There is a fundamental transformation happening in consumer retail banking right now. From a reliance on branches (aka. bricks and mortar, stores, etc.), banks are finally putting digital channels at the center of their customer experience. It’s been a long time coming. In fact, I have to confess to writing about the slow death of branches in 2007.[i]

My argument then, as now, is that branches deserve a special and smaller role in the banking channel ecosystem. The corollary to this statement is that digital channels need to step up and fill the roles previously filled by branches.

Banks first foray into digital – online banking – matched convenience for customers with a lower cost servicing channel. The good news is that consumers loved it! Simple transactions flowed out of branches and customer satisfaction with online and branch channels increased. The pace of outflow increased with every new channel – peaking with mobile banking apps that provided the optimal mix of convenience and functionality. [ii]

The downside was that with the majority of transactions happening outside of branches, branch visits went down dramatically, along with sales opportunities. Bank marketers responded with significant investments in online and mobile marketing. At first, the goal was to use digital marketing to drive incremental sales into branches. Since this was the only place where customers could open accounts, it worked. For a while. Then a combination of two inter-related factors changed banking forever.

First, technology enabled mobile form factors that dramatically improved the customer experience. Think of your current iPhone or Nexus vs. the flip phone you had just 10 years ago – the latter was fine for making calls but not good for much else.

Second, Millennials (people born between 1980-2000) entered the financial services market in a BIG way. Millennials are the largest generation in the workforce today, which means their purchasing power and need for financial products will dominate the market in the same way that boomers did in the 1980s.

Civilian Labor Force by Generation, USA, 2000 – 2015

Graph for Marcs Blog2

Not only are Millennials the largest generation in history at 80+ million (Boomers are roughly 65 million, 50% larger than Gen X at 45 million), but they are digital natives having grown up with the internet and all the associated networked consumer electronic devices. This preference for all things digital rubbed off on their parents, and grandparents.

Put another way, technology-savvy consumers have changed the service industry forever, tilting the balance of power in their favor. The result is that digital channels not only became the focus of banks’ customer experience but a critical part of their sales and marketing efforts.

A benefit of the migration to digital channels is an almost overwhelming torrent of data. Advanced analytics and the flexibility inherent in websites and mobile apps allow banks to provide 1:1 marketing and personalized service. Resulting in an experience as good as that provided in a branch – and some would say even better because of the convenience. Leveraging leading edge analytics, banks can provide real time offers that predict customers’ needs with instantaneous access to well-trained sales staff via online chat, video or phone to facilitate account opening.

Unfortunately, the one element of the customer experience that hasn’t advanced since the days when branches dominated, is pricing. So far pricing has been immune to change and we are waiting for the second shoe to drop since digital banking is transforming the notion of value, brand and loyalty and the optimal pricing strategies must be aligned in accordance.

Sure, there are different product flavors that have lower fees when customers conduct transactions themselves online or on their mobile device. But pricing – rates, fees, transactions, etc. – typically only vary based on geography and a threshold deposit balance. This levels the playing field, putting all customers into one or two buckets. Instead, banks should use the tremendous power of data and analytics to tie pricing to behaviors, attitudes and preferences. The result will be a better customer experience – which means higher customer satisfaction, more profitable accounts and lower attrition.

Figure 1: Put Consumers and Pricing At The Center of the Experience

Customer Experience Bubbles

I would argue that, in the digital banking age, pricing can transform the customer experience. Isn’t it about time banks and credit unions gave it the attention it deserves?

[i] See A Branch Renaissance: Repositioning the Branch in a Multichannel World from Corporate Executive Board in 2007.

[ii] NetFinance reports that “Consumer interact with Banks 15-20 times per month, up from 3-4 times in the pre-digital era” http://www.slideshare.net/MXenabled/2015-banking-trendsslideshare