How Community Banks Can Turn Customer Experience Innovation into a Fistful of Dollars

In case you’ve been living under a rock the last five years, consumers are growing increasingly frustrated with big banks. Pick a reason: fees, scandals, bailouts, security breaches—to say nothing of customer service.

These issues have created a customer loyalty vacuum in banking, and customers are up for grabs. But do you know who has the biggest competitive advantage right now? Community banks and credit unions. And the secret of turning that advantage into dollars lies in customer experience innovation.

Why are community banks so poised to capitalize on competitors’ miscues?

To understand the opportunity that community banks are facing, you need to recognize two things. First, they’re already great at customer service. Second, there’s almost no practical difference between large and small banks anymore.

The Customer Service Component

• Community banks and credit unions have typically had an edge in customer service, as measured by the American Customer Satisfaction Index (ACSI).
• Large banks are still struggling with customers, years after the financial crisis. In fact, only one large bank increased its score in the ACSI last year.
• While overall banking satisfaction improved in 2012, analysts believe it’s because more consumers are switching to community banks and credit unions.

The Practical Component

• Banks and banking are transforming from a place you go to an activity you can do anytime, anywhere. The mystique is gone.
• Nationwide, surcharge-free ATM networks like Co-Op and Allpoint alleviate concerns over fees and easy access to cash for customers of local banks.
• The democratization of technology is allowing smaller banks to offer web and mobile products that rival larger competitors in features and convenience.

Basically, the advantages to banking with one of the Big 4 are dwindling quickly. And all this is happening at a time when social media is giving customers more power and influence than ever before.

What does customer experience innovation mean?

Everyone has some concept of what innovation means. It’s a breakthrough technology, or maybe a more efficient business process. But this simplistic view is why so many innovations underperform in terms of ROI.

The real value comes from customer experience innovation, which is found at the intersection of three core types of innovation:

• Functional Innovation: Experience innovation drives customer satisfaction and retention by using technology to fill a legitimate, on-going customer need;
• Emotional Innovation: Customer loyalty increases because the company identified a way to connect with and understand its customers as a viable part of its operations; and
• Process Innovation: Savings are realized when technology helps the company deliver its product or services better, faster, and/or less expensively.

Realizing customer experience innovation in community banks

So, how can community banks realize customer experience innovation?

The first part is listening. Understand what your customers need, what they dislike about the banking experience, and what changes will really matter to them. (Of course, some reading between the lines may be required.)

The next part is structured creativity. Consider examples like bill pay, quick pay, and mobile deposits. All three are fantastic ideas, rooted in solving real customer pain points. Banks listened to what their customers had to say and devised novel solutions (functional innovation) that provided customers with relief and delight (emotional innovation) and let technology divert customers from costlier touchpoints (process innovation). Testing your ideas against this structure will help you focus on winners.

The last part is picking your spots. Not every great innovation has to be as daunting as mobile deposits or NFC payments. A single developer conceived (and initially built) Mint.com, yet Mint exceeded the reporting and organizational capabilities of banks with armies of technologists. Or, consider this brilliant, low-tech innovation from the insurance industry: vanishing deductible. Everyone has access to math and data.

In short, don’t sit on the sidelines. And, remember, you can always hire a vendor or consulting firm to help.