Watching TV recently, I heard a German lawyer giving advice to any customer offered an investment or loan product by their bank: reject it. Banks, he argued, sold products not in the interests of customers but to build their own profits.
He is not alone. The financial crisis left many people disenchanted with the banking system – especially those who lost out financially. Bankers, it seemed, were more interested in supporting their business model – and ultimately their bonus schemes – than protecting their customers. Then, it seemed, banks were “punished” for their irresponsibility with massive government investment.
Since then, there have been further blows to the good name of banking – from LIBOR manipulation to money laundering and bribery accusations. Customers often do not distinguish between retail banking, investment banking and capital markets. Even well-run banks are caught in the backlash.
The dangers of departure
Internet and phone banking has streamlined branch banking, and has made switching less disruptive.
Young people are being targeted by mobile providers and social technology giants with their own financial solutions. Players like Google or Apple already have strong brands – and can use their customer data without the limitations of financial industry regulation.
Meanwhile older, high-value customers – who may have lost money in the global financial crisis – are exploring alternatives. Credit unions, and “ethical banks” are on the rise. The competition banks face is shifting gear.
Retail banks have historically been less exposed to risk than other arms of banking. But they also have embedded costs – a branch network and customer service resources – and pressure on margins, complicated by the financial and regulatory fallout from the banking crisis.
So, banks need to recover their customer’s trust, while also remaining profitable.
Technology can help to begin or reinforce this process. Better systems enable improved risk management, and greater transparency. They can lower costs by streamlining processes. Improved analytics provide better insight into what customers want and need and reduce the time-to-market for new services.
Changing minds – customers’ and banks’
Technology can enable, but the change has to be deeper. Better core processes will not fix reputational damage, or make customers forget the past.
Banks need to do more than just analyse customers – they need to listen to them, and take steps to recover their trust.
Customer-centricity demands data, of course, and the tools to identify behaviours. But it also needs a shift in philosophy. That may mean accepting lower profits on products while trust is regained. Again, technology improvements can help that process by supporting greater efficiency and cost reduction elsewhere.
In the longer term, though, that focus on the customer is necessary to stop young people with high earning potential losing the habit of banking, and older people with high-value investments taking their money out of the banking system.
Nikolaus von Bomhard, the CEO of Munich Re, recently quoted an old proverb to the German press: “a good reputation arrives on foot, and leaves on horseback”. Banks need to take the reins.
Christopher Kalbhenn is a Principal Business Consultant at SAP. Over the last 20 years he has been able to gain extensive knowledge and experience in the Consulting Industry focusing on Financial Services/ Banking.