So, Bank…where do you see this relationship going?
Am I just another easy source of fee income? Or are you really looking to build something deep and mutually beneficial that will stand the test of time?
Despite recent sweet talk about building better relationships and regaining trust, few banks are taking meaningful steps to do either. It will take more than sympathetic ads, friendlier tellers or bonus credit card miles. This may require some time in therapy.
Retail banking was once a relationship business – more localized, nurtured over time, focused on value, service and trust. Customers lived an entire financial life at one institution. Banks carefully guarded their client rosters and reputations as prudent stewards.
However, years of chasing short-term profits have left the big banks with a distorted business model, increasingly dependent on fee income to juice quarterly earnings, with penalties designed to squeeze every last cent out of consumers. As has been widely reported, banks will actually rearrange a customer’s transactions in order to maximize the number of times the account is charged overdraft fees.
Why would banks treat their customers this way? What is worse, many bankers began hyping fees and penalties as the most promising source of revenue growth for retail banking.
Alas, in a service industry, penalizing your own customers is not a sustainable growth strategy. It’s time to acknowledge that your business model is sabotaging your relationships.
To realign the business, banks must start investing in customers and restoring the “service” in financial services. If this is done sincerely, the trust will follow.
This realignment should focus on clients at every level – products designed to aid and not bilk consumers, total transparency on all charges, bank representatives selling products that meet a customer’s needs instead of a monthly sales target. Serving as a financial champion for customers, and building a bond that keeps them coming back for more.
In fact, selling multiple products to a single customer has always been the ultimate goal for banks –– yet the promise of the one-stop financial center has never been fulfilled. A November 2010 McKinsey & Co. report shows more than 70% of cross-selling is done at the time an account is opened; customers do not buy any additional products as the relationship evolves. Banks think this is a reflection of poorly trained salespeople.
Could it be, instead, that after experience with the bank, customers are not feeling the love and are less inclined to deepen the relationship? JD Power’s 2011 Retail Banking Satisfaction Study confirms that customer satisfaction at most of the large banks is below the average in every part of the country. Ranking highest are the regional and community banks, which tend to focus more on close relationships with customers and delivering personal value.
A customer-centered business model will increase loyalty and cross-selling revenues, and help decrease costs, such as customer acquisition and retention. In addition, a focus on service would let banks compete on value rather than price, perhaps even allowing the best to command a premium for their products. Unlike a quick fix from penalty fees, this could be a means to lasting growth opportunities.
This restructuring needs to be pervasive and include looking at household and segment relationship profitability instead of product profitability (which I reference in response to the article on checking account profitability earlier this week). Organizational structure needs to move from product silos to relationship segment groups and pricing of services needs to reflect relationship depth much like is already done in the commercial and corporate segments.
This is a huge and politically sensitive issue for most banks who can't even build web interfaces to reflect relationships (they are all layered around products).
Unfortunately for current banks, new entrants into the market don't need to deal with legacy systems and organizations. They can build their entire model around relationships and how people want to transact their business. Banks like Movenbank and Simple can use traditional banks to provide the products and build their interface around relationships.
In today's highly demanding and increasingly social environment, which model do you think will eventually win out?