For richer or poorer: why partnerships are the most fruitful customer relationships
Johan Martin Kristensen
With 60% of consumers having been with their bank for more than ten years, we’re statistically more likely to change our husband or wife
Crazy isn’t it? Especially when you consider that the UK’s top five banks barely scrape 50% customer satisfaction rates, according to Which?.
The high barriers to entry and lack of better alternatives mean that banks have been able to get away with service that is just about ‘good enough’ for years. It seems absurd that they would though, given the incredibly rich data at their fingertips. There is very little that says more about our circumstances in life than our finances.
When you look back at your own financial history, you’ll be able to spot key moments in your life: when you got your first proper job and started getting a monthly salary (the joy); when you became an expectant parent and started spending inordinate amounts of money of baby seats and prams. The fact is, banks are missing out on a huge opportunity by not taking advantage of this data now, as the exclusive rights and competitive advantage they’ve enjoyed for so long is about to come to an end.
New recommendations from the Competition and Markets Authority (CMA) as well as the payments services directive 2 (PSD2) from the European Commission have put us on an accelerated path to open banking. From 2018, banks will be forced to make account data – including transaction history – accessible to trusted third parties. Under the new rules, customer-centric businesses like Google, Amazon and a host of fintechs will be able to innovate over the top of the banks. It’s safe to say that in this new environment, banks will need to start leveraging their assets to build relationships and loyalty.
This doesn’t have to mean a complete overhaul. Send me a proactive message a few months before my mortgage renewal and offer me a marginally better rate than the one I’m on. Chances are I’ll remain loyal. In other words – What banks need to think about is how to tailor standardised products to the individual, which will allow them to step into the role of ‘financial partner for life’.
Wondering where to start? You only have to look around your office, family or circle of friends to see that demographics tell us little about what people need from a financial perspective – just because you’re the same age and gender, doesn’t mean your life circumstances are the same. Whether you’re a parent or a singleton living in a house share has much more impact on your needs. Luckily, income and spending can tell a bank a lot about a person’s life stage, helping them cater to current needs as well as pre-empt what people might need for the future.
Banks have already made some strides in tailoring accounts to younger people, understanding the importance of building early relationships – given the lack of switching.
Similarly, some banks have offered technical support to senior users who struggle with online banking after a lifetime of branch visits. The reality though, is that there is very little tailoring of services across life stages. This model simply won’t work in the evolving environment. Banks should be focusing on a core group of life stages, maximising opportunities to become a partner in the early years, and building on those in later life when customers’ needs change.
Children’s bank accounts are already offered by most banks, but perhaps more so than any other account, they are woefully out of step with what customers need. Most children’s accounts are ‘branch only’, meaning parents have to go into the bank every time they want to transfer money, make a payment or change details. That’s not only inconvenient for the parents, it’s missing a huge opportunity to engage the child.
A bank account is a great way to teach kids how to manage their money. And for a generation that is ‘born digital’, managing money online is going to be their way of life. So why not build a digital platform for children to check their account, make savings plans and watch their money grow. Banks could design engaging, interactive graphics that shows money totting up as the child saves, others send them money, or as interest is applied to the account.
Choosing your student account is often the first independent financial decision you make. It is also one of the most financially creative experiences of your life, making student loans last over 3 – 4 months. While most banks offer some form of student account, little have done much to help students through this first foray into financial independence.
Enter Santander. Their 1|2|3 student account is one of the most successful on the market. Not only does it offer cash back on spending and interest-free / fee-free overdrafts, it has also launched a nifty little app known as SmartBank. Santander has simply binned the monthly statement and provided a easy overview of where your money has gone. When you’re managing your money day to day, or night to night as the case may be, planning tools could be a nice add on. For this audience, banks might even want to consider more playful options like sending notifications when customers are about to go off plan and order an Uber, get a take-away, or buy a new outfit as well as rewarding the user when they stay on track.
Whether you’ve been to university or not, the transition into the ‘real world’ can be a tricky one. You may have a monthly income, but you probably also have a lot more outgoings. The quicker banks can help customers get on the straight and narrow, the quicker they can move on to the next stage of their life – buying a house, starting a business etc.
As with many of the life stages before, planning is a key need for this group, but there is also a desire to save for the future when possible. Budgeting tools could be particularly handy: tools to calculate rent affordability when searching for a room or flat; integrating comparison sites like mysupermarket to tell customers when their weekly shop is cheaper elsewhere; automated savings when there is money left the day before payday (with notifications). Live credit rating trackers to show progress could also help to keep customers engaged, but also prompt them to think about what to do next with their now ‘preferred provider’.
When it comes to mortgages, there is a gulf between lenders and customers. The majority of deals come through brokers, and the bank has limited contact with the customer until the renewal date. As a result, customers show little loyalty to mortgage lenders and are almost encouraged to shop around.
Acquisition cost for mortgage customers is pretty high, which could explain the current set up. But under this new ‘partnership’ approach, banks could pre-empt when customers are thinking about mortgages, help them save the deposit, and be the natural choice when it comes to making the deal. By making the application process seamless, using existing customer information, and offering value added homeowner services like step by step guides, ratings on solicitors and estate agents, moving and insurance tips, decorating discounts etc. – banks can provide the kind of service customers don’t want to give up.
Bank of mum and dad
The thought of child care, school fees, university fees, helping with house deposits, not to mention day to day costs is daunting even for the calmest of folk. If ever there was a time when you need financial advice, this is it! For banks, it’s an opportunity to help parents prepare for what’s to come, establish what they’re prepared to support with, and make plans that are iterated as circumstances change – in the case of a salary increase for instance, or even reduced income if someone stops working (financial sickness and health!).
More so than any other life stage, there are different phases to consider for the bank of mum and dad. In the beginning, parents may be focused on managing on reduced income during maternity leave and saving for childcare when a parent returns to work. When they have grown up children, they may be thinking about helping their kids onto the property ladder through early wealth transfer. Those partners that get it right put themselves in a great position with the next generation, to start the process all over again.
Managing finances is a key part of life that most of us learn at a young age. It is a daunting process at times though, and something that we all could use a little help with. Banks don’t just have the expertise to help, they have the data to tell them what we need and when we need it. Combined with engaging, personalised platforms for customers, banks can really take advantage of their position and prepare for the increased competition in the market when open banking comes to the fore. Changes can be small and confined to delivery of products rather than the products themselves. However, these changes are essential to protecting margins in the years to come.