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A Look Ahead to U.S. Retail Banking in 2016

Top retail banking executives, at institutions both large and small, are expressing a mix of optimism and uncertainty as they look ahead to 2016.

Self-Service Revolution

Customers are migrating to electronic channels, making payroll reduction a necessity, but they still desire the same, or an improved, level of service.

Transformation in the New Normal
Five years into the financial crisis, financial institutions must shift from simply recovering to changing their business in transformative ways. by CATHERINE A. ALLEN
Mar 13, 2012  |  1 Comments

The financial services sector in the U.S. and Europe has been in crisis since 2008 and is still recovering. Confidence in capital markets has dissolved. And the experts say there is more uncertainty to come.

Meanwhile, government policies are the target of protest groups such as the Tea Party and Occupy Wall Street. And their message is being heard. Recent surveys of voters in New Mexico, for example, show people are concerned most about the economy and jobs and the receding middle class, but are also angry at banks and Wall Street for the crisis. They place corporations into one of two categories: predator or partner. Not a pretty picture for financial institutions.

Topics discussed at bank boards, beyond regulatory compliance and the TARP repayments which have been the focus for the past few years, include how to create new revenue streams, re-establish trust with customers and stakeholders, and, more importantly, how to manage in an environment of continued complexity and ambiguity. In fact, people ask, “When will things be back to normal?” Unfortunately, there may never be a “normal” as we knew it; the crisis was far more serious than a trough in a cycle. The financial services industry may never return to the profitability it enjoyed from 2002 to 2005, at least without dramatic, systematic changes in the way the industry thinks and operates.

Moments of great stress can be moments of extraordinary transformation. Where there are profound challenges to the industry’s reputation as well as the reputation of individual firms, there are also huge opportunities. When opinions and perceptions of an industry begin to harden in negative ways, fresh thinking and clear acts of unambiguous benefit for key audiences have the potential to resonate deeply. This paradigm is the foundation upon which transformation takes hold.

The industry’s task is to reinvent the way financial institutions are perceived by consumers, legislators and the media by reinventing themselves and their value to stakeholders – to recapture the role of protector of consumer financial interests, wise counselor of business, innovators in products and services and responsible managers of financial markets. Financial institutions need real, concrete steps not just to recover, but to transform themselves.

The transformation begins with leadership. Financial institutions have a choice: to emerge as a voice of recovery and reinvention, or ride on the coattails of those that do. Whichever way they decide will determine their revenue opportunities for years to come.

New revenue streams

The industry continues to wring its hands over what will replace account fees and mortgage loan revenues. But the growing global online environment provides some ideas for innovations:

  • Banks as “gatekeepers” to control access to their customers, edit offers and provide new, customized products and services. Take some pointers from Google, Amazon and Facebook.
  • Simplification of customers’ lives by helping them better organize their finances, for a modest fee. Think “private banking” services for all customers, at various service and fee levels.
  • New savings accounts, perhaps tax deferred, which enable customers to save for retirement and life’s phases in a different way. Many Baby Boomers will not retire, but will change careers. Today’s Generation X and Y are expected to change careers, as well as jobs, at least seven to ten times over their working lives. Savings to fund the “rebooting” and “retooling” times will be important.
  • Banking for the unbanked and global citizens. There is much research that shows new immigrants to the U.S. are big savers and prudent with their finances – they just have not had good experiences with banks in their own countries or are intimidated by large banks. These immigrants, and others who come to the U.S. to study, work or live, are ideal targets for financial institutions.
  • Accounts tied to financial literacy. Provide accounts, perhaps with matching dollars, to children and others who need to learn how to manage their finances. Reward them as well as offer counseling and training. Work with the community to offer counseling, classes and support of local efforts to get people back on their feet financially.

Re-establishing Trust

How did respectable bankers who genuinely wanted to serve their customers and their communities get themselves and their industry into this situation? Competition, many will say – the large banks do it, the bank across the street does it, global banks do it – or demand for returns by investors and Wall Street. Whatever the reasons, the world has changed and we have much to do, as an industry, to regain that trust.

Start by saying you value the customer relationship and then prove it. Understand customer needs and work with them to deliver new and existing products and services with excellence. Also, be a community leader and work alongside others who are trying to help people who have lost their financial footing. Offer classes, counseling, low-interest loans, workouts, loan modifications and new products and services targeted to help get people back on their feet.

It’s all about jobs. Think what you can do to help businesses grow and prosper and lead to jobs in the community. Think about insourcing jobs by attracting investment. Help people get their resumes together and learn how to interview.

Southwest Airlines thrived during the recession and was identified by participants in a national survey as a “partner” because it declined to add on fees or charge for luggage or let service decline while other airlines did. Honda led the way in helping customers keep their cars when they could not make the monthly payments. Some banks, like Bank of America Corp., have set up a Consumer Advisory Council. What are you doing to re-establish trust?

Managing in an Age of Ambiguity

Perhaps the most critical management challenge today is how to manage when things are so complex and there are so many unknowns, yet decisions have to be made. Business, by its nature, likes certainty and predictability. Yet the forces around us are anything but that, including unstable economies, unstable governments, the impact of globalization, volatile markets and uncertainty about energy costs and supplies. The skill sets needed in senior management and on boards has correspondingly changed to include emphasis on integrity, innovation, empathy, global experience and understanding, ability to lead through collaboration and ability to handle ambiguity.

Banking was once based on trust and that trust was deserved. The financial services industry can, and must, step up to the challenges and show authentic leadership and vision. The only winning path forward will be a transformational one.

Ms. Allen is the chairman and chief executive officer of the Santa Fe Group, a strategic consulting firm based in Santa Fe, New Mexico. She can be reached at cathy@santa-fe-group.com.

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karen gordon
3/22/2012 9:03 AM

Great article. The focus on transformation will be critical for banks to maintain both customer loyalty and profitability as they adjust to the new normal. Many of the large banks our company works with are taking a back to basics approach as they navigate new regulations and manage risk. This doesn't mean they are overlooking the opportunities for innovation and positive change. We are seeing investments in technology that give financial institutions tools to increase their efficiency, with the flexibility to adapt and innovate in a new financial landscape. Regardless of the approach banks take, serving customers well and providing value will go a long way toward rebuilding reputation and revenue.