Traditional banks have a challenge: The well-established modern banking infrastructure and intensive regulatory oversight that have helped cultivate customer trust have also created openings for digitally native competitors with lots of consumer data to leverage newer technologies and less oversight.
Fintechs, using embedded banking in e-commerce, food delivery, and even ride-share platforms, are gaining traction through their agility and growing ubiquity. These alternative banking options are especially popular with younger consumers who might be underwhelmed with the offerings of traditional banks’ digital experiences, some research shows.
However, banks and credit card issuers have unique assets and capabilities they can leverage to curate customers’ experiences with brands in new ways that fall under the umbrella term of connected commerce.
Connected commerce, or consumer-connected commerce, is a mutually beneficial marketplace ecosystem that fosters more valuable relationships among brands, consumers and traditional financial institutions. That sets banks’ potential apart from fintech-enabled marketplaces that tend to benefit only two parties, or whose benefits skew toward one player.
For example, a major online retail marketplace with banking-as-a-service (BaaS) built in benefits the marketplace and its customers, but it also reduces differentiation and puts downward pressure on margins. Similarly, social media platforms’ commerce functions can help brands connect with customers, but both brands and customers are at the mercy of algorithm shifts and face privacy risks.
Better data, better experiences and relationships
Collecting first-party customer data and keeping it safe are banks’ superpowers — and the solution to their problem. Banks already securely manage a range of personal information and can genuinely claim that their brands are built on trust and security, often with a track record extending back to the earliest days of online banking.
Tech companies that offer BaaS can’t make the same kind of promise to be a guardian of data, because their strategies largely rely on advertising models rather than first-party relationships with customers.
The major tech companies have huge databases that can get brands close to the customer, but banks’ databases are larger, more extensive, and hold more useful data. For example, if a customer buys tickets and flights to a sporting event in another city, the bank can use that data to offer that customer a deeper relationship with that sporting brand, via merchandise, fan experiences, streaming TV, virtual gaming and more. Leveraging that relationship may open the door to financial literacy and other marketing and communications opportunities, and from there, products.
Tech companies also can’t match banks’ history of data security, regulatory compliance and privacy protection. Banks have more trust at a time when consumers are wary of sharing their data with brands online. These concerns and the slow death of third-party cookies are pushing brands to seek new ways to connect with consumers.
Data-driven experience opportunities in travel
Delivering consumer-connected travel experiences has the potential to be a multi-billion dollar business for banks, especially as well-heeled leisure travelers snap up business class seats while business travel remains slow.
That’s why we already see card brands competing to launch airport lounges with the most appealing amenities, from fine food to spa services. Banks are also launching their own travel agencies to streamline travel planning for customers and partners. That streamlining can include making it easier for customers to earn and use travel loyalty points through a card brand rather than through a patchwork of airline, hotel and car rental loyalty programs. The level of service and convenience that banks can provide will likely appeal not only to high-net-worth travelers but also to mass-affluent and aspiring audiences.
White-glove customer experiences and loyalty as a service
Outside the travel space, banks can leverage their data strengths to serve as customer experience concierges from brands that don’t have their own white-glove service.
These brands could enhance their reputation for seamless customer service by relying on a trusted bank to handle interactions in addition to the purchase transaction. For example, a kitchen appliance brand might turn to a bank to arrange installation services and handle warranty claims. The bank could also leverage customer purchase, service and product data to proactively offer subscriptions for consumable supplies, warranty extensions and other services, and allow customers to track everything related to their appliance purchase in one place.
This approach embeds the bank in the relationship between the consumer and the brand, and it creates value for everyone involved. Brands earn more customer loyalty without having to resort to discounts. Customers can enjoy their appliances with less friction surrounding installation, updates and repairs. And of course, the banks derive additional value beyond the purchase through reputation building or cross-selling potential.
This kind of concierge service for brands has the potential to scale. A bank that builds a strong portfolio of brands that it works with can then reward consumer behavior across those brands. The bank could also extend its loyalty-as-a-service offering to additional brands that don’t have their own loyalty programs, expanding the loyalty ecosystem even more. For example, perhaps the bank working with the appliance brand rewards customers who use that brand when they remodel their kitchen – and adds in an online recipe subscription that the customer also earns rewards for using.
Leveraging data to enhance brand loyalty and customer relationships is an opportunity for banks to create more value. It’s also an opportunity to demonstrate their relevance to younger customers and compete against new entries in the banking space, through the power of their data, trustworthiness and longstanding relationships with the brands consumers prefer.
Nick Spriggs is Executive Design Director and Co-Head of Financial Services and Kristin Koonmen is Executive Director, Program Management, and Co-Head of Financial Services for frog, part of Capgemini Invent.
