Banking on empathy

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Suppose you’re owning a small boutique wine shop and have gone through two difficult years because of the Covid-19 pandemic. As the pandemic seems to be on its way back, it is time to revitalize the shop. And this causes direct a huge challenge: the wine stock needs to be replenished but you have used all your financial buffer just to survive the last two years. So no funding left for new bottles and consequently an additional loan is needed. Imagine then what a relief it would be when your bank tells you that they fully understand your situation and are able to help you on this with a small additional credit on favourable terms.

You’re not only relieved but even a bit surprised that your bank, which you always saw as a cold-hearted and emotionless institution, showed empathy. The last thing you had expected.

But is this really surprising nowadays? Yes and no…

Banks generally had a reputation of being more focused on making money than on making the customer happy. It was ‘follow the money’, and…. ‘oops we also have customers’….
However, if you look closely to their behaviour in recent years, they have put more and more focus on the Customer Experience. This also came up in a recent survey of IDC[1]. This survey indicated that improving customer experience and improving overall customer satisfaction was identified by almost one out of three financial services executives as a top 3 business priority in 2021 and further.

And according to a recent study of Metrigy[2], a research and strategic advisory firm, almost 40% of the financial institutions are actually running, or have recently finished, a customer experience transformation project. And over 30% are planning to do this by the end of 2022.

Implementing an empathic customer experience

Within this focus on the revitalized customer experience, empathy plays an indispensable role. The customer wants the bank to know and understand them. Showing empathy is the extra step to bind these customers.

To get the play field clear, what is empathy exactly? How do we define banking on empathy, or empathetic banking? And is it important to be an empathic bank?

Empathy, as defined by the Merriam-Webster dictionary, is “the action of understanding, being aware of, being sensitive to, and vicariously experiencing the feelings, thoughts, and experiences of another of either the past or present (or future) without having the feelings, thoughts, and experience fully communicated in an objectively explicit manner.”
A long definition that comes down to the following: empathy is the ability to understand and share the thoughts or feelings of another.

If we pull this further to empathetic banking: it is about banks understanding the thoughts and feelings and emotions of their customers and acting appropriately on this. And to underline the importance of this: during a normal economic situation, up to 70% of customer behaviour is attributed to the emotion behind it. During disruptions, like the Covid-pandemic, this percentage will only increase. As a bank, you must then be able to respond here with an equal attitude, whereby showing empathy is paramount.

But moving a bank to an organisation that has empathy in its DNA is not something that will happen overnight. It is a process of re-implementing the customer experience, spread across all layers of the organisation. And while each bank will implement this in its own way, the needed effort should not be underestimated.

In this process of implementing an empathic customer experience, the following elements play a cohesive role:

1. Data
2. Artificial Intelligence
3. Training and KPIs
4. Multi-channel approach

1) Make use of data.

When moving to a more empathic customer-centric financial institution in present times, the use of data is essential. In fact, we can talk about a data-based customer experience or data-based empathy. This concerns the factual basic data of the customers, ranging from name, address, place to all financial data like income, loans, mortgages, etc. Most of the required customer data is often already present at the financial organisations, although maybe not always easy to unlock.

This internal data can and should be combined with external data: all relevant customer data that is publicly available through, for example, social media, or that can be bought from data brokers. External data can give valuable input to the customer view. In particular data obtained via social media can enrich the social view on the customer, as often personal experiences, feelings and emotions are shared. But also, third-party data can be important. For example, as the weather is important to farmers, weather statistics can help to indicate how an extreme long period of drought will influence the change on a good harvest and will impact their mood. The bank can then respond understandingly in case a farmer needs extra financial support in such a situation.

2) Use of Artificial Intelligence (AI) and analytic solutions

The impact and influence of the use of Artificial Intelligence (AI) and analytic solutions within financial institutions is inevitable. Looking at the adoption of this in general in customer service by industry, financial institutions are leading in this adoption.
Using AI and analytics, supported by high quality data, can help in better understanding and placing the customers emotion and reacting on it in an empathic manner. In practice this will be a combination where the bank employee will be supported by AI-systems in his contact with the customer. On the other hand, as AI is maturing, the contact with the customer will be more and more without human intervention, using modern technologies as voice recognition and text recognition at chatbots.

3) Training (customer-facing) staff and rethinking Key Performance Indicators ( KPIs )

Next to the use of Data and AI, it is crucial to evaluate the needed skills for the employees and by extension the way the results and effectiveness of the new empathic customer approach is being measured by KPIs.
But can empathy be seen as a skill? Can it be learned and trained by employees?
Daniel Goleman, author of the book Emotional Intelligence, says that “empathy is basically the ability to understand others’ emotions.” Empathy is a skill that can be developed and, as with most interpersonal skills, empathizing (at some level) comes naturally to most people.
So, as empathy can be learned and developed, a training programme must be setup and executed to prepare the customer facing staff, for example those in the call-centres, how to guide the customer during this new customer experience, in fact how to guide them with empathy.

Also, in line with this re-skilling, the existing KPIs are subject of evaluation. Traditionally, KPIs where focused on elements like number of done customer-calls, duration of customer contacts, additional sales out of contacts, etc. This needs a shift towards, or extension with, indicators as customer feedback, shown empathy, number of positive or negative reactions on the customer service. And maybe even a check on the reactions that are placed by customers on social media about their positive or negative experiences with the banks.
Although not a financial institution, a good example of a company who has implemented these KPIs successfully is Zappos, the online shoe and clothing retailer. They are recognized worldwide as the standout in customer service, whereby Zappos uses KPIs that rewards creating a personal emotional connection with the customer over measurements such as speed to resolution or number of calls.

4) Multi-channel experience

To achieve maximum results from the shift to an empathetic customer experience, it should be implemented across all customer channels (branches, call centres, personal visits, chatbots, website). This importance is underlined by a McKinsey research report[3] that showed that more than 70% of European banks customers prefer a multichannel interaction with their bank.
Hereby the comment must be made, that because of the Covid pandemic, a clear and logical move towards the digital channels has taken place. But even then, a consistent tone of voice across all channels is critical to the customers impression of trust in his bank.

Empathetic Banking

To summarize, is empathetic banking the pot with gold at the end of the rainbow? The promised land?
Although the elements mentioned above can be picked up stand alone, they are undisputedly related. In this way, it is most powerful and effective if they are implemented in an overall combined way. The banks that will provide the perfect combination of human and digital empathic interaction with their customers will be on pole-position for retaining and even regaining them.

The earlier the better, to work on a winning strategy.

[1] IDC Perspective; Understanding Empathy at Scale and Impact on the Future of Retail Banking Customers; Marc DeCastro; April 2021

[2] https://thefinancialbrand.com/news/customer-experience-banking/customer-experience-priorities-in-banking-whats-trending-146771/

[3] https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/The%20future%20of%20private%20banking%20in%20Europe/the-future-of-private-banking-in-europe.pdf