Banks are finding it increasingly difficult to generate loyalty and become the main banking relationship of their customers.

This has a direct economic impact in that revenues and profits are more volatile than it is desirable.

If we add high cost bases, the burden of increasing regulatory costs and downward pressure on fees and margins to the mix, the future doesn't look promising at all.

Why is this happening?

• Banks are late in joining the digital era. They have not adapted sufficiently rapidly to the changing expectations and behaviours of their customer base, which have been massively influenced by their experiences in other industries.
• The financial crisis had a negative impact in the reputation of financial institutions and big banks in particular, with the public losing trust and resenting the amount of public funds destined to rescue banks as a result of the misconduct of the banking profession.
• To make things worse, the regulator has made its focus to bring competitiveness into the sector and is therefore making it easier for customers to switch from one financial institution to another and for new entrants to join the party. Rates and fees are thus becoming more standard across the sector precisely as a result of the relatively higher facility for clients to switch providers. Recent regulatory actions in this direction include the investigation into overdraft charges on current accounts, and the decision to support the need for banks to facilitate current accounts switches in a maximum period of 3 days.
• Additional price pressure and customer churn comes from the advent of Fintech and the rise of alternative providers of financial products from alternative lending, such as P2P, to new payment methods and so many other financial innovations

The question is then, how to keep clients engaged and loyal in order to ensure a more stable revenue stream and more predictable profits? What's the secret?

I would look at two key characteristics of a good friend: a friend knows you better than others, and a friend cares for you.

Banks are probably one of the institutions that knows us the best. Despite the multiple personas the digital world allows us to display and utilize nowadays, we are still forced to identify ourselves to the bank. The bank knows our "real persona".

My bank also knows what I buy, when I buy it and for how much. He knows to a great extent where my money comes from and to whom I send money. He can easily know based on my data in which stage of my life I am: have a bought a house? Have I got married? Have I recently been on holidays? Have I had a baby?

If you ask me my bank probably knows more about me that lots of my friends. But I would not say I feel that in my interactions with my bank and I certainly do not feel my bank "cares" for me. And that's why I would have no problem whatsoever moving my current account to another one in order to get a better mortgage rate somewhere else.

How can my bank become my friend? How can my bank make me loyal?

I argue that the answer is through value and relationship:

A) Provide value beyond expectation. Become relevant in a multitude of aspects of your customer's life beyond financial services. In a world where net interest income is very low and fees are threatened by downward pressure, banks need to find new ways of adding value that justify their cost to customers

This requires a mindset change from the mere provider of financial services to a provider of access to value to its customers. The banks mission should no longer be "providing financial services to its customers" but "helping clients ensure their financial health and build their wealth".

With the amount of data my bank holds about me, they should be able to use what they know to make my life and in particular my financial health better.

The ideal bank would give me advice on what is best for me rather than what it wants to sell, it would introduce me to partners that might cover my needs when the bank is not capable of doing so, it would provide me access to other services on better conditions than I could obtain by myself, it would know at which stage of my life I am and forecast my financial and other needs. Use data to generate the right insights and drive actions relevant to the famous "segments of one"

Imagine these scenarios:

• Scenario 1 - you have been on holidays a numbers of times in the last years, this year only you have paid x amount in insurance for your trips, would you be interested in a multiyear insurance that works out x pounds cheaper?
• Scenario 2 - You are sending a transfer a month to your parents in Australia and paying x per transfer, why not joining our special "family remittances" rate offer for our long term clients?
• Scenario 3 - you have applied for a rise on your credit card limit that falls outside of our risk profile, other providers you can try are x, y, z. Shall we put you in touch so that you have access to their preference rate?
• Scenario 4 - we have observed the value of the properties in your area has gone up by x% since you bought it, we would be happy to take a look at it for a low fee and renegotiate your deal

Does that sound like your banks? (If it does please drop me a line as I would be very interested in switching :)

Timid attempts are made already with PFM tools, which try to provide customers with a tool to manage their finances. The message is "I care whether you are financially healthy or not". But in my opinion providing a free tool is not enough. Personal interest in your customer goes a long way to build loyalty, and with digital that should now be possible at a lower cost. If the Monzo's of the world can do that while sitting in a lot less data, shouldn't you, traditional banks, at least try?

Some examples of themes that need further development are international payments and transactions i.e. making it easy for people that are out of their countries in this increasingly globalised world; electronic documentation (digital signature..) i.e. paperless as a default; video conferencing and weekend services (see my post regarding Rabobank – the unplugged bank).

B) Build a strong relationship. Become a friend. Nobody abandons a friend. Well, most people don't.

To me there are two very important elements to it. One is the all so familiar "know your customer". The second one is do not underestimate the human factor.

I still remember my grandfather's banker, and more surprisingly he remembers me. My granddad lived in a very small town where everybody knew everybody, and as a result so did the banker. He knew people and their circumstances, their reputation, and their financial health and needs. That made it a lot easier for him to provide a good service, a personal touch, right recommendations to match his client's needs, and to be seen as a "friend". When a client entered the bank, he would ask "how is your boy doing at university?", "enjoying the new house?", "are the works progressing?", or anything else, cause he did know you had a study loan, a mortgage or a house improvement loan etc. You never felt like you were a number and had to explain everything again to yet another agent who couldn't care less about who you or your circumstances are.

And yes, we are in the digital era, but we are still human, and the statistics still show that when it comes to important banking decisions, big investments, bad times or complex transactions, we all feel more comfortable talking to a person. See Accenture's recent survey on customer's preference for human interaction. It talks about "the case for being human" as 58% of respondents recognised preferring dealing with humans for quick responses to questions and 78% for resolving service queries.

Banks have enough data to make sure each of us is treated as personally by each employee we interact with at the bank as my granddad was by his bank manager.

We have come a long way in terms of achieving digital maturity, meeting digital customer expectations and solving banks reputation, but value and relationships continue to be the key to loyalty and the ingredients for banks to move from being considered a mistrusted commoditised deposits-taker, to becoming a trusted friend.