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Neeraj Gupta

Banks and their technology

Neeraj Gupta - A banking technology enthusiast

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Can Banks Really be Customer Centric?

05 April 2017  |  10178 views  |  5

Traditional product-centric banking is a thing of the past. The transformation to customer-centric, relationship-based banking has already commenced and pace is not slow. Banks are forced to focus on customer(s) and they are not geared up for this. Historically banks have been structured around products, so their internal systems. These are under pressure to restructure and align to customers, but bank’s past investments restricts this movement and is one of the biggest hindrances. After all banks have invested Billions of dollars in creating these mammoth systems, how can they just let it go? Even though banks have realized that past ways of doing business may not hold good for future, they are just not able to act upon it quickly. If this was not enough, non-banking players are increasing the heat.

Any bank, irrespective of their target market, geography and size, has invested heavily in multiple banking systems and undoubtedly many of these remain as the most important IT systems. However the same assets turn into liability, when current systems act as a constraint instead of supporting the need of agility to respond quickly to changing market conditions.  

A study done by Ernst & Young in 2014 explains how important fees are in customer experience. They stated “transparency of fees and simplicity of offers and communication” as one of the key improvement areas for banks. Additionally, rates and fees were stated as the reason 32% of customers opened or closed accounts in the past 12 months. It was the second most important reason after experience and lagged behind only by 1%.

Customers were noticeably less satisfied with one of the most important benefits: transparency and clarity of fees. This presents a burning issue for banks to improve upon, as customers who switched providers last year also cited rates and fees as an extremely important reason for closing accounts. And it is more than an irritant - two of the top five problems for which customers requested assistance related to unexpected fees and disputed charges. This takes time and effort for them to pursue, and even then only 20% of those reporting the problem were very satisfied with the resolution, and a full 42% were less than satisfied.

These are not unanticipated issues. Banks are very well aware of these problems and have the biggest stake. They cannot afford to be a mute spectator of customer’s concerns. They would like to move quickly and re-orient themselves to address issues. However they are constrained with their past investments and are not able to respond to customer’s expectations. Isn’t it surprising to see how past assets are turning into future liability.

Can banks do something about it? Can old age banks really be customer centric? Is there a way for banks to handle this situation without scraping old investments? Can risk of transformation be managed? If yes, what should banks do? Any suggestions?


TagsRetail bankingInnovation

Comments: (6)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 06 April, 2017, 13:32

We've been hearing about relationship-based banking for nearly two decades. Still nothing much has changed on the ground. Meanwhile, financial services hasn't died. On the contrary, it has consistently been the most profitable sector in FORTUNE GLOBAL 500.

Heat from nonbanking players has actually diminished considerably of late. Most fintechs have failed to get a banking license and have pivoted to partnering with banks, rather than acquiring customers on their own. The few that have managed to get a banking license are launching current accounts with a great fanfare. They have no portfolio of products, so they're customer-centric by force.

All this hype about the need for banks to move towards customer-centric banking misses one basic consumer behavior reality: Many customers don't want to buy all their financial products from the same bank. A guy who buys a mortgage fears what will happen to his FDs in the same bank if he fails to make a couple of mortgage payments. Ergo, he consciously places his FDs in another bank, where the mortgage issuer can't touch it. Ditto for credit card and savings / checking account. Banks know this. Which is why they continue with their product-centric approach and it's been working very well for them. Facts simply don't support your claim that "product-centric banking is a thing of the past". It's very much alive and kicking.

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Neeraj Gupta
Neeraj Gupta - A banking technology enthusiast - Bangalore 07 April, 2017, 10:03

Thanks Swami for bringing a different aspect to the discussion. What I understand from above is that one customer would take only one product from a bank and that's why it makes sense for banks to continue to be product - centric. If that is true, banks should just stop deploying resources in up-sell and cross-sell.

The reason, many customers take a product from one bank and go to another bank for second one; is to find the best deal. Customers are price conscious and know that banks are not offering them any advantage of taking additional product. The banks, who offer incentives to its customers for multiple products like Package pricing, have better relationships with its customers. Customer tends to stick longer with banks where they have multiple products and they are more profitable.

Regulators have rescued banks from Fintechs for now. But one would not be surprised if they come back in some other form. Today customers do not have much choice and are forced to deal with the banks, who are busy in protecting their own turf than focusing on customers. But not having happy customers is bad for any industry. The day customers have other choices, they would jump the ship.

Today Banks have a choice to have unhappy customers. But this status may not continue for a long time.

As Bill Gates say - "We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction.”

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 07 April, 2017, 11:54

It's precisely because customers have a natural proclivity to buy financial products from different banks that banks need to put in efforts for upsell / cross-sell! There's really only one bank that showed better financial results with a conscious strategy of basket pricing, etc. But we all know now what the bank really did to get there - it had nothing to with customer-centric behavior.   

While Bill Gates' quote has come true in many other realms, I've been hearing it for over 10 years in the context of banking / fintechs. After a bout of Kool-Aid about fintechs disrupting banks for the past 5-7 years, we're back to Square One, namely, the realization that banks are not easy to disrupt.  

Barring a few exceptions, most fintechs have themselves to blame for their current plight. They reached where they have by demonstrating poor understanding of consumer behavior and customer pain points, as I've been highlighting in my blog posts for several years: 

Will Millennials Bankrupt Neobanks?

Banks Have Nothing To Fear From Neobanks

Regulators haven't hurt fintechs or rescued banks. In fact, they've created a whole category of fintechs:

Innovative Fintechs Don’t Need No PSD2 Regulation

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Shriyanka Hore
Shriyanka Hore - Oracle - London 07 April, 2017, 12:14

The need to think simplified product offerings by unbundling productss, making them very target customer specific , industry specific and automated is important.  FinTEchs are doing just that and most are operating at minimal cost or investment. As long as fintechs cannot settle with the central bank , there is always room to make money for banks by acting as sponsor banks. Cost of end consumer services will be impacted as a result.

Customer satisfaction however is not ablout fee , but also transparency but most importantly it is about trust. 

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 25 April, 2017, 12:32

Forrester asks if relationship banking is dead. Just about the same question I had.  

https://go.forrester.com/bank/ < https://twitter.com/forrester/status/856830201807986689

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Jo&#227;o Bohner
João Bohner - Independent Consultant - Carapicuiba 25 April, 2017, 14:15


Yes, "most importantly it is about trust."

We have to take in account the behavioral profile of a Bank customer from that of the customers of other businesses: retail, services, tourism, etc.

The Bank's customer wants to keep its 'dark side' safe, discreet and confidential.
When its 'dark side' is spied - KYC - trust is lost.

Said that, is the Bank's customer who must have a 360 degree view of the Bank - KYB - and not the contrary.

"The greater and easier the control which a client has in understanding and handling its financial position, the greater the trust it will have in the Bank holding its assets."


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