Cisco Study: Digital Lifestyles Drive a Widening Gap Between Consumers' Expectations and Bank Delivery

Explosion in Customer Adoption of Technology Increasing Expectations of All Age Groups. 65 Percent Would Move Money for IoE-Enabled Banking. Evolving to Digital Bank Model Could Drive 5.6 Percent More Profitability for Banks

BAI Retail Delivery Conference and Expo, Booth 4029

CHICAGO November 13, 2014 – At the BAI Retail Delivery conference, Cisco today announced the U.S. findings from its global study of more than 7,000 consumers in 12 countries revealing a gap between digital consumer behavior and bank delivery. U.S. consumers are living a digital lifestyle but see their primary bank as currently lagging in the ability to deliver convenient, personalized service. This divide goes beyond Generation Y, with 65 percent of all U.S. respondents suggesting that they would move money to a different financial institution for personalized Internet of Everything (IoE)-enabled services, in areas such as mobile payments, branch recognition, smartwatches, real-time videoconferencing, and automated financial advice derived from deep analytics.

Of the 603 U.S. consumers surveyed: 41 percent of Generation X and 36 percent of Boomers surveyed expressed that their bank does not understand their needs; 43 percent of all surveyed believe their bank does not know them and consequently cannot deliver personalized service; and nearly a third of customers will look into alternative banking relationships because they do not believe their bank is helping them reach their biggest financial goals.

Upside for Banks: Focus on Digital Behaviors, Not Demographics

Financial services institutions have an enormous opportunity for growth when they become just as digitized as their customers, whether in the branch or far beyond. The research findings indicate that it isn't only Millennials and Generation Y that respond to technology offerings from financial institutions. Consumers from all age groups affirmed their desire for technology that opens the opportunity for personalized anytime, anywhere service in their banking relationships.

The study identifies important new customer segments in terms of digital behavior — and not just age. Moving forward, it will be important for banks to recognize these segments and their receptivity to interactive solutions. The study found, for example, that within Gen Y there are distinct segments looking for different kinds of engagement with their banks. And among older consumers, there are many who are more open to digital solutions than previously thought.

Economic analysis from Cisco Consulting Services projects that changing the customer-relationship model in the branch and other digital channels could result in a bottom-line increase of ~5.6 percent for a typical financial services firm. For a typical financial institution in the United States with $10B in revenue, this represents a $392M annual profit increase opportunity.

The study, which was also supported by interviews with industry thought leaders, shows there is a significant opportunity for retail financial services institutions to evolve to a digital business model. This will reduce attrition and increase customer wallet-share by utilizing the Internet of Everything to:

  • Deliver more personalized and convenient services, with 53 percent of respondents looking for remote advice delivery outside of the branch
  • Dynamically apply analytics to better understand consumer behavior, with 73 percent of respondents interested in one or more analytics-based banking tools and apps
  • Provide integration of physical and virtual channels to deliver services on-demand, with 24 percent of respondents stating they would invest more of their assets and 26 percent stating they would buy additional products
  • The study also shows that in this IoE era of high connectivity, security is a top of mind prerequisite for the digital consumer's bank.

Based on analysis for a financial institution with $10B in revenue, implementing the following technologies could increase profits in the millions of dollars:

  • Video Mortgage –  $134M
  • Video Advisor – $131M
  • Branch Recognition/Personalization Services – $112M 
  • Automated Advisor – $65M
  • Mobile Payments – $26M

The Digital Consumer's Appetite for IoE-Enabled Services

Videoconferencing

  • Regardless of the mode of delivery, customers want the ability to chat with a trusted adviser, but the experience and relationship must feel like an in-person interaction
  • 54 percent of U.S. respondents seek remote-advice delivery outside the branch
  • Top preferences for video advice, in order, include: financial planning, problem resolution, stock and funding picks, selecting bank products and insurance policy advice
  • More than a quarter of those interested would move their money for video advice

Mobile Payments

  • 72 percent of respondents would use a mobile payment system if it had the capabilities they most want
  • 15 percent would definitely start an account to get it
  • The top factors that would increase a consumer's willingness to use a mobile payment system include:

o   More secure

o   Easy to use

o   Accepted at most merchants

Smartwatch Applications

  • Nearly half of all respondents (47 percent), regardless of age, are interested in banking with a smartwatch application to:

o   Check account balances (28 percent)

o   Receive alerts to avoid overdraft fees, for example (24 percent)

o   Transfer funds between accounts (23 percent)

o   Pay for an item in a store or physical location (22 percent)

o   Receive and redeem special offers or promotions (22 percent)

Augmented Reality

  • 76 percent of consumers are interested in augmented reality experiences that, when viewed through a smartphone, superimpose discount offers over local retailers
  • Other potential avenues for augmented reality development by financial institutions include:

o   Reward redemption: Real-time display of merchants in an area where a user can redeem coupons

o   Virtual locators: Location of bank, ATM, as seen through the camera of a mobile device

o   Real estate: View property details, mortgage calculator and other tools by pointing a mobile device at a property

Automated Financial Advice

  • A new type of investment service uses data analytics to help investors select a portfolio of investments that fits their financial goals and preferred level of risk without a human financial advisor managing the customer's portfolio. In essence, this service is a software program that intelligently manages a customer's investments. The fees charged for such services are generally lower than those charged by traditional financial advisors.
  • 48 percent of U.S. respondents are interested in receiving automated financial advice, and the percentage is even higher in younger demographics
  • Among those interested, 77 percent would move at least some assets to use an automated adviser.
    • Among those willing to invest approximately 30 percent of their assets, Gen Y led the pack at 34 percent; with Gen X at 28 percent; Boomers at 22 percent; and Silvers at 18 percent.
  • Another 73 percent of respondents were interested in analytics-based banking tools, with the highest interest in retirement calculator (22 percent); automatic savings tool (20 percent); and automated budgeting (20 percent).

Security Concerns Create Hesitation in the Digital Consumer

While new interaction models can help drive opportunity for financial institutions, they must deploy these models securely to engage the digital consumer. Although consumers are overwhelmingly pushing their adoption of new technologies, security remains their primary concern with new interaction models. When asked what would most contribute to their not wanting to meet with remote financial experts via video, respondents listed insecure personal data as their primary fear. In addition, 50 percent of respondents named a concern about security and privacy as the top factor preventing or limiting their use of a mobile payment system.

The Internet of Everything for Financial Services survey (conducted by Cisco Consulting Services) includes the U.S. results from a global survey of 7,200 consumers (ages 18 and up) in 12 countries (Australia, India, China, Japan, United States, Canada, Mexico, Brazil, United Kingdom, France, Germany, and Russia).

The margin of error for all survey questions is +/- four percent.

For the purposes of identifying the generational demographics, the study refers to those aged 18-34 as Generation Y, or Millenials; those aged 35-54 as Generation X; those 55-64 as the Baby Boomers; and those 65 years and up as Silvers.

Supporting Quotes

Paul Jameson, managing director of global industries, Cisco:
"The Internet of Everything is rapidly changing the expectations of today's consumers, and banking is not immune to those shifting preferences. While the demands of Generation X have influenced banking practices in recent years, this study shows that every age group is clamoring for the personalized, convenient and secure services that IoE-enabled banking affords. Retail banks have a great opportunity to shift their business models and deploy solutions that deliver these services to increase customer satisfaction across all age demographics as well as increase their wallet-share."

Jerry Silva, Global Banking Research Director, IDC Financial Insights:

"We see the older generations picking up technologies like tablets and smart phones much more than we ever have as digital experiences become much more intuitive than before – think of apps like Skype and Netflix.  And they can now leverage those experiences and that learning to use the same technologies within the branch as well.  So as self-service channels like kiosks and ATMs get more advanced in terms ​of their functionality, older generations like Baby Boomers are picking up and adopting those technologies just as well as the Millennials."​

Brett King, author, host of Breaking Banks Radio, @AmerBanker "Innovator of the Year", founder/CEO, Moven:

"What's really going to change this space is that the best advice is advice in real time. So think of it like Tony Stark or Iron Man, and the heads-up display. So don't go telling Tony Stark three weeks later that that missile's on its way. You have to have that information now. And that, I think, is a great illustration of the way advice, and the interface of advice, is going to change in the future. Sure there'll be times when we will still need a face-to-face interaction. But the most powerful advice is advice that can help you right now today to make a critical decision."
 

Supporting Resources:

·        The Internet of Everything for Financial Services Survey

·        Cisco Internet of Everything

·        Cisco Financial Services Blog

·        Cisco Financial Services Website

·        Cisco Financial Services Insights Website

Technorati Tags: Cisco, Financial Services, Retail Banking, banking, IoE, Internet of Everything, Wealth Management, Remote Expert, video, mobile, mobile payments, smartwatch, augmented reality, digital, customer experience

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