Business leaders in the financial services (FS) industry are used to tracking success with measures that reflect shareholder, investor, and market regulator values such as return on equity, net profit, assets under management, and capital adequacy ratio. This is the “money story.” However, most don’t always know how these important measures are affected by customer experience (CX) and customer engagement, or the “customer story.”
As leaders in the FS sector increasingly embrace customer-centric strategies, they will have to credibly connect the customer story to the money story. Otherwise, the legitimacy of often-heard CX slogans and promises can be easily challenged.
This hardwiring effort needs to come both from finance and CX pros within financial institutions. Forrester’s research has found that the finance department (i.e., CFO camp) has a hard time speaking the language of the customer, preventing them from effectively substantiating an organization’s claim about being truly customer-centric or proving the material impact of their CX-related investments. However, the CX and data professionals in the FS sector are not off the hook either, and they need to learn how to speak the language of finance in order to translate the value of their efforts into tangible and quantifiable financial outcomes. After all, that is the language board members and senior executives can readily understand, and it is what they like to hear when they are asked for additional investments.
If you’d like to test yourself and your organization from the CX or marketing department, ask yourself: “How much is CX improvement worth in annual profit?” Conversely, if you work in the finance department, ask: “How much of the annual profit comes from CX improvement?”
The majority of the world’s largest financial services firms cannot clearly answer these questions, based on the lack of evidence after our research and review of annual financial reports. In order to solve this challenge, banks and insurance companies need to hardwire their core business metrics to fundamental CX drivers, reflecting key correlations such as, for instance: higher satisfaction – higher revenue, less effort – less cost, more engagement – less risk.
Forrester’s research has unbundled the financial architecture of several industry sectors, including financial services and insurance firms, airlines, and telecoms (pending publication), exposing their unique financial DNA and discovering a profit value chain that can be used as a blueprint. Depending on data availability and the level of analytical detail, for example, banks can tie CX in an auditable way to all three profit pillars that support their business model as lending institutions. The three pillars of income, expenses, and risk-adjusted allowances combine to deliver — and grow — profit.
For example, Singapore’s DBS Bank has figured out how to tie customers’ digital preferences and behaviors, driven by their satisfaction and engagement with the bank’s digital capabilities, to return on equity. The UK’s RBS-NatWest group has linked the combination of customer satisfaction and level of trust with the bank with current account and savings balances.
The bottom line is that customer metrics matter to business, but you must understand how to measure and report them systematically. By understanding the actual patterns of attribution and the weighted contribution between financial and customer-related measures, financial services firms can begin to develop a better sense about how CX affects profit and, in reverse order, how profit is impacted by CX. After having done that, the above-mentioned questions should pose less of a challenge and, hopefully, strengthen the banks’ and insurers’ resolve to continue on their journey to customer centricity.
If you’re keen to know more, join me at Forrester’s upcoming CX Singapore 2019 Forum on August 28th where I’ll delve deeper into this topic. Register your interest to attend here.
- age of the customer
- business value
- chief marketing officer (CMO)
- customer advocacy
- customer analytics
- customer centricity
- customer engagement
- customer experience
- customer experience ecosystem
- customer experience measurement
- customer experience strategy
- customer insights
- customer lifetime value (CLV)
- financial services