Can You Handle a Contrarian Opinion About the Customer Experience?

I recently had the honor to present at First National Horse and Buggy's annual strategic planning offsite. I'm probably violating terms of my agreement by posting this, but the company's planned changes to their user experience are so innovating and exciting, I don't care how much trouble I get in.

What's so exciting? The two most innovative planned improvements to the customer experience involve:

  • Convenience. As the population ages, people are increasingly finding it harder to climb the stairs to get into the buggy. So FNHB will be deploying mini-escalators attached to the side of the buggy to make it easier for customers to get in.
  • Security. Users were reporting that bad actors were stealing buggies at night, using them to go places, then returning them before daybreak. So FNHB is installing combination locks on the buggies' wheels. If you don't know the combination to the lock, you can't use the buggy!

What's Wrong with This Picture?

I didn't really present at FNHB's strategic planning offsite, of course, because there is no FNHB. There's no FNHB, because horse buggies are all but extinct (OK, yes there is one place in the US where they aren't). And innovating on the user experience for an extinct—or soon to become extinct—product is a waste of time and money, wouldn't you agree?

Yet, this is exactly what banks and credit unions in the US are doing: innovating on products that, while not extinct, are flawed.

I did (really) present at the recent Finovate conference, however. Two of my fellow panelists spoke about the need to improve the customer experience—one focusing on the mobile experience, the other on the branch experience.

Don't they get it? Improving the experience of a fundamentally flawed product is like installing an escalator on a horse buggy.

The hype and near-singular focus on customer experience in banking is out of hand, and actually detrimental to the changes that are needed. And some of the claims simply hold no water. A recent article published on The Financial Brand made the following claim:

"By following the footsteps of customer experience pioneers like Amazon, Netflix and Google, financial institutions can deliver hyper-personalized experiences across channels."

The title of the article included the term "hyper-relevant experiences." I didn't know what that meant, so I looked it up. The best I could find was something from a Cisco paper which said:

"Personalization occurs when a retailer knows who a customer is; hyper-relevance happens when a retailer knows exactly what a customer is trying to accomplish in a real-time shopping context."

I really can't imagine that customers care about this distinction. It's silly, really. I'm on my bank's website, on the mortgages page. Is it really "hyper-relevant" to know I want a mortgage?

Competing on Product Innovation

In their book The Discipline of Market Leaders, the authors posited that industry leaders excel in ONE of three disciplines—product leadership, customer intimacy, or operational excellence—while maintaining competitive positions in the other two.

The book was written before the advent of the "customer experience" so I might argue there's a fourth discipline a leader could compete on. In any case, I would definitely argue that a firm aspiring to be a market leader must provide an acceptable level of customer experience.

Strategists must determine, however, if investing in experience improvements really creates an economic return and/or competitive advantage (the latter produces the former). Importantly, they must determine two things: 1) How much will it cost to be the industry leader in customer experience? and 2) What competencies or capabilities will be required to achieve and maintain that leadership position?

Here's my assertion: Only the top 25-30 banks in the US truly have the resources--money for technology, and money for people—to be among the leaders in customer experience.

Smaller FIs don't have the money to invest, and their reliance on third-party vendors for technology means they probably don't the capabilities/competencies to be the customer experience leader.

Most banks and credit unions must rely on one of the other disciplines to be the primary discipline upon which they compete. Let me make a case for the product leadership discipline.

Auto Loan Features Trump User Experience

Cornerstone surveyed US consumers to understand what factors influenced their choice of auto loan provider. Across the generational segments, lowest rate and lowest monthly payment were the two most important factors.

Among Millennials and Gen Xers, “transparent and flexible loan features” was the third most important factor. Among these three segments (Millennials were sub-categorized by those in their 20s and those in their 30s), “speed of application and decision process” was ranked towards the bottom of the list. (Note: To see the actual percentages, download our research report Reinventing Consumer Loans, available here).

In addition, roughly half of Millennials said that they would choose the provider that provided flexible terms and assistance in paying back the loan faster—and would even open a checking account with that institution if that’s what it took to get the loan.

We don’t have comparable data for mortgages, but there is a data point that suggests to us that the mortgage user experience isn’t as bad as some people make it out to be. In a study conducted by the National Association of Realtors, just 11% of Millennials said that the mortgage process was “very difficult”—about half the percentage of older Boomers who said that about the mortgage process.

There’s no doubt that “customer experience” is important. But for the vast majority of banks and credit unions, there’s little chance they can excel or differentiate on the basis of the customer experience (not that there's a singular “experience,” but don’t get me started on that).

For the majority, competing on customer intimacy or product leadership is the necessary competitive discipline. Please think about that as the rest of the world spews nonsense about “hyper-personalized” experiences.

Ron Shevlin
Director of Research
Cornerstone Advisors