“It was telling that not a single interviewee was willing to defend the status quo” is just one of the surprising conclusions in The Economist’s “Good Bank Report”, based on a discussion among representatives of the retail banking industry. You don’t have to look very far to find a discussion of the failures of banking when it comes to inspiring trust, working efficiently to respond to customers, and innovating – but it’s more surprising when those creating the criticism aren’t the customers, but the organisations that provide the service.
The participant’s in the Economist’s research offered different solutions to the problems their customers perceive – but one clear theme comes through. Banks “need to act in the best interests of their customer and be seen to do so. Old sins are not forgotten, but they can be forgiven,” the report concludes.
This is nowhere more apparent than in the fundamental brand asset of a bank: trustworthiness. On one hand trustworthiness, innovation and effectiveness reinforce each other – banks should follow rules, and innovate in the interests of its customers.
But there are also trade-offs: trust, innovation and effectiveness are not always in harmony. Building trust by introducing too much red tape makes banks difficult to use. Banks that are too worried about what their traditional customers think of them are scared to innovate.
Therefore, while all banks may want to change, it’s harder to decide exactly what that customer-driven change will be, how fast to change, and whether to lead or follow other banks without a clear view of what customers want.
Benny Higgins, CEO of Tesco Bank, also captured the problem that an apparent “customer focus” can often be lip service. All organisations talk about how customer must come first, he says in the report, “it’s part of the propaganda. But it doesn’t always get translated into decisions and actions”.
So how can banks be sure that the first step towards acting on customer concerns is a step in the right direction? Perhaps by taking inspiration from outside the banking industry. Giles Andres, now co-founder of lending platform Zopa, previously helped Tesco develop innovative services. He told the report that the first question he was always asked was “what’s in it for the consumer?”
He recalled that the discussions would then progress to whether the product or innovation could provide better value for that customer than what was already available. If there weren’t positive answers for the first two questions, then the third – “can we make money?” – was never asked: because, in a customer-centric retailer, it wouldn’t be relevant.
The fundamental insight is that, for a customer-centric bank, trust comes from being helpful, rather than prioritising profit.
But, to be helpful, you need to know what customers want. If a retail bank thinks of customers as the source of profitable transactions, but does not have a single view of that customer across all the business it does, then it can’t begin to answer the first two questions – although it might know whether it can make money from a new product. Decision-making is hampered by the lack of an overall picture of that customer, and this is determined by the restrictions of the IT systems underpinning the bank.
The result is that often internal incentives and innovations are built around what is measurable: the profit to the bank. The bank struggles to inspire trust, because its customers rightly perceive most of the value as accruing to the bank, not to them.
This is understandable. It’s not easy to be a good bank, but it’s very easy to become a bad bank by accident. The customer focus of the best retailers is the best model for the future of banking. At SAP, we have been enabling many different types of firms to become customer-centric for many years. We found that companies flourished when they embraced best practices from the customer’s, not the industry’s, point of view.
Maybe, for the secret of becoming a “good bank”, it’s best to look outside banking entirely. After all, it’s an industry in which no one wants to defend the status quo.
Download the report “The Good Bank – A concept for improving the global financial industry“.