Americans are increasingly underserved by banks.
The results of a survey released this month by Synergistics Research Corp. showed one in six consumers had been denied credit during the past three months, or more than double the rate over the past decade. Among lower-income consumers, more than 25% of those seeking credit were denied.
Lending is critical, but it is not the only service people need from banks. They need help making sense of the banking crisis, so they can understand what it means to them. They need advice about how to manage their shrinking resources, and they need a safe place to keep their money. They need to pay their bills and rebuild their credit.
Yet that is not what most banks seem to be worried about. In all of the talk about the Troubled Asset Relief Program, banks appear more focused on their balance sheets than their customers.
The average consumer might be willing to give a bank the benefit of the doubt during these tremendously uncertain times, but that will not last long. The financial crisis has reminded us all of the central role banks play in the larger economy, but it is also causing consumers to question the significance of banks in their day-to-day lives.
Here are five things banks can do, relatively quickly and easily, to reassert their relevance with consumers and demonstrate a commitment to them.
Help consumers form a road map. Americans are worried about their finances. They may be juggling multiple debts, worried about retirement as a result of tanking portfolios, or uncertain about the new deposit insurance limits and where to put their money.
It used to be that consumers would turn to their banker for basic advice about managing their money. Banks need to borrow a page from their old operating manuals and find a way to offer customers the advice they need — ideally from someone other than a sales representative.
Stimulate savings. Getting consumers to save more may not jump-start the economy in the short run, but it will help people rebuild their confidence and their credit while enabling banks to increase core deposits and ultimately make more loans.
Encouraging customers to save does not require fancy new products and services. It does require marketing the ones banks already have and realigning incentives. Instead of offering consumers $100 to open a checking account, banks should be offering rewards to open a savings account and set up automatic monthly deposits from checking.
Build a borrower pipeline. Credit markets are still frigid, but they will thaw. Banks need to make sure that they have customers who are ready and able to qualify for loans of all kinds. Getting consumers to save is a good first step. It will help borrowers establish collateral and put them in a stronger financial position.
Banks also need to help consumers rebuild their credit. It is time to dust off the secured credit cards and credit-builder loans and put them back to work.
Finally, banks need to pull these products and strategies together with marketing that helps consumers understand that they can begin building their financial strength and stability.
Look beyond FICO. With credit standards tightening and the average consumer credit score plummeting, traditional credit scores are not going to get banks very far in approving more loans.
Think of all the consumers whose credit lines were reduced by lenders as a precautionary measure, causing their credit scores to drop, even though they may have made no real mistakes.
Or consider the roughly 50 million households with a thin or nonexistent credit file that cannot be scored.
Banks are sitting on mountains of consumer data — checking account cash flows, money transfer history, bill payments — that could be put to use in underwriting models. A strong crop of vendors is making other nontraditional data and analytics available. Some lenders are finding that this data can help them manage their current portfolios, too.
Communicate constantly. Consumers are feeling frightened and vulnerable. They are looking for help. Banks need to let customers know that they have their backs by helping them avoid behaviors that can lead to needless penalties.
Banks have already begun to deploy e-mail and text alerts to help customers manage their accounts.
Usually, customers have to request that this functionality be turned on, or they set limits on when and how they are alerted. Now is the time to give customers more information, whether they ask for it or not, by automatically signing them up for these communication tools and letting them opt out if they prefer.
These ideas are not new or radical. They are merely examples of putting the customer first. Banks that demonstrate they have mastered this basic concept will be the winners when the economy rebounds.