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Business Journal

Banks Are Getting Their Channel Strategies Wrong

Banks Are Getting Their Channel Strategies Wrong
by Daniela Yu and Jon Hughes

Story Highlights

  • Customers want multiple channels, but satisfaction matters most
  • Digital expansion by itself costs banks money and doesn't engage customers
  • Before expanding, banks should satisfy customers in existing channels

This is the first article in a two-part series.

Most financial leaders recognize that their customers want the convenience of multiple channels -- the ability to bank anytime, anywhere, in any way -- and prioritize channels accordingly.

These leaders are right to emphasize channels: Key drivers of customer engagement -- such as top-shelf products and a compelling brand -- hinge on the support of positive channel experiences.

The problem is, most banks' channel strategies are inherently flawed.

Since 2013, Gallup has been studying how well banks in the U.S. are meeting customers' channel preferences. Many banks are aggressively expanding the number of channels they provide and the service offerings in these new channels in a well-intentioned bid to satisfy customers. But our research shows that this strategy is not an optimal or cost-effective method for engaging customers.

To ensure their channel strategies produce business growth, financial leaders need to press "pause" and use research-backed insights to evaluate their tactics and sculpt the most effective approach. The following findings from Gallup's 2013-2016 research can help leaders in this endeavor.

Channel Quality Should Be the Top Priority

Banking customers want the convenience of access to multiple channels -- and when customers use their preferred channels, their engagement improves significantly. As a result, these engaged customers spend more money and are more likely to stay with their bank.

However, customers' satisfaction with a channel matters most to engagement. Banks that leave customers "very satisfied" with channel experiences realize the greatest gains in customer engagement.

Take branch visits, for example. When customers prefer digital channels but use branches and are not "very satisfied" with their branch experiences, only 5% of these customers are fully engaged. When customers prefer and use branches but still are not "very satisfied" with their experiences, engagement rises to 11%.

However, when customers are "very satisfied" with their branch experiences, almost half (48%) are fully engaged even when they prefer a different channel. The best-case scenario for banks is to perfectly match customers' preferences and provide highly satisfying experiences. Doing so with branches boosts engagement to 57%.

Engagement With Bank, Based on Satisfaction With Branch Visits and Match With Channel Preference
Perfect match Partial match Mismatch
% Fully engaged % Fully engaged % Fully engaged
"Very satisfied" 57 50 48
Not "very satisfied" 11 6 5
Gallup

The finding also holds true in the most-frequently used digital channel: online banking. If customers are "very satisfied" with their online banking experiences, half (50%) are fully engaged even when they prefer a different channel.

Engagement With Bank, Based on Satisfaction With Online Banking and Match With Channel Preference
Perfect match Partial match Mismatch
% Fully engaged % Fully engaged % Fully engaged
"Very satisfied" 53 47 50
Not "very satisfied" 12 13 6
Gallup

Digital Channel Expansion Is Not an Automatic Cost-Saver

Many banks are developing digital channels and paring down branches -- a particularly attractive strategy, considering the potential cost benefits. But banks should think twice before concluding that customers are ready to leave all personal channels.

Gallup's latest banking study shows that 75% of customers visited a branch and 48% spoke to call center representatives in the past six months. In addition, 48% of American banking customers would only consider using a bank that offered physical branches. Even among those who prefer digital to personal relationships, 38% would still only choose a bank with branches. Most customers prefer multiple channels, with a majority using at least four.

Because a majority of customers still use and say they "can't live without" personal channels, expensive digital expansions are not automatically engaging customers or saving banks money. In fact, the costs can increase if banks need to maintain their branch network and upgrade their technology to support a giant omnichannel infrastructure at the same time.

Differentiate Through Optimized Service

Channel expansion by itself does not engage customers, but perfect channel execution does. Recognizing this, some banks -- including larger institutions -- are emphasizing five-star experiences in existing channels and enhanced customer relationships.

This "optichannel" strategy focuses on superior service, especially through personal channels, over digital development. To these banks, branch experiences are pivotal; some are even employing targeted branch expansion.

Gallup data suggest that this satisfaction-centric strategy is not only an opportunity for differentiation in the marketplace, but also a powerful driver of customer engagement.

Ensure Highly Satisfying Experiences Within Existing Channels

With increased customer expectations and serious competitive and marketplace pressures, banks may feel the need to deliver all services in all channels, especially digital.

But mediocre performance in additional channels will only hurt banks. To engage customers, banks should ensure they are providing highly satisfying customer experiences within existing channels. Then, after taking their time to ensure they achieve flawless service, banks can offer additional channels.

Simply put, "doing it all" won't provide the competitive edge banks expect -- until they provide flawless service across every channel they offer.

The next article in this series tells banks how to transition customers to digital banking.

Bailey Nelson contributed to this article.

Survey Methods

Results are based on a Gallup Panel web study completed by 6,032 national adults, aged 18 and older, conducted Dec. 29, 2014-Jan. 16, 2015. The sample for this study was weighted to be demographically representative of the U.S. adult population, using the latest Population Survey figures. The Gallup Panel is a probability-based longitudinal panel of U.S. adults whom Gallup selects using random-digit-dial phone interviews that cover landlines and cellphones. Gallup also uses address-based sampling methods to recruit Panel members. The Gallup Panel is not an opt-in panel, and Panel members do not receive incentives for participating. For results based on this sample, the margin of sampling error is ±1.3 percentage points at the 95% confidence level. Margins of error are higher for subsamples. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.


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