Last updated: Are retail banks relationship challenged?

Are retail banks relationship challenged?


Creating a long-lasting relationship is tricky, whether you’re a college student on a date, or a bank looking to create loyalty. Back in college my friends and I used to joke that we were all “relationship challenged.” A steady relationship took a lot of work, and when you’re 20 years old a lot of work is, well, a lot of work. Building something solid required a shift in thinking from “what makes me happy” to “what makes someone else happy,” and that’s precisely the predicament banks are facing.

The customer relationships banks need to grow take effort, and in retail banking the winners are applying that effort in creating day-to-day value. And just like in a personal relationship where you need to make an effort besides birthdays, anniversaries and Valentine’s Day, so banks should be reaching out more frequently to their customers with information and advice that’s adds value. Selling is obviously important, but if that’s the only time banks are talking to customers you don’t really have an advisory relationship with your customer, and this opens the door to competitors.

The banks I do business fit in well with the stereotypical attitude of a 19 year old male. They are focused on their own well-being than mine. The recent Finextra report on Engaging the Unengaged Customer confirmed and underscored my experience, as only about one third of customers actively believed their bank advocates for them. That’s a pretty dismal percentage, and it makes you realize why there is so little loyalty in banking.

Where retail banks have gone wrong                  

If banks want to engage with customers and build loyalty, then they need to do a better job adding value that is clearly centered on the customer. Acquisition numbers mean little if you aren’t retaining customers and building wallet share. It’s like robbing Peter to pay Paul; you haven’t solved your original problem and you get stuck in a bad cycle.

The surprising part of all this is that banks overwhelmingly think they are engaging customers even though the data shows something quite different. Only 49% said their banks were trying hard to engage them, while 84% of banks said customer engagement was a top three priority. Banks have been seriously missing the mark on this one, and it’s time to rethink the problem.

Relationships require more than technology

Just because you have a really cool app that makes it easy for customers to check their balances and pay bills on the go, it doesn’t mean that app translates into engagement that fosters loyalty. Much to the dismay of banks, while customers interact with their banks more than ever, they are engaged less.

Retail banks aren’t catching on to this as quickly as they should and they need to be. I do business with two banks who, on the face of it, are quite different: one is a top five US Bank and the other is a small third tier bank. Yet from my perspective as a customer, there’s very little to differentiate between the two. They both have convenient mobile apps and online sites, which I use regularly, but even if challenged, I couldn’t tell you whether one offers some feature or function that the other doesn’t. As far as I can tell, there’s no personalization, or if there is, it seems of little value. There is nothing there that engenders loyalty, with the consequence that if I were looking for a loan, I’d be just as likely to turn to the Internet as I would to one of my banks.

How to improve relationships day-by-day

Consumers want banks that will make their financial lives better and simpler, and the opportunities for banks to do that aren’t just once in a blue moon, they’re potentially every day. The tricky part is that there is no “one size fits all” advice.

Bankers have been trying this gamification app or that wave your phone at a cup of coffee app, but the only solution that avoids the commodity trap is for banks to go back to their roots and start acting like banks again. Banking was founded on understanding customers so that they could meet their financial goals, and the Finextra report confirms that customers still want bankers to play that role. Unfortunately, this requires the hard work of customer understanding down to a “bank of one” level.  Every customer’s financial situation is unique, and customers need to feel like their particular needs are being addressed and met.

So for the bankers reading this, how have you aligned your products with your customers’ financial goals and well-being? This might mean taking a close look and advising that they have too many accounts open and could get closer to their savings goal if they consolidated accounts and saved on fees. Or maybe you see that customer has a high checking account balance month-over-month, and that making an extra payment on their mortgage could result in the loan being paid off that much earlier, saving them thousands over the life of the original loan. Small bits of advice could go a long way in creating trust and loyalty. A final question: if your advice resulted in less revenue for the bank, would you be free to give it, or would you wait for some other bank or a Fintech to point it out to them?

Just like with dating back when I was in college, it wasn’t about how many dates I went on, but the relationship I aimed to form. The only way to win in banking is to focus on the quality of engagement measured through the day-to-day value added.

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