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highlights

 

A Look Ahead to U.S. Retail Banking in 2014

Moderate optimism is the theme of this BAI Banking Strategies Executive Report in which we interviewed bankers of institutions large and small as well as a number of major solutions providers.



Retail Delivery: Reinventing the Customer Experience

As the retail banking industry emerges from the recent financial crisis, it faces the twin challenges of reinventing the customer experience while reining in costs.



Opportunity Time for Community Banks
Community banks and credit unions are well-positioned to gain market share from their larger counterparts in today’s turbulent economy. by FRANK ALOI
Aug 31, 2011  |  1 Comments

Based on the findings of the 2011 ath Power Ideal Banking Study, customers at community banks and credit unions have the highest banking experience satisfaction levels and are far more likely to recommend their financial institution to other people compared to customers at their larger competitors, who actually saw a drop in their ratings since 2010. Additionally, across 2010 and 2011, approximately 50% more customers at the Nation’s top-20 banks rate themselves as “likely to switch banks” compared to community banks and credit unions.

These results show us that smaller institutions are now well positioned to be successful in this fragmented financial services market. This is an opportune time for them to take the initiative and sway potential customers of their larger competitors to join their community bank or credit union. Tactics for achieving these gains include marketing, advanced products and loyalty programs.

Reputation Play

Whether your organization is a large national bank or a community player, its reputation is on the forefront today and can be extremely influential in attracting and retaining customers. Yet, in the wake of the 2008-2009 financial crisis, many reputations have been damaged and consumer confidence in some of these organizations has reached record lows.

As our annual study has shown in the past three years, trust and bank reputation continue to be major intangible requirements that customers seek in their primary banking relationship. In fact, nine in 10 consumers feel that trust in their bank and the employees that work there is a “must have” or would make their banking experience ideal; 84% of bank customers say that a strong reputation is also a must-have or ideal component. Not surprisingly, loyalty and advocacy have turned into a central focus for banking organizations, large and small.

The banking industry as a whole has suffered damaging effects; however, smaller institutions have an edge in this category. By employing steps that build trust and reputation, they can attract more prospects, increase customer loyalty/share of wallet and prevent attrition. The first step is to communicate with your customers – as much as possible and in the format they prefer. Use several channels to tell your story, including your Website, email, your social media pages or blogs and, yes, the telephone – long-term, loyal relationships are difficult to create with one-way communication.

Additionally, record your customers’ preferences to leverage more targeted and individualized communication. The outreach strategies and the communication mediums you choose for select segments will have a significant impact on expanding current relationships as well as strengthening loyalty and increasing customer advocacy in the coming year.

Specifically in this economy, it is also crucial to be transparent. Be upfront about your offerings and fees. Remember: today’s customers want to be appreciated, but are also willing to pay for the right conveniences, if they receive the right value in return. Show them the true advantages of being your customer.

A main reason consumers are distrustful of financial institutions is because they are constantly subjected to negative news surrounding the industry and simply do not have all of the information needed to understand the impact of new regulations on banks and how that affects customers. Proactively educating your customers on industry changes demonstrates that you want them to be aware of how these reforms will affect them – ultimately, demonstrating the general care and concern they are seeking.

Finally, use these troubled times to offer your financial expertise. Banks have struggled with the shift of being a place to deposit money and conduct transactions to providing a team of trusted advisors to their customers. When we asked mass affluent customers why they would consider using an advisor from their primary bank in the 2011 Ideal Banking Study, 84% stated that they would appreciate “that level of attention” from their institution. And just as important, another 33% revealed that they are currently in need of investment and/or portfolio type  financial advice.

The study also revealed that only one in eight mass affluent respondents had a designated financial advisor at their primary bank. Of those that did not, more than 20% said they would definitely utilize this type of service if offered, while 55% said they would, in the very least, be open to it. This is a clear opportunity for smaller institutions to deepen their relationships with their customers, and show them that you have their best interests in mind.

With the economy in an historic state of flux, many people are scared and/or unsure about what to do with their finances. “Should I cash out my stocks?” “Do I apply for a mortgage or wait?” “Is a 529 a smart thing to do in this market?” “Who can help me!?” Consumers are thirsty for advice, but may not know that your institution is even an option to turn to – so let them know. Our research shows that those organizations that strike the right balance between offers and advice will see increases in customer satisfaction, loyalty and profitable growth.

Early Follower Strategy

While you may not carry all of the products or possess the development budgets that larger banks do, you still need to provide the services consumers find convenient and essential to bank with in today’s world. The services we are talking about are essentially within the realm of online banking, remote deposit capture and mobile banking – which has become an increasing need among consumers.

Our research shows that online banking and bill pay services have received nearly universal adoption by customers (90% using these services overall), with approximately 60% of customers conducting online transactions on a weekly or more frequent basis. And, while mobile banking adoption has been slower than banks or developers predicted five to eight years ago, it is clearly showing signs of future acceptance. As more and better designed apps become available for a wider variety of handheld devices, mainstream adoption is positioned to take a similar path as that experienced by online banking.

Competing with the large financial institutions that are more established in this arena typically means applying an “early follower” mentality for the community player. Budgets at these smaller organizations do not typically incorporate technological advances for mobile. However, by knowing their customers and small business clients, community banks and credit unions can develop sound strategies to meet the specific needs of their targeted consumers. Furthermore, by implementing and maintaining these strategies now, community banking organizations have the best chance to stand out among not only the industry giants but also their direct local competitors.

Loyalty programs have likewise proven to be effective in engaging customers and solidifying a customer’s commitment to an institution and significantly reducing the likelihood of attrition. Sound loyalty and rewards programs also provide the type of communications and proactive outreach that facilitate cross‐sell opportunities.

As with other categorical comparisons in our study, community banks and credit unions received higher satisfaction ratings regarding the loyalty and rewards programs they offer. Their participation rates; however, are significantly lower than the larger institutions — only 17% of community bank customers cited participation in their respective bank’s program.

This can be fixed. Start by educating your frontline employees on your program and training them to communicate the value to your customers. Utilize other mediums such as your Website, emails and mobile alerts to keep customers engaged and informed. Most importantly, reward them on the most optimal products and services with the types of rewards that speak to them individually. Offering customers the ability to customize their reward package, based on a specific product bundle, enhances buy-in and accentuates engagement.

While community banks and credit unions generally score higher than the large regional or national banks in customer loyalty, challenges remain. Our research shows that most of these smaller institutions still lack the defining elements of a high-level customer experience. Most notably, these weaknesses are found in the areas of personal connections and communications, knowledgeable guidance, and delivering products and services that are in the best interest of the customer.

The rest of 2011 and into 2012 will likely be a period in which negative market perceptions and regulation, or the talk of increased regulation, will weigh heavily on bank executives and dissuade some from investment in customer-centered strategies. Our research shows that even slight diversions from developing or maintaining enterprise customer experience strategies puts banks or credit unions in a less competitive position and certainly reduces customer loyalty and employee engagement. The delivery of a genuine and holistic customer experience is the best opportunity for a financial institution of any size, in any region, to acquire and retain profitable, long-term customer relationships.

Mr. Aloi is president and CEO of ath Power Consulting, which is based in Boston and Washington, D.C. and is a full service marketing research firm providing demand-side research to banking and financial institutions. He can be reached at faloi@athpower.com.

 

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comments

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neil stanley
9/3/2011 9:32 PM

Frank, your statement provides great clarity…"Our research shows that most of these smaller institutions still lack the defining elements of a high-level customer experience. Most notably, these weaknesses are found in the areas of personal connections and communications, knowledgeable guidance, and delivering products and services that are in the best interest of the customer." Some customers are willing and able to pay for premium service. However, too many community bankers appear to not recognize that premium service requires far more than familiarity and friendliness. Until community banks address and effectively promote their capacity regarding the issues you noted, the majority of customers will continue to move toward banks who offer more options and lower costs.