Unlocking The Digital Sales Potential in Investment Products for Banks

The revenue generation strategy on retail investment banking is driving banks to embrace digital transformation, which in turn presents new challenges. With the rapid advances in technology, banks now have the ability to increase the number of transactions in digital channels with less cost and effort. However, the major volumes of transactions still take place in physical branches, as higher volumes of balances are regarded more valuable and receive private portfolio management by professionals. Therefore, technological advances in digital channels are not only crucial but also pose challenges in providing specialized customer service comparable to that offered in branches. In this context, I would like to highlight three challenges that drive the need for continuous innovation that banks should consider achieving higher volumes of investment in digital channels.

1. The pace of competition in technology is accelerating.

In the digital era, technological advances are driving the expansion of service areas to meet growing demand of customers. One notable segment that has gained significant traction is the emergence of specialized investment applications that cater to the evolving needs of investors. These applications, in particular Midas, YanCep, FinFree, Foneria and BtcTurk, differentiate themselves by offering unique products and services, with a common theme being their emphasis on leveraging outstanding UX design.  These applications excel in various areas such as digital onboarding, trend monitoring, data tracking, sales UX, portfolio management, and content management. They are characterized by their seamless user experience, which is continuously enhanced through the introduction of new features and services.

However, the rapid innovation and agility demonstrated by these next-generation applications pose a risk to banks. They face the potential of losing their existing investor customers, especially the younger, more mobile-savvy generation. Why? Because even as they embrace agile approaches and modernize the legacy systems, the heavy regulatory compliance and operational management genes in their DNA are holding them back.

2. Economic instability in Turkey shapes the investment lifetime.

In developed markets, retail consumer behavior in investment revolves around building sustainable individual portfolios and plans tailored to their motivations, risk tolerance, expected maturity and the rate of return. In order to achieve future goals like improving home, traveling abroad, or increasing quality of life, the average duration of an investment plan among European countries stands at 6.9 years. However, the high inflationary environment in Turkey restrains consumers from establishing sustainable investment portfolio and plans.

Despite the existence of FX-protected deposit accounts, which have exceeded $100 billion due to guaranteed interest income and protection against currency fluctuations, the main reason for the reluctance is the perceived long-term commitment associated with a month maturity of only 3 months.  This contrasts with the European investment behavior. The volatile economic climate in Turkey, coupled with political and sociological factors, contributes to inconsistent customer life cycles and encourages a preference for short-term investments.

3. Turning sociological challenges into opportunities through digital transformation.

Inadequate financial literacy stands as a sociological factor behind the low representation of domestic retail investors in Turkey, which currently accounts for only 5% of the population. The complex and dynamic nature of the investment environment, encompassing asset diversity, risk management, performance tracking, regulatory environment, and economic factors, requires a certain level of understanding for individuals with limited financial literacy before making investment decisions.

Individuals seeking to increase the value of their money, yet lacking knowledge about investment products, often turn to visiting bank branches for professional assistance. Branch advisory services include calculating returns, comparing different assets, identifying risk profiles, opening investment accounts and making purchases to ensure that customers invest with confidence and comfort. In accordance with strategic priorities and the limited capacity of human-assisted channels, banks predominantly allocate their limited resources to advisory services as a premium value proposition.

However, the exclusion of the mass segment from the premium advisory services results in hesitations when it comes to entering the market. This, in turn, leads to customer dissatisfaction, which can lead to churn or a reliance on trusted yet potentially suboptimal investments.  These concerns are supported by data from the ING Savings Trends Survey conducted in Q3 of 2022 [1]. The survey reveals a clear preference for safer instruments such as cushion of capital (22%), the retirement plans (17%) and gold (16%), while investment funds (2%), stock markets (3%) and cryptocurrencies (6%) are less favored.

To bridge this gap, investment applications have taken steps forward by targeting customers with low-literacy customers, especially the younger generation, by providing educational content through digital innovation. A prime example is Midas, which offers Midas Academy featuring 42 educational videos and blog content tailored to different knowledge levels, alongside Midas Ears with over 4,000 blogs, 300 podcasts and Midas+ YouTube channel. Similarly, FinFree has built a community service with up-to-date professional analysis and 9 educational videos for beginners. Foneria has also published 46 educational videos through Foneria TV, addressing investor psychology. These new approaches play a significant role in promoting educational development and financial inclusion. However, the challenge lies in attracting untapped mass segments due to their low awareness of the investment ecosystem.

Banks, having already acquired a large share of mass customers, have a greater advantage in increasing participation by embracing an educational role in society and promoting sustainable investment behaviors. With today’s technological capabilities, banks can empower long-term investment behavior instead of merely targeting short-term investment customers.

How to attract the hesitant mass audience into investment banking?

The digital landscape enables banks to serve a larger, more compatible customer base through a customer-centric service approach. Let’s explore how to optimize the customer experience for mass-market investment products based on establishing mutual trust, fostering continuous relationship management, and providing thought leadership.

To begin with, banks can build trust and confidence in investment products by extending the human-assisted advisory experience offered in physical branches to digital channels through remote customer advisory services. This remote service allows banks to address the initial information and guidance needs of customers. Portfolio managers can introduce product dynamics, market trends, ROI calculations, and comparisons between different investment options. In today’s market, with more than 5 types of savings account, more than 50 currencies, more than 50,000 stocks, more than 100,000 investment funds and many investment products available, finding the best-fitting choices for each customer based on their unique characteristics such as age, education, money, segment, risk appetite and motivation is crucial. Moreover, with the diverse range of asset available, creating sustainable portfolios involves not only diversifying through investor profiles but also mitigating risks, especially during volatile economic periods. For example, a global bank is deploying AI and machine learning solutions in accordance with the inputs received in face-to-face interviews to create personalized recommendations for asset distribution and risk diversification in an investment portfolio. By leveraging face-to-face interviews and a deeper understanding of individual customer insights such as risk profile, investment duration, and account balance, the remote customer advisory service enables tailored and sustainable recommendations.

Beyond customer acquisition, banks can apply continuous customer programs using the remote customer advisory service to enhance customer retention. Once a customer portfolio is created, ongoing tracking and decision making are critical for the optimization. Given the low literacy levels and limited interest in market news and trends among customers, timely information and advice is essential to maintain portfolio balance when faced with incremental losses or better profit opportunities in alternative assets. In order to achieve even more sustainable portfolio management, portfolio managers can organize regular and event-driven meetings to evaluate customer portfolios and provide recommendations. Monitoring the dynamic ecosystem of investment products and changing events in customer’s life such as selling a car, starting a new job, or having a baby, is important for making informed investment decisions. Ongoing interaction through recurring meetings allows for the incorporation of event-based plans that align with these changing circumstances. Evolving data and CRM capabilities enable banks to track numerous events in customer journeys and proactively communicate relevant information. By analyzing activities such as high transaction volumes, changes in income, new personal loans, insurance policies, or invoice, banks can identify potential events and offer optimization strategies for investment plans. The human element in the digital landscape reinforces the collection of highly valuable data, enabling the generation of highly personalized product offerings.

The remote advisory service becomes even more impactful when utilized for thought leadership. Every piece of information shared by portfolio managers with customers carries an educational foundation, providing insights into the why, how and what of investing. Through ongoing customer programs, this information is learned, tested and iterated, ultimately transforming into knowledge and experience for customers. After taking baby steps with the guidance of portfolio managers, the mass audience becomes more aware of how to make investment decisions and gains the ability to manage their own portfolios. Over time, this forms an investment habit that decreases the reliance on human-assisted guidance. Then, guided communications through user friendly designs and insightful content initiate ongoing engagement. In the long run, this strategy proves to be mutually beneficial, enabling banks to achieve their business goals while empowering customers to grow their financial portfolios.

Empowering mass audiences with low levels of literacy to engage in sustainable investment behavior will bring substantial benefits to customers, banks, and society at large. In particular, there are outstanding initiatives within the local benchmark that support a large customer base through remote advisory services, portfolio management, or content management, as shown in the figure below. For example, İşbank has taken a pioneering step by developing robo-advisory capabilities in collaboration with Smart Advice company. This innovative approach involves understanding investor profiles and behavioral finance preferences through a risk profiler questionnaire, enabling the bank to offer personalized investment fund recommendations. ING empowers its customers by offering remote advisory services, making it convenient for those in need of financial assistance to access products and services. The bank initially focused on investment products due to their complex nature and higher demand for assistance. Foneria has made significant progress in increasing the financial literacy of its target customers. Through their specially developed channel, Foneria TV, they publish informative videos aimed at educating individuals on various financial topics.

While each of these services contributes to the development of sustainable investment behavior, it is essential for banks to adopt a holistic approach by implementing all three initiatives. This comprehensive strategy ensures that the diverse needs of customers are met and helps to overcome the challenges faced by the industry.

At DefineX, we are dedicated to creating products and services that democratize technology for the benefit of society. With this mission in mind, we have developed Digital Workspace – an offering that seamlessly combines the human element with the digital landscape to address unmet or unsatisfied customer needs. If, after reading this article, you find yourself intrigued and would like to learn more about how to build a human-integrated investment advisory service, we would be delighted to reach out to you and introduce you to our DefineX Digital Workspace product.

[1] ING Savings Trends Survey from 2022 Q3: https://www.tasarrufegilimleri.com/Docs/2022_3_Ceyrek.pdf