Recently, The White House and the Consumer Financial Protection Bureau (CFPB) announced plans to issue rules or guidance to address a growing concern in the financial industry: The overreliance on ineffective and time-wasting chatbots by financial institutions. This initiative could fundamentally alter how these institutions engage with their customers. But how did we get to this point, and what does it mean for the future of customer service in banking?
To understand the current landscape, we need to look back at the economic pressures that have shaped it. After years of stable inflation, the U.S. experienced a sharp uptick in 2021, with the annual inflation rate jumping from 1.7% in February to over 5% by June, and eventually peaking at around 9% in mid-2022. In response, the Federal Reserve raised interest rates multiple times in 2022 and 2023, leading to a tightening of financial conditions. Banks and credit unions, facing squeezed margins and increased risk, have been forced to cut costs wherever possible, including workforce reductions, project delays, and a critical reassessment of vendor relationships.
Historically, vendor consolidation has been seen as a logical step in such circumstances, offering potential benefits like cost savings, increased efficiency, streamlined operations, and reduced risk exposure. But there’s a crucial piece missing from this equation: the impact on customer experience.
The global fintech landscape has exploded in recent years, with the number of fintechs growing from 12,000 in 2019 to over 26,000 today. This growth isn’t just a product of technological advancements or increased access to capital; it’s driven by rapidly evolving consumer expectations. Companies like Amazon and Netflix have transformed the way consumers interact with brands, setting a new standard for personalized, on-demand experiences. These expectations have naturally extended into the financial sector, pushing banks to partner with these fintechs that can deliver highly specialized and optimized services.
But in the rush to consolidate vendors and cut costs, financial institutions risk losing their strategic edge. Settling for "good enough" services in a bid for efficiency can mean sacrificing the very differentiation that attracted customers in the first place.
We’ve all been there: trying to resolve an issue with a bank account or credit card, only to be met with an impersonal Interactive Voice Response (IVR) system. For those of us with accents or unique needs, this experience can be particularly frustrating. These systems, like many chatbots, are often designed to keep customers contained within a predefined set of responses, rather than providing the human touch that many customers seek. This is a fundamentally flawed approach to customer engagement.
Artificial intelligence has incredible potential to enhance customer service, but it should augment the human experience, not replace it. When AI is used primarily to reduce headcount, financial institutions miss the point of customer interactions. These conversations aren’t just about routine transactions—they’re about significant life events: unexpected expenses, buying a home, sending a child to college. This is where community banks have traditionally excelled, offering a personal touch that larger institutions often lack.
Financial institutions must reconsider how they view customer service. Is it merely a cost center, or could it be a value center? A 2022 Accenture study found that companies treating customer service as a value center achieved 3.5 times more revenue growth, despite spending an average of only 50 basis points more of their revenue on customer service. This proves that customer service isn’t just an expense—it’s a powerful driver of long-term success.
The recent announcement by the White House and the CFPB should serve as a wake-up call for financial institutions. In the pursuit of efficiency, don’t lose sight of what really matters: your customers. They chose your organization for a reason. Don’t let that reason be sacrificed in the name of consolidation and cost-cutting. Customer experience should be at the forefront of every decision, especially in times of economic pressure. It’s not just about surviving the present; it’s about thriving in the future.