Published: 31 July 2024
Contributors: Matthew Finio, Amanda Downie, Nick Douglas
Customer experience in banking refers to the overall perception and satisfaction of customers with a bank's services, interactions and digital and physical touchpoints.
Customer experience (CX) in the banking industry encompasses how customers feel about every interaction with their bank. This covers all stages of their journey, from opening an account and making transactions to seeking customer support or when using various financial services. Each interaction, whether it's a call to the contact center, a money transfer via a mobile banking app or ATM use, shapes the overall perception of the bank and affects customer retention.
Artificial intelligence (AI), particularly generative AI, is transforming the banking customer experience by enabling more personalized, efficient and seamless interactions. Generative AI in banking can create sophisticated chatbots and virtual assistants that provide instant, accurate responses to customer queries, offering 24/7 support.
Generative AI helps analyze vast amounts of customer data to deliver tailored financial advice and banking product recommendations, enhancing personalization. It can also streamline processes such as loan approvals and fraud detection, improving operational efficiency and reducing wait times. By automating routine tasks and providing proactive support, AI is elevating the overall customer experience in modern banking. Banks increasingly need to prioritize using AI to compete with agile fintech companies that are putting AI at the center of their offerings.
Integrating digital and physical banking services is essential for a seamless customer experience. While brick-and-mortar branches remain important for complex transactions, banks are heavily investing in online and mobile banking that includes AI-powered experiences to meet customer expectations. A user-friendly digital experience is crucial, as a poor experience can lead to low usage, diminished trust and customer churn. Satisfied customers are more likely to buy more products and stay with the bank compared to dissatisfied ones. In an era where customers can easily switch banks, eliminating pain points and providing an excellent customer experience is vital for staying competitive.
Customer experience in banking is rapidly changing due to the demand for more personalized and accessible services. Improving customer service helps banks navigate economic uncertainties, ensuring banks meet customer needs, build trust and maintain a competitive edge. Banks that provide smooth, personalized and accessible experiences across all channels are more likely to retain and add customers, directly affecting their financial performance and key metrics. Collecting and acting on customer feedback is essential for continuous improvement in these areas.
In this guide, find out why responsible AI is essential to transforming banking—and how to meet service aspirations.
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Customer experience in banking is crucial because it directly affects customer loyalty, satisfaction and retention. In an industry where competing products and services are often similar, the quality of customer interactions becomes the key differentiator. Positive customer experiences build trust and long-term customer relationships, essential for keeping customers. Satisfied customers are more likely to keep using the bank's services, recommend it to others and use more financial products. Poor experiences can lead to dissatisfaction, churn and a negative reputation, which are costly for banks both financially and in brand value.
In the digital age, customer expectations are higher than ever. Consumers seek seamless, personalized and efficient service across all channels—online, mobile or in-person. By prioritizing excellent customer experience, banks can stand out from competitors, especially as fintech and digital-only banks become more popular. Using advanced technologies like AI, data analytics and personalized service initiatives helps banks meet these expectations, improving efficiency and customer satisfaction. Ultimately, a customer-centric focus is essential for banks to stay competitive, achieve sustainable growth and profitability and maintain a loyal customer base.
Current customer experience trends in banking focus on using technology and personalizing interactions to meet evolving customer expectations. By staying ahead of these trends, banks can create more meaningful and satisfying customer experiences.
AI-powered chatbots and virtual assistants are becoming more prevalent in retail banking. For example, 78% of financial institutions report implementing generative AI for at least one use case.1 These technologies, combined with automation, streamline and optimize customer service by providing instant responses to common queries, guiding customers through self-service processes and assisting with complex transactions, enhancing efficiency and customer experience.
During the COVID-19 pandemic, lockdowns and social distancing measures forced customers to rely on digital services. This shift revolutionized the financial services industry by driving rapid advancements in mobile and banking technologies. Generative AI and automation help banks maintain the seamless and conversational experiences customers now expect across all channels. This shift is driving significant industry changes and creating new revenue streams. An integrated knowledge base supports these AI-driven solutions by ensuring that accurate and comprehensive information is readily available.
Banks are investing heavily in digital platforms to provide seamless and integrated experiences across all channels, including mobile apps, websites, social media and physical branches. The goal of digital transformation in banking is to ensure that customers can move smoothly between different touchpoints without losing context or facing inconsistencies in service quality. With more customers using online banking and mobile apps, enhancing digital channels is crucial.
With the rise of AI and digital banking, ensuring robust security and protecting customer data have become paramount. A recent study found that over 60% of banking CEOs were concerned about new vulnerabilities introduced by AI..1 Banks are implementing advanced security measures such as biometric authentication, encryption and real-time fraud detection to build trust, protect personal data and ensure that customers feel safe when conducting transactions online. The use of blockchain technology also contributes to improved transparency and security in banking services.
Banks are focusing on financial wellness by offering educational resources, tools and personalized advice to help customers manage their finances better. These programs aim to improve customers' financial literacy and health, fostering a sense of trust and value. Many consumers are seeking a higher level of engagement from their financial institutions: 79% of younger respondents are open to receiving insights on budgeting and 75% are open to guidance on investing.2
Collaboration with fintech companies is enabling banks to enhance their service offerings. Fintech partnerships bring innovative solutions such as peer-to-peer payments, robo-advisors and blockchain technology into the banking ecosystem, providing customers with cutting-edge financial services.
Mobile banking continues to evolve with features such as mobile check deposits, contactless payments and personalized financial management tools. Innovations like these provide customers with more convenient ways to manage their finances on the go, contributing to a positive customer experience. The rise of neobanks—digital-only banks offering a wide range of services—reflects the increasing demand for high-quality mobile and digital banking. Digital wallets are also becoming popular as consumers seek faster, more secure payment options.
Personalized experiences are increasingly in demand for consumer-facing industries. Banks are using data analytics and generative AI to understand customer behavior, preferences and needs. By analyzing transaction history, spending patterns and other data points, banks can offer tailored products, services and advice, enhancing customer satisfaction and loyalty.
Banks are shifting from reactive to proactive customer engagement. This involves anticipating customer needs and reaching out via messaging with relevant information, offers or support before customers even ask for it. Proactive engagement can significantly improve customer satisfaction and loyalty, as customers appreciate the bank's effort to address their needs preemptively. This segmentation allows banks to better cater to different customer groups and provide more relevant and effective solutions.
Consumers expect real-time services and on-demand customer support from their bank, just like they get from retail, travel and healthcare providers. For services like credit card inquiries and approvals, speed and efficiency are highly valued, making it essential for banks to meet customer expectations by providing real-time responses.
Investing in intuitive and user-friendly design for digital platforms is critical. Banks and credit unions are prioritizing UX to ensure that their apps and websites are easy to navigate, visually appealing and functional, improving the overall customer experience.
Improving customer experience in banking offers numerous benefits:
Improved customer trust and satisfaction: A trustworthy bank shows responsiveness, multi-touch engagement, objective advice and data privacy transparency. These qualities, part of a great customer experience, build trust. Satisfied customers foster long-term relationships, increase product adoption and share positive experiences, while poor experiences lead to frustration.
Increased customer loyalty and retention: Satisfied customers are more likely to stay with their bank and use more services. By consistently upgrading and innovating services, customers feel valued and are less likely to switch to competitors.
Enhanced brand reputation: Providing a consistently positive customer experience helps build a strong, trustworthy brand. A good reputation attracts new customers and strengthens the bank's position in the market.
Higher revenue and market share: Reducing friction in the banking experience makes customers more satisfied and confident. Positive customer experiences give a bank a competitive edge by fostering loyalty, encouraging the use of more products and enhancing the bank’s reputation.
Enhanced operational efficiency: Investing in customer experience allows banks to optimize processes, reducing technical difficulties and user frustration. This leads to improved operational efficiency, enabling banks to meet key performance indicators (KPIs) more effectively.
Improved regulatory compliance and risk management: A focus on customer experience often involves improving transparency, communication and service quality, which can help banks meet regulatory requirements and manage risks more effectively.
Improving customer service in banking comes with several challenges:
Legacy systems and tech hurdles: Many banks rely on outdated systems that are costly and time-consuming to upgrade, making it difficult to implement new technologies efficiently. Technology updates often require extensive training for employees and create a learning curve for customers, hindering seamless customer experiences.
Data privacy and security: Ensuring data privacy and security while using customer data for personalized services is challenging. Cybersecurity breaches can severely damage customer trust.
Elevating customer demands: Banks need to constantly invest in and update their customer experiences to meet ever-increasing customer expectations and stay competitive.
Maintaining consistency across channels: Ensuring data consistency across all banking channels is crucial to avoid poor decisions and financial planning.
Competition from fintechs: Competing with agile fintech companies requires banks to be equally innovative and responsive.
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Footnotes
1 IBM Institute for Business Value, 2024 Global Outlook for Banking and Financial Markets, IBM, January 2024.
2 IBM Newsroom, New Study Reveals Banks Struggle to Achieve Priorities, Meet Customer Expectations Hampered by Technology Modernization Challenges and Lack of Industry Standards, IBM, September 14, 2023.