Despite the irruption of technology in the financial industry, more and more digital banks are beginning to appoint an account executive for their most valuable clients. What causes are leading them to combine the best of both worlds?
Julián Colombo*
“The physical book will be surpassed by the digital one in 2018 and will have practically disappeared by 2020” was one of the conclusions of the Barcelona Book Fair in 2008. Today we know that the digital book never exceeded 15% of world sales and even has fallen in participation in recent years.
Something similar happened in banking. In 2005 it was predicted that digitization would make humans irrelevant in less than a decade. Today, at the height of the digital revolution, some of the trendiest neobanks and fintechs are starting to hire account managers for their most valuable clients.
Both situations are actually the same. They rest on simple fallacies: that books are just their content and that customers want to interact with their bank digitally.
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They are quasi-truths that led to strategic errors. In the case of banking, customers did not demand digitization, they demanded ubiquity. They didn’t want their executive or branch to disappear, they didn’t want to need them. They hoped not to be forced to visit them for bland or bureaucratic issues, but they demanded – and will continue to demand – high-level advice and the possibility of satisfying their needs through any channel, at any time and instantly.
What is the most important topic here?
Most importantly, customers are willing to pay for it. The numbers are so expressive that they are worth sharing. Today there are approximately 45,000 “traditional” banks and 800 digital banks in the world.
Almost all private traditional banks EARN money (94%), while almost all digital banks LOSE money (2.7% are profitable)
Perfect correlation does not mean perfect causality and the origin of this phenomenon is not exclusively the lack of human attention. But it is indisputable both from logic and from statistics that, in the financial industry, humans have generated more profitable and lasting relationships than digital channels.
I share a real example that goes from theoretical sophistry to practical evidence. It tells the story of an insurance company, but its reality is identical to that of many banks and perhaps more educational.
An example to understand
The insurer decides one day to get rid of its human distribution channel, theoretically expensive and inefficient, to concentrate on digital sales. In a few months, they multiply the number of policies sold by 6 and reduce their commercial costs by 80%. It seems the case of success that will be studied in all business schools.
However, his income drops precipitously, as does the average duration of his clients. They sell more, but worse and their user retention disappears. The explanation is that most of their digital sales are achieved through comparators. Internet pages where a person can see auto insurance quotes from multiple companies and choose, predictably, the cheapest.
Given that prices are a variable limited by costs, and products are by definition very similar, the insurer that “wins” in the comparator usually has negligible, null or negative profitability. At the same time, once the sale is made, there is no human bond for customer care and retention. It is very likely that these will return to listing and go with the competition at the slightest improvement in conditions.
Conversely, an insurance seller who establishes a relationship of trust with his client can offer him not only auto insurance, but also life and home insurance; and many people will choose to pay a slightly higher price in exchange for personalized and tailored service.
In broader terms, the lack of human channels significantly limits the size of the achievable market. The Spanish movement “I am old, not an idiot” managed to change banking regulation by demonstrating that a third of the population has, due to age, connectivity or resources, limitations in accessing digital services. 40% of Spaniards over 65 years of age, without going any further, have never accessed the Internet.
In conclusion: in banking, customers that can offer increasingly simple, intuitive and digital products will continue to grow; but the one who truly puts them at the center will retain them and make them profitable. That is, the one that can offer executives who are just a click or call away, who know the consumer, who are trained to advise them and empowered to solve problems without bureaucracy.
Economist, founder of N5 Now, a company chosen as Startup of the Year 2021 and dedicated to digital transformation in the Financial Industry.
