Retail banking is undergoing a massive disruption, one driven by rapid innovation and aggressive new entrants. The financial services industry is increasingly competitive, and what works today won’t necessarily work tomorrow. It’s therefore vital for legacy banks to keep pace technologically and double down on one of their historical advantages: trust.

The current climate

Trust has been a significant issue for banks since the 2007/8 financial crash. Following the mortgage meltdown, a few high-profile scandals and subsequent global recession, banking was one of the least-trusted industries. According to a study of US consumers, in 2019, only telecommunications had a worse reputation than banks. However, Covid-19 has created the conditions to repair this negative perception, and for many legacy banks, it’s been a golden opportunity to rebuild trust.

Pandemic effects

Throughout 2020, banks helped facilitate cheap loans and delivered stimulus payments. This time around, they’ve been part of the solution. And by offering some of these critical services, they’ve helped individuals and businesses keep the lights on.

Banks have also been the beneficiaries of a surge of deposits as part of a flight to safety. Although many consumers may dislike banks in aggregate, many trust their own as the safe option when a crisis hits. According to one survey, 71 percent of respondents said they’re satisfied with their primary bank’s efforts to alleviate Covid-19’s impact. While banks have made progress toward regaining consumer trust, this gain must not be squandered.

Human in the age of automation

With the advent of the pandemic, even the most sluggish adopters are now utilizing digital channels, and there’s likely no going back. Moving process-driven interactions to digital channels is an efficiency win. But it’s also a risk that banking services will become commoditized and price driven, thus eliminating the human touch and weakening an FI’s ability to maintain personal connections – and therefore trust – with customers.

Furthermore, reducing the number of in-branch experiences could make a legacy bank less distinguishable from competitors. Rather than a cost-saving tool alone, automation should be seen as an opportunity to free up time to focus on higher-impact tasks, such as offering advice and fostering personal bonds with customers.

As digitization and automation increase, the human touch will be crucial to maintaining trust. Future success will mean offering the automated, hyper-relevant experiences customers demand without losing the human element. People like convenience, but they also like talking to humans, particularly when things go wrong. Indeed, research has found that 78 percent of UK customers “want to interact with a real person more as technology improves.”

The human-to-human relationship between a banker and a customer is a value that cannot be overlooked. The key is identifying what needs to stay human and what doesn’t. For instance, a bank might offer seamless digital onboarding and predictive in-app suggestions, combined with the easy ability to discuss a complicated student loan issue with a representative.

Banks can also maintain the human factor by getting creative with branches. Instead of becoming relics of the past, branches can be repurposed as engagement hubs — spaces that blend human and digital experiences over conversational interfaces. Engagement hubs can be designed as collaborative environments, with satellite locations at a point of need. For example, in recent years, Australian banks deployed remodeled shipping containers as mobile branches after natural disasters.

New financial ecosystems

With the rise of open banking and Banking-as-a-Service (BaaS) models, a new financial ecosystem has been born. Banks are now able to form connections between platforms and marketplaces to assemble umbrella networks of value — interoperable environments that empower new players to inject value directly into their customer journeys.

Such networks open a world of possibility, but they also require a higher level of customer trust, particularly where autonomous finance is concerned. As Daniel Estoesta, director and head of strategy at Simplii Financial put it, “you can only trust and move toward a fully simple and invisible bank if you are confident that everything is being done safely and securely.” Central to the question of trust in new financial ecosystems is the issue of data usage.

In order to strengthen current relationships and win new ones, banks must craft a strategy to maximize customer data without compromising trust. Customers increasingly expect a return on their consent. Banks need to use their data to glean genuine insights that result in better customer outcomes. They need to empower people, allowing them to decide when and how their data is used.

Ultimately, the AI that will drive this ecosystem must be explainable and ethical if consumers are going to trust it. In this new world, banks can play a vital role by ensuring that these systems and subsequent complex, rich customer journeys are reliable and trustworthy. Capitalizing on the trust they have, banks can act as verified facilitators, removing friction and brokering confidence between parties.

Looking forward

To preserve and build primary banking relationships, legacy banks must focus on trust. Trust matters in a crisis. And it matters in the increasingly automated, rapidly evolving financial services landscape. There are plenty of touchpoints for a bank’s future strategy (data, open banking, BaaS, etc.), but none of them are viable without trust.

Many consumers report being satisfied with their banks’ Covid-19 responses, especially with digital offerings and servicing. Even so, many customers trust newer, more agile brands over legacy banks, and a full 40 percent of US consumers have at least one fintech account. When the crisis ends, the rhetoric from challenger banks will return. The resurgence in positive sentiment toward FIs may not last, and banks need to build on the goodwill they’ve created during the pandemic.

Forward-thinking banks are resetting their strategy — accounting for the pace of change and creating a plan to retain their status for the next decade. Legacy banks can become a bastion of trust in future financial ecosystems. But to do so, they need to put relationships at the heart of all future strategies.

Mathias Mercier

Head of Market Intelligence

Sopra Banking Software