially vulnerable and help them become more financially stable.

Another example is the concept of a young professional who is quickly growing earnings but isn’t managing her new wealth effectively. How does the bank serve that person and provide her with budgeting, savings and investment tools so their net worth can grow? It hinges on looking at her deposits, spending, transactions and aggregated accounts (by giving her the ability to link in external accounts) so you can step in to help on her transformational journey.

Once we’ve identified where the customer sits and what she needs, we want to curate what they see when they log into their account. Just as social media algorithms show users what is deemed most important to them, we need applications to prioritize what the banks customer wants to see (even if she doesn’t know what that is).

So it’s not just about logging in to check balances. When a financially vulnerable customer logs in, for example, he might be shown a budgeting tool or a payment tool that allows him to skip a mortgage payment without affecting his credit rating.

It’s important to remember that nearly 80 percent of logins are happening on a mobile device, so it’s critical to use the screen space effectively. Take a customer who’s running a food truck or a clothing stall at a farmers market. What can the bank do to help these customers without waiting for them to communicate what they’re doing and what they need?

It can consider the user experience standpoint, and then prioritize the real estate to match what customers want when it does have the opportunity to communicate with its customer. So the next time they log in, instead of prioritizing an advertisement, prioritize the application, the workflow, the navigation and how everything functions around what you know about the behaviors of these users.

You want the customers to walk away thinking, “I didn’t even know I needed this!” And just like with that Starbucks latte, they’ll be happy to pay more for the product because of the experience.

As VP for digital banking product management at Q2, which ABA endorsed for digital banking, Anthony Ianniciello is responsible for leading the product, engineering and design teams responsible for delivering consumer and mobile banking products.