Generational shifts and the digital revolution have come to the financial services industry, changing how a good number of customers view a banking “relationship.”
If nothing else, banks have remained consistent. They continue to prize traditional relationship banking, hoping to capture increased wallet share and lock in customers for the long term. Strong relationships can also yield higher per-account profitability.
This brand of relationship management (RM) conjures images of an experienced branch or business banker meeting one-on-one with clients and advising them about financing, cash management or other needs. Bank relationship management has always involved a high-touch approach where the individual banker and his/her particular skills play critical roles. In days past it also involved lunches and golf. But a more demanding, self-reliant customer and the banks’ demand for greater productivity have eroded those rituals.
Understandably, bankers remain protective of relationships they’ve developed for years and sometimes decades; many see it as their lifeblood. Banks may continue to define relationships the old-fashioned way. But do customers?
Movement toward digitally-enabled banking—whether it involves loans, deposits, or other products—is unstoppable. Newly sophisticated consumers and business owners drive this shift and vendors fuel it—pushing a bank to rethink its traditional RM approach.
Consider how some digitally-enabled companies are attempting to build relationships without offices or reliance on “100 years of history.”
Aspiration. “Save Money, Save the Planet.” Aspiration aims for the socially conscious, digitally savvy younger adult who either distrusts or dislikes banks. It positions itself as a green company where “your deposits are fossil fuel free … and you have easy access to ethical, environmentally-friendly investing.” Its webpage features something akin to an attack ad on banks; it states that instead of “spending the money they earn from you on lobbyists and politicians,” they contribute 10 percent of earnings to “charities helping struggling Americans build a better life.” They also emphasize that their fees run much lower.
Wealthfront helps investors create a free financial plan with “no spreadsheets, no annoying sales calls, no judgment.” Also, no banker. Basically, it promotes a machine-based planning approach. With about $11 billion in assets, it follows its passive investing approach as superior to what other investment advisors use: “Passive investing is foundational, but technology is our innovation.” The website also provides extensive background on its distinguished research and investment team. As with Aspiration, its fees beat those of banks.
Both companies and many like them offer an easy and even fun customer experience. They also limit what they offer and the customer segment they pursue. They deliberately position themselves as non-bank alternatives.
Will companies like these and others succeed? Some will as standalones; banks will likely acquire others. That’s a good strategy for banks so long as they permit these entities to remain separate, maintaining a distinct culture and approach that allows a bank to attract the growing number of customers who prize self-reliance, digital access—and lower costs.
Relationships will not disappear in the digital world but will change. As the generational shift continues and all customers become digitally savvy, banks and credit unions must consider what makes for a great digital relationship: one that builds off the RM approach banks have invested in for years.
1. A proactive digital relationship that provides valuable information.
More banks are retrofitting themselves to alert customers to unusual spending patterns (too many online purchases) or potential overdrafts if they spend at their current rate. As they lack legacy systems, Aspiration and Wealthfront can provide extensive information in an accessible format, available 24/7.
2. Great service.
That is: not a bank’s idea of great service, but the customer’s idea. Speed. Accuracy. Ease. 24/7 access. Short applications. At too many banks, service culture has bowed to compliance culture, placing the customer second. While these “newcos” must also address compliance, their simpler business models and customer-focused cultures limit internal bureaucracy to a minimum.
3. Consultative/insight driven.
People want banks to offer ideas and solve problems rather than, as some would say, create them. Leveraging data analytics allows bankers to provide insights about account activities and potential needs beyond what individual bankers can do: a boon to their mass market and small business customers. Newcos can create these insights without human involvement; banks may need to incorporate bankers into the process, increasing cost and complexity but holding the potential for greater value.
4. Focused on customer perspective.
Customers want omnichannel access; today, they expect internal systems will talk to each other. Example: If someone pauses a Netflix movie on their smart TV, they want to continue it from where they left off on their smartphone or tablet. Now think instead of reentering financial information with the lack of internal communication still present at many banks—which are too often burdened with analog processes unfit for the new world order. Legacy systems hold many banks back from digital cohesion.
Banks have managed and can manage the changes. But the difficulties ahead underscore the potential value of partnering with fintechs. Banks such as Chase, Citizens Financial, Regions, and PNC have teamed with third parties on the lines of Fundation and OnDeck to step up small business lending. Other banks have engaged Avant, Blend and others in consumer and mortgage banking. Some fintechs have graduated to facilitating larger loans.
Banks have reached a tipping point in the digital transformation process. Now is the time to evaluate digital partners rather than invent something by themselves. Yet that approach requires a spirit of innovation. Leaving egos at the bank vault door helps, too.
Digital relationships and degrees of loyalty will develop as banks accomplish the above. But the nature of a client relationships will likely continue to change. Much of the traditional RM model banks have leveraged may disappear, even in established, successful business lines that look safe today. But for banks serious about a positive pivot in a digital age, RM still amounts to this: Relationships Matter.
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The president of Financial Institutions Consulting (FIC), Charles Wendel can be reached at CWendel@ficinc.com.