When was the last time banks did something really valuable for their retail customers? For most institutions, this has not happened in recent memory. Instead, many banks have spent the last decade alienating customers with high fees, low deposit interest rates, facilities closures, and one-size-fits-all account consolidations.
Now there is a chance to make amends. Banks can build customer satisfaction by first embracing the role of account aggregators. Aggregation is more than just a service that enables customers to view all accounts in one place. By its very nature, it stokes the customers interest in a plan to organize and adjust what is continually being viewed.
The typical household doesnt plan to fail; it just fails to plan. Imagine a world in which this deficiency can be cheaply remedied. Imagine a world in which a bank not only displays demand, savings, credit, investment, and insurance accounts on one screen, it also applies linear programming techniques to dynamically modify the allocation of customer resources across all account categories. To this end, it sends a stream of proactive e-mails advising the customer that, given the data furnished on his/her life situation and goals, bank balances are too high, loan balances too low, investments too or not sufficiently risky, etc. Directed by these messages, the customer can restructure online, using menus that detail best-of-breed products served up by a multitude of financial service providers.
The technology already exists or will shortly exist to offer this service package cost-effectively to those who would warm to it heads of households age 25 to 55 with above-average means. Indeed, this is an area in which supply can create its own demand, as is already happening in the provision of basic aggregation services. None of these are currently very sophisticated, but the customer sign-up rate is explosive.
The burgeoning popularity of aggregation would seem to confound the recently formed view that retail (as opposed to wholesale) banking customers dont want one-stop financial shopping. This view superseded an older opinion that this was precisely what was wanted. Thanks to aggregation, bankers may return to the realization that customers really do hunger for a single stop, if it is relevant, adequately provisioned, and, of course, offers the necessary linkages to Web nonfinancial data a key selling point, at least initially.
To be sure, diehard partisans of the prevailing view could counter that while the public may be partial to a single provider of aggregation services, it still wont buy all or most financial products from that provider. Apart from the fact that this opinion may be wrong, it is probably irrelevant. The competent aggregator will offer customers a composite financial solution grounded in a dispassionate analysis of their life situations and how these situations should translate into a particular mix of discrete products. In this scenario the value added resides in the quality of the solution, not in the products that implement the solution. These are mere commodities available anywhere in the world.
It follows that the solution provider should eventually garner the bulk of the relationship profit. This can come from fees directly paid by the customer or from referral fees paid by product companies.
It would seem, therefore, that aggregation could have two quite distinct effects on the structure of banking. On the one hand, if customer loyalty to the solution provider ripens into a willingness to buy product from that provider, the effect would be to further concentrate the industry. On the other hand, if the alleged bias against one-stop shopping persists, the effect could prove decentralizing, splitting the industry into groups of customer specialists (solution providers) and product specialists, each domiciled in a separate corporate vehicle.
It is not at all clear, however, that banks will preempt the supply of high-level aggregation services. A preliminary survey of aggregation customers reveals that while 41% use a bank, a third use a portal. To maintain their advantage, banks will need to build on their reputations, somewhat impugned but by no means sullied, as trusted agents of the customer in order to become the preferred point of entry to all his/her financial as well as nonfinancial data stored on the Web.
Doing so necessitates three steps: first, partner with an aggregation engine (the rapid technology cycle in aggregation discourages in-house efforts); second, improve data security and accuracy by supporting protocols like Open Financial Exchange and Interactive Financial Exchange (the modular nature of aggregation technology requires sensitive interactions among the systems of multiple institutions, raising hosts of security and legal issues); and, third, bend every effort to develop a creative marketing strategy.
Mr. Currie is a principal and Ms. Rodger a senior manger in the Toronto office of Deloitte Consulting.
