During the global financial crisis, governments spent billions to bail out banks in an effort to keep liquidity in the banking sector, largely so that lending could continue at a time when businesses needed as much help as they could get. However, in a financial crisis when the economy is in recession, it is counter-intuitive for a bank to lend money to customers who might get into further trouble. So the bail out didn't work in stimulating the economy the way it was intended. The autopilot 'internal' risk function kicked in and prevented it from doing so.
Some could argue that the 'risk' function within banking, while acting to protect institutions, may have actually negatively impacted the speed of recovery. While we have all sorts of classifications around risk within the business environment today (operational, legal, socio-political, financial and market) the greatest risk we potentially face in the banking sector is actually none of these. Our risk "compass" needs to be re-tuned in the light of customer behavioral shift.
Industry Reputational Risk
Bankers often talk about the 'trust' consumers have in banking as a defining characteristic of why customers give us their money instead of simply keeping it under a mattress. It's also why many bankers have difficulty understanding why customers of today seem perfectly happy to give money to the likes of PayPal, M-PESA, Lending Club or Zopa. The fact is trust in banking is stubbornly stuck in the doldrums, largely as a result of the whole sub-prime, CDO debacle.
So will trust return? This is a big theme this year. We are essentially dealing with reputational risk. Not for an individual brand or institution, but the collective reputation of the industry as a whole.
That's the regulator's job...
To assume we can fix this problem is to ascertain that we can have a coordinated approach to restoring consumer confidence as an industry. There are a few issues with this, namely that we generally leave such broader issues to the regulators. After all, what can one bank do about this on it's own?
The problem with this approach is that regulators can only regulate, they can't make us do good things for our customers. Despite strong regulation, 11 banks (Including the Big 4) are facing class action in Australia by customers over fees. Despite toughening regulation in the United States, the "Move Your Money" campaign continues to live on to this day. It is also why peer-to-peer lending networks are flourishing, why Mint and Blippy are garnering the trust of millions, and why PayPal is the world's leading online payment network. Customers are moving on, plainly because the industry is no longer differentiated by a reputation built on trust.
Let's face it - regulation is not going to restore trust. The only two things that will fix this gap is building transparency and delivering great service at the coal face.
Restoring trust requires us to be un-bank-like...
I've heard many banks talk about service and being more transparent, but the reality is this is a tough target. When we look at service as a sector we see costs and those costs have to be justified - the question always will be; will an increase in service bring more revenue or simply translate to costs? When we look at transparency, this is counter-intuitive for banks. We have spent our entire existence finding ways to hide margin, fees, and to justify those elements as part of the banking 'system' in order to return EPS.
The problem is if you screw up with customers today when they're standing in the branch in a lengthy queue during their lunch break, they are just as likely to start Tweeting or shouting out to friends on Facebook about how "hopeless bank ABC is in the city branch today, this queue is massive!"
How do banks respond to such communications?
- Most ignore these Tweets as inconsequential - does that restore trust?
- Some respond positively to the tweet, explaining how sorry they are and what they are doing to resolve it...
- Unfortunately, some Respond negatively; I'm sorry the customer feels this way, but this is not what we are like - really, some people are just never happy!
Excellence is trustworthy
When you build a great service environment, then there is no need to worry about being transparent. Customers these days will pay a premium for great service. If service is not your thing, then be transparent about that, but explain you don't charge as much as those other banks and that is the benefit of your bank. If, however, you want to keep fully loaded fee structures in place, then you'll have to be transparent about the cost of delivering great service. If you aren't delivering great service, and you are still leveraging fees like it was the 90s, you'll find out that this strategy doesn't work - just ask the big 4 banks in Australia. NAB, thus far, is the only bank to positively respond to this pressure by taking a new, transparent stance on fees.
There are some simple steps to take that will bring rapid improvements:
- Simplify bank language through a plain-language initiative - refer Centre for Plain Language and Whitney Quesenbery
- Make it easy to find the best phone numbers to speak to the right area of the bank on your website, circumvent IVR menu trees where possible. Citi in the US does this pretty well.
- Mystery shop, not competitors, but the most common processes in your multi-channel environment and see where these need to be drastically simplified, and use Observational Field Studies to see how customers work in real-world settings.
- Put a social media listening post in place and respond positively and openly at every opportunity - check out Gatorade's Mission Control
- Review the biggest complaints you get in the call centre, and try to fix those customer journeys proactively. We call these Torch Points...
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