Designing the Lifestyle Banking Revolution.

Fintechs have revolutionized retail banking services, leaving many banks to play catch-up. Today, banks can reinvigorate Retail Banking into more profitable business while reaching broader audiences.

Posted on Jun 17, 2023

Today, people are setting financial goals using modern tools and channels, seeking convenient, immediate services wherever they are. They've lost faith in "the system" and question the value of traditional banking in their lives.

There’s an opportunity for retail banking to extend services like financial planning, investment management, estate planning, tax guidance, and retirement planning to a broader, mass customer base while minimizing expenditure.

Don't pitch The Bank. Sell banking.

Lifestyle Banking looks beyond digital transformation. Customers are no longer "customers" or "users." They're people who don't have an affinity for the brand. Instead, they've moved on to better, more convenient solutions that accommodate their in-the-moment needs.

Lifestyle banking is a framework for raising the next generation of wealth banking customers.

Wealth management is a service that caters to the needs of affluent clients, typically those who have inherited assets from previous generations. However, the emergence of digital financial services has opened up a massive untapped market of billions eager to build wealth.

Retail banking can capitalize on this opportunity by providing a wider range of digital services, including financial planning, investment management, estate planning, tax guidance, and retirement planning to a broader customer base, all while minimizing costs.

Many folks are left questioning the value of banks in their lives simply because they’re not in the wealth circle.

With big data and AI's growth, banks can now provide personalized advice and services tailored to an individual's financial situation and goals, promoting growth and stability. This approach especially benefits traditionally underserved audiences.

Considering the long-term wealth creation and preservation journey, banks should aim to build enduring customer relationships, providing continuous support and guidance.

While expanding these services may present challenges, the potential to assist millions, if not billions, in creating generational wealth makes it worthwhile, as institutions can now reach broader audiences at lower costs to develop the private banking customers of the future.

The Last Few Years Haven't Been The Best. But they've been great.

There was a trade war, a logistics crisis, mad inflation, and, let's not forget, pandemic lockdowns. All of which had a direct impact on the way people engage with their banks.

Predicted Revenue Growth.

Experts suggest the business impact from these disruptions may take 3-5 years to recover fully.

On a positive note, while the surge in demand posed challenges, digital banking proved resilient, benefiting from tech advancements for personalized, efficient services.

Many Customers are Banking in Digital Channels for the First Time.

This wasn't just a fling. Data shows customer preferences are changing for good—lifestyle banking is just starting.

BCG's Retail Banking survey reveals a significant increase in online banking usage. (Source: BCG, The Front-to-Back Digital Retail Bank.)

  • In 16 key markets, 13% of respondents used online banking for the first time in 2020-2021, with 12% utilizing mobile banking services. Some markets reported even higher adoption rates.
  • Over 60% of retail customers prefer digital payment methods, indicating a shift in behavior.
  • Cashless banking adoption rates among younger generations exceed 80% in many markets.

While events have accelerated the shift from traditional banking to digital channels, the industry needs to align with the everyday behavior of younger generations and adapt to their lifestyles because things are changing fast.

And it's happening faster than you think.

A recent study by Vericast has revealed that Gen Z is approaching their financial education and planning in wildly different ways than in the past.

Over two-thirds of respondents identified TikTok and Youtube as their sources for financial guidance, and only 25% sought advice from traditional financial advisors and banks. (Source: Vericast, Consumers Seek Financial Guidance and Comfort from Non-Traditional Sources Like TikTok).

I'm not suggesting banks go out and create TikTok accounts. However, understanding evolving customer engagement channels is vital for traditional banking to reach younger generations more meaningfully.

The most successful banks will adapt and refine their digital services, focusing on their customers' lifestyles and experiences regardless of what occurs in times of uncertainty.

Transform Retail Banking from Loss Leader to a Profit Machine.

Everyone talks about it. The Fintechs did it.

Fintechs use technology and customer-centric approaches to offer better financial services and capture a significant market share, challenging traditional banks. This presents an opportunity for banks to adapt and evolve.

By adopting the technologies and strategies used by successful Fintechs, banks can transform retail operations from a cost center into a significant revenue generator.

The Role of Design Thinking.

Experts in banking and fintech agree that understanding customers and prioritizing their needs is essential. However, the approach to customer-centricity often differs between these sectors.

Successful fintechs take an immersive, customer-first approach, aiming to gain deep insights to disrupt existing financial services. In contrast, traditional banks tend to concentrate on maintaining their current services for their broad customer base.

Fintechs prioritize a customer-centric approach, while traditional banks tend to focus on preserving and maintaining existing services.

Fintechs have grown their customer base faster and have achieved higher retention rates by continuously adapting to customers' desires. In retail banking, this means designing services that are efficient, secure, and tailored to customers' needs and lifestyles:

  • Democratize Wealth Management: Recognize the untapped market of potential wealth customers and expand offerings to include digital wealth management services to a broader customer base.
  • Leverage AI and Technology for Personalization: Use technology to deliver personalized advice and interactive financial planning tools.
  • Promote Financial Literacy: Emphasize financial literacy by providing resources and educational tools targeting underserved audiences. Build new customer relationships, promote growth, and help many create generational wealth, building a substantial customer base for future private banking.

Design Thinking in Retail Banking.

As intergenerational wealth transfer grows, seamless services will be in high demand. Banks must adapt, developing services for current and future generations. Forrester envisions by 2030, retail banks will be "invisible, connected, insight-driven, and purposeful," using technology to supply hyper-personalized services that focus on financial growth for the masses.

The next evolutionary step in banking is not about better banking apps; it's about delivering personalized services that align with customer lifestyles.

Design Thinking improves bank-customer engagement through co-creation, rapid iteration, and data-informed decisions, leading to better customer experience and growth.

  • User-Centric Approach: Design Thinking in banking prioritizes user needs and expectations, tailoring solutions to their unique preferences. This approach is central to the design process.
  • Collaboration and Co-Creation: Foster joint efforts with users, employees, business partners, and regulators, ensuring alignment with objectives.
  • Rapid Iteration and Experimentation: A fast trial and refinement process allows for constantly evolving ideas based on user feedback and testing.
  • Data-Informed Decision Making: Utilizing data and analytics, the design process is guided towards informed choices about which solutions to enhance and pursue.
  • Continuous Learning and Improvement: This approach champions an environment of constant learning and improvement, encouraging designers to incorporate frequent user feedback into their refinement process.

Technology will continue reshaping banking, and customer demands will continue to evolve—design digital experiences to offer all physical banking benefits with the convenience of any-time, any-place access.

For example, I've been traveling for a few months and have never had to withdraw cash from an ATM. And I'm not the only one.

The rise of contactless payments has transformed how people engage in day-to-day transactions. Over 60% of retail banking customers prefer digital payment methods, with adoption rates exceeding 80% among Gen-Z.

People want the convenience, speed, and security of digital payment solutions such as tap-to-pay, contactless payments, and digital wallets.

To achieve this, banks must invest in data systems and technology platforms to gain insights into individual needs and behavior to deliver personalized services, proactive financial advice, and tailored recommendations.

Today's banking customers seek simple, transparent finance solutions that fit their lifestyles. Be customer-friendly and deliver intuitive digital services for a seamless and convenient banking experience.

And trust that your customers will love you for it.

Success Stories.

  • Ally Bank reached $100 billion in personal deposits in 10 years, with a customer retention rate of over 90%. In H1 2019, they gained 200,000 new customers and increased personal deposits by $9.5 billion. (Source: Ally Bank,  Ally Bank Surpasses $100 Billion in Retail Deposits in Just 10 Years.)
  • DBS Bank performed well in 2022, achieving a 4% increase in share price despite a tough year for the banking industry. JPMorgan Chase and Bank of America saw declines of 20% and 30% respectively. DBS demonstrated strong momentum with impressive asset quality and loan growth, resulting in a record-high net profit growth of 23% in Q3 and a 16.3% ROE. The bank's cost-control measures also led to a 4% drop in its cost-income ratio, now at 40%. (Source: Retail Banker International, Mastering the AI advantage: how DBS transformed into a digital leader.)
  • ING Bank's user-centric approach to digital technology has paid off with a Net Promoter Score of 50 and an 80% digital adoption rate. Their pioneering spirit serves as a valuable lesson for us all. (Source: KPMG, The new competitive advantage: Customer Experience Excellence.)

The Challenges of Innovation.

By nurturing an innovative culture, banks can stay ahead of the curve and deliver cutting-edge banking experiences. However, these efforts often present new challenges in the transformation journey.

The Cost of Investing in Technology and Training.

The initial costs can be high, but these are long-term investments that promise significant returns. Working with fintech companies and using open-source software can provide cost-effective solutions.

The Impact of Cultural Change.

To successfully adopt a user-centered design approach, leaders should communicate the benefits of the transition and offer training. Emphasize the principles of Design Thinking and recognize employees who embrace them to shift company culture.

Privacy and Security.

Complying with privacy regulations, transparently communicating data usage policies, and using secure technology can help address these concerns.

In Closing.

Banks can significantly improve customer satisfaction and increase profitability by putting users at the center of service design and leveraging technology to reduce costs and improve service delivery.

The innovation and exploration of new technologies and customer-centered solutions have been an excellent test-bed for traditional banking to learn what works and what doesn't. There are unprecedented opportunities for institutional banking to transform retail into a profitable business with minimal risk.

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