Trust in the banking sector was shaken by the 2008 financial crisis, reinforcing many consumers’ suspicions that their and their banks’ interests were divergent if not opposed. Recently, COVID 19 pandemic has made a profound impact on banks; in addition to managing their own businesses, transmitting government relief packages, deferring loan repayments, and encouraging digital consumption, banks have had to assume a social responsibility to help customers and communities get through the crisis. Banks should support their customers’ financial wellness during this critical time, even while having to manage their own challenges around rising NPAs and shrinking growth rates.
The recent crisis has raised the following question: Did it have to take a pandemic to get Financial Wellness back into the spotlight? Weren’t the repercussions of the financial meltdown of 2008 enough for banks to learn that customers come first and the bank’s bottom line, second?
While most customers trust their banks to take care of their transactions and their data, they are skeptical that they truly put their interests first. It doesn’t help that when these customers slip into overdraft or manage their money unwisely, they are penalized rather than assisted by their banks. Many consumers doubt that banks have their best interests at heart. New digital entrants to the retail banking market saw an opportunity to not only create innovative digital propositions, but also to change the tone and nature of their customers’ interactions. They emphasized a collaborative, empathetic, “we’re in this together” brand position that has resonated with many customers, they attracted millions of new customers and achieved enthusiastic customer advocacy by persuading these customers that—unlike their bank—they have their best interests at heart. Among other things, they promise to help them reduce fees by managing their finances more wisely.
Over the past several decades, banks have lost the central position they once held in customer’s lives. We’ve come to expect that companies like Amazon and Google know more about the customers’ financial wellbeing than the banks who have all of that data at their fingertips.
To cope with changes, uncertainty and competition, successful retail banks, over the next few years, will be those that use technology not only for efficiency but also to rebuild trust and a sense of shared interest, through client centricity. The banks that leverage artificial intelligence, machine learning and predictive analytics to help customers build healthy money management habits will ultimately increase the life-time value of those customers through engagement, loyalty, and share of wallet.
With more aware customers, traditional banks may risk losing the percent of their revenue that accrues from overdraft and similar charges. But by proactively cannibalizing this revenue, they could gain the trust that is essential for selling the innovative, transparent value propositions that are critical to their long-term success. Banks can rebuild customer trust by authentically and transparently putting them first, even when it’s not to their immediate advantage.
Purpose-driven Banking is a reliable, transparent effort to help customers manage their finances more wisely and effectively, even if it means offering advice that may not immediately make money for the bank. It’s about offering more choices and better advices to people, even at the cost of short-term profits for the bank.
It’s about helping people understand the consequences of their financial actions and helping them take better decisions. It promises to treat people as humans, not numbers, and to help them reinvent their financial lives. It goes much further than engaging with people who need help with their financial health, it’s about earning their trust. It’s not simplifying interactions and putting clients first, it’s putting them at the center of the bank’s mission.
A growing number of banks are developing trust-based customer propositions aimed at improving customers’ financial health. Banks need to restore customer trust, for two reasons. Firstly, to cope with the offerings of the regulators and the new digital competitors. Secondly, new advisory offerings are one of the most promising sources of potential new revenues, but without trust they will find no buyers. By building strong relationships and assisting customers in increasing their wealth as trusted advisors, banks benefit from improved satisfaction, retention and revenue growth.
Retail banks now deliver efficient, highly appealing digital customer experiences, but consumer surveys as per Accenture still show pronounced skepticism that the interests of banks and their customers are truly aligned. There is an abundant opportunity for banks to step in and provide their customers with better, more personalized advice and support that help them deal with not only the volatility of day-to-day life but also the broader changes that affect almost everyone from time to time.
The intense competition with the new digital competitors will be the new norm in banking. It will erode traditional banks’ market share and continue to threaten their revenue and margins. In markets that are overbanked, and where traditional competitive boundaries are breaking down, differentiation will be crucial not only for profitable growth but even survival.
Banks that can show they are working more sincerely in customers’ best interests could become trusted—and profitable—advisors. The economic logic is simple. Better advice means better customer decisions, which over time creates more wealth—wealth that banks then have an opportunity to help their customers manage. Compare that to the widely held caricature of banks that spring hidden fees on customers, push high-cost consumer loans at every opportunity, and generally profit from their customers’ ill-advised financial decisions.
When banks get it right, there is an amplification effect. Not only does the trusted advisory relationship increase their share of wallet; it also grows the size of the wallet over time. The “benefiting together” proposition has the potential to emphasize win-win rather than win-lose situation.
Improving banks’ understanding of how to enhance customers’ financial wellness goes beyond basic transparency (showing transparently fees and charges) to offering more tailored propositions that help customers spend more wisely, manage their debt, and save money. One example is drawing customers’ attention to unnoticed spend in the form of micro-transactions and unused subscriptions. The journey towards purpose-driven, trust-based banking begins by prioritizing short-term investments that address a customer’s “cost of bad decisions”. This will stem the leakage of revenue to new competitors that target those decisions points.
There are key practices, that banks need to implement to shift toward a purpose driven banking and a “benefiting together” mentality:
- Digital Financial Helper that improves customers’ financial literacy relevant to their immediate need. Tools like AI assistants can enable banks to make sense of “information everywhere” and answer customers’ queries effectively in plain human language. While many designs for digital user experiences have improved over the last few years, the right navigation, tone of voice, information content, and demonstrated benefit of engagement remain elusive—even for the best digital banks.
- Online Advisor that provides personalized customer recommendations on a regular or constant basis. Probably subscription-based, this service would give customers full access to their data and maintain a dialogue about their needs and goals. The customer acts (or authorizes actions) based on the advisor’s recommendations.
- Financial Wellness Visit to conduct financial “health checks” and provide advice based on a customer’s circumstances. Such service can maintain the right balance of technology-driven advice and personalized human interaction. Banks today must build long-term relationships with their customers by understanding the complexity of their financial situation and proactively offering personalized insights, advice and recommendations that drive them to better financial wellness.
- A broader set of KPIs:Banks should think about how to communicate with and educate shareholders to focus not only on short-term revenue targets but also on life-time customer value and to consider a broader set of KPIs. For example, differentiating between the profitability and share of wallet of its digital as opposed to its non-digital customers.
- Expanding Market Partnerships: Banks can partner with tech companies and to capitalize on the data and innovation power these digital innovators possess. This will allow them to accelerate the introduction of new products and services. Winning together doesn’t just refer to the bank-customer partnership; it can also refer to banks extending their alliance to get to the right advice model more quickly and effectively.
- Drive and sustain a core cultural shift to build customer trust: Banks’ decisions makers need to create an environment where changes areimplemented to propositions, channels, front- and back office staff, the customer experience and many other areas. The change must be deep, authentic and consistent.
- Reinforcing Trust: To reinforce customers’ trust, banks can take the opportunity to actively champion for the financial wellbeing of their customers, alerting customers before overdraft fees would be charged – counting on building trust with their customers for the long term which drive higher levels of satisfaction.
Some examples of Banks as shown below are using “Personetics” – a data-driven personalization and customer engagement platform – that gives banks the methods and means to advocate for the customer’s financial wellbeing including behavioral analysis that looks into the past, present, and future of an account to see potential problems and find opportunities for customers:
- UK’s Metro Bank Insights help customers stay on top of their finances. The bank’s timely tips are greatly appreciated by customers, earning an average satisfaction rating of 4.6 out of 5.
- BGL BNP Paribas launched Genius, an AI-powered digital assistant that provides advice, notifications, and recommendations to promote smart decision-making and healthy money management behavior.
- UOB’s TMRW, a Thai digital bank tailored to millennials, promises to be the bank that keeps their customers “one step ahead”.
- Royal Bank of Canada (RBC) customers are automatically saving an average of over $180 a month with NOMI Find & Save™ an automated savings solution. RBC uses predictive technology to learn customers’ transaction patterns, finds spare money they’re unlikely to miss, and then automatically saves it for them.
Another example is Monzo that highlights the difference between good and bad debt and seeks to increase customers’ financial IQ, helping them make smart decisions about small value loans.
By Yasmine Amr -Researcher at Egyptian Banking Institute