Banks get a great deal of advice about digital technologies from consultants and “experts” of all sorts, but it can be hard for financial services executives to piece all of the advice together and use it to find a way forward.

When you listen closely, most advice that experts give to banks focuses on their distribution channels, almost always suggesting using digital technology to make it easier for customers to access the bank. But those efforts don’t generate returns. What generates the greatest value for customers, and hence makes them most likely to do more business with their bank, is a focus on a new kind of product, not channels.

Omnichannel, Multichannel, Digital Experiences. . . It’s All Channel

Much advice to banks in the last several years comes wrapped in the term “omnichannel.” Omnichannel means different things to different people – some who use it mean that a customer can start and complete an activity in the same channel, while others mean that a customer experiences seamless migration between channels – but one idea animates all uses of the term: that customer channel preference drives outcomes for either the customer or the institution.

That’s actually not the case. Our data shows that a customer’s channel usage doesn’t match channel preference. Further, when customers have to use a channel they don’t prefer, it doesn’t have an impact on how they reward their bank with additional business.

Other advice to financial institutions has been focused on creating digital experiences that mimic the best websites: Facebook, Amazon, Netflix and the like. Banks are worried their digital experiences aren’t as good as others’ and that’s driving customers away. They have been told that the way to fix that and win more loyalty from customers is to improve channel access – making it easier to access the bank.

But again, our research doesn’t show that. Eighty-eight percent of bank customers who prefer digital channels are satisfied or very satisfied with their online experience. There’s not a lot of room for improvement there. And when banks do invest to make day-to-day financial tasks easier in their current channels, they find that there is almost no difference in customers’ willingness to do more business with them.

What all of this adds up to is that an easy, modern, digital channel experience is “table stakes” for banks. The majority of banks have actually cleared the “table stakes” bar, but are continuing to invest despite having already met customers’ expectations.

So where should banks invest in order to create more mutual value with customers?

What They Get, Not How They Get It

We studied the customers who demonstrated the greatest amount of loyalty towards their providers in order to understand where banks should focus their investments. What we found is that customers reward institutions that help them with key steps towards their goals.

That sounds like a basic observation, but the kind of help really matters. Customers who received help from their bank in completing the pivotal steps towards their financial goals were one and half times more likely to loyally reward their bank with behaviors that create revenue for the bank. And the help that mattered most to drive that loyalty was help with staying on track towards their goals.

It wasn’t enough if the bank provided information about the importance of staying on track. Customers rewarded those banks that, rather just telling them staying on track was important, instead actively helped them take action to stay on track – helping them to do the right thing at the right time to ensure that they reach their desired outcome.

This is surprising because when you look at all of the advice that didn’t hold up – it was all about how the customer accesses the bank. But when you look at what did matter, it was all about what the customer gets from the bank.

In order to drive revenue, banks need to focus on what the customer gets from them, not how the customer accesses them. In other words, a focus on products, not on distribution channels, despite all of the channel-focused advice banks receive.

But in a world where banks have to constantly help customers stay on track, typical banking products like rewards checking aren’t going to be able to do the job. Adjusting the interest rate doesn’t do anything to help customers achieve their outcomes. So what does?

Consider the thermostat.

Products Engineered to Ensure Customer Outcomes

Prior to 2011, a thermostat did exactly one thing. It allowed you to adjust the temperature in your home. It didn’t do any actual heating or cooling; that was the work of the furnace or the air conditioner. It only did one part of the process – it let you set the temperature.

That all changed with the introduction of the Nest Learning Thermostat in 2011. The Nest thermostat was different than all of the thermostats before it. For starters, it cost $250, which was 10 times more than an average thermostat. But it justified the cost by allowing users to automatically change the temperature based on their preferences.

And while programmable thermostats have done that for years, what the team at Nest Labs realized was that the vast majority of people who bought and installed a programmable thermostat never actually programmed it.

And that’s where the Nest thermostat really made a difference. Rather than requiring that the user program the thermostat, the Nest uses a motion sensor and data analysis, learns users’ preferences and programs itself to ensure the optimal outcome.

That fundamentally changes the extent of what a thermostat does. Again, a traditional thermostat did one thing – let you adjust the temperature manually – and left the burden on the user to optimize the balance between temperature and cost.

The Nest does far more – it changes the temperature, optimizes between energy cost and comfort and programs itself. It ensures the optimal outcome for the customer, with minimal intervention from them.

This kind of product – one that is engineered to ensure the optimal customer outcome, with the burden of effort on the product – is what’s going to be required from financial services to help customers stay on track.


It’s a big shift for financial institutions to make, but it’s one that is more likely to pay off.  Do you agree or disagree? Let us know in the comments below!