Innovative banks find satisfied customers, sustained growth go hand in hand

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	Overview
	Customer satisfaction lags
	Untapped business potential
	Flexible technology architectures
	Redefining strategic banking functions
	Sustaining growth
	Meeting emerging customer needs

Overview

After several years of running in a cost-containment mode, most banks are still making operational efficiency a top priority. To overcome chronic lags in the cost-to-income ratio (also known as the efficiency ratio), banks strive to further reduce their fixed-expense structures. As a long-term strategy, however, cutting costs and downsizing resources is seldom the path to greatness. Besides depending on the operational expense base, efficiency ratios are inversely proportional to total net revenues. Therefore, growing revenues complements improved operational efficiency.

In recent years, banks have pursued revenue growth strategies based on their ability to acquire new customers and cross-sell more products and services to existing customers. In many mature markets, however, organic growth through mass-marketing strategies is nearing a point of saturation. For example, more than 95 percent of the households in the United States already have an active banking relationship, and banks see little business potential in the remaining territory. In such scenarios, competition gets tough and growth turns into a zero-sum game.

Aside from natural economic and population growth, banks now fight fiercely for market share and resort to mergers and acquisitions to grow their portfolios. The good news is that merging bank operations effectively reduces expenses and creates additional revenue opportunities. Still, the challenge for the banking industry is to sustain revenue growth. This is where banks finally realize that, in an increasingly discerning society, customers will continue buying financial products and services only to the extent that these bring actual value.

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Customer satisfaction lags

Looking for new frontiers in revenue growth, banks are discovering interesting opportunities in the way they satisfy their customers. Because leading companies in other consumer-service industries have been getting customer satisfaction rates close to 90 percent, customer expectations have been on the rise. Although large banks such as Bank of America and Wachovia have improved their customer satisfaction scores, these nonetheless fall 15 percent below the scores of leading companies.

What are the key factors that appeal to bank customers and entice them to do more business? As in most service industries, overall responsiveness and behavioral attributes account for a 10-percent margin in customer satisfaction. When it comes to speed of service and the attitude of the people who deliver that service, banks should improve their personal touch.

Furthermore, advanced technologies provide bank managers and staff valuable help because convoluted legacy systems hinder the prompt delivery of banking services and the integration of customer information. Notwithstanding a positive service attitude, ailing technology systems could severely constrain the ability of bank personnel to satisfy customer demands. Technology also plays a role with other drivers of customer satisfaction, such as quality of service and product innovation.

In sum, to be effective in luring customers, banks should invest in fundamental improvements in their people, process, and technology capabilities.

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Untapped business potential

On the consumer-banking side, deposits, savings, personal loans, bankcards, mortgages, auto finance, and payments have provided a traditional product foundation for many decades. For wholesale banking, the foundation has been commercial lending, cash management, trade finance, treasury products, and securities processing.

Most banks still have to figure out effective ways to combine these diverse product dimensions into more comprehensive relationship offerings. Silo systems and organizational barriers hamper the integration of customer and financial data to feed combined profitability analyses at the relationship and product levels. For starters, there is ample room to deepen customer relationships by cross-selling products that are tailored on the spot to the specific needs of individual customers.

Banks have many opportunities to realize untapped value—for instance, by offering the following characteristics:

The double-digit growth of wealth management business for affluent clients at large banks reaffirms the potential of assembling valuable combinations of products and services.

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Flexible technology architectures

As banks rush to create new products that bring additional value to individual customers, this innovative flurry leaves little time for hesitation. In addition to the need for higher functional flexibility and faster time-to-market, most banks have been struggling with fragmented systems and batch-oriented processes. Therefore, banks are taking advantage of the budding economic rebound and finding business value in staggering a structural transformation of their IT systems. Figure 1 provides a high-level view of integrated enterprise architectures that enable real-time processing.

Figure 1

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Redefining strategic banking functions

Improved processes in several functional areas are geared to delivering new value to customers. For example, a more selective approach to customer acquisition and relationship management gives rise to automated lead management and referral management modules that meet individual customer needs and expedite the cross-selling process. Another example is the integration of enterprise risk-management applications in tandem with dynamic products and pricing capabilities. Here, banks find an adequate balance between reward and risk to price products competitively while mitigating their exposure to credit default and fraud. Similarly, automated loan-origination workflows enable instant response to credit application requests as well as a self-directed mode of operation.

Central to these architectures are real-time data integration capabilities that pull a holistic representation of customer and product variables across the enterprise. In the hands of banking personnel, these innovative technology platforms and product dynamics help fuel new revenue growth by enabling them to deliver timely and personalized value to customers.

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Sustaining growth

To address their most pressing business issues, different functional areas and banks have transformed their legacy account-opening process by taking advantage of new technology platforms that apply to their specific IT environment. To access new products and services, customers had to plow through multiple application forms and were often asked to provide duplicate data and interact with repetitive process steps.

Now, however, real-time architectures coupled with business process management (BPM) tools simplify and automate workflows. These workflows link to the multiple information and processing systems involved in the account-opening process. In the convoluted legacy approach, it usually took people a day or two to enter the information, perform the required controls, activate the new account in their technology systems, establish the funding, and allow customer transactions.

By capturing a broader array of data and executing a comprehensive set of documents all at once, banks may take advantage of this information for possible use in subsequent automated interactions. The resulting process is intuitively simple and provides a standard foundation for local and functional variations. By avoiding duplication, banks reduce the most likely processing time to a matter of hours. For some products—and especially with self-directed interaction channels—the shortening of the cycle is steeper and customers can open an account in a matter of minutes. Figure 2 represents a high-level diagram of a multiproduct account-opening flow.

Figure 2

Where customer privacy provisions and preferences allow, relevant data elements in processes such as account opening can take business process integration to the next level. As customers see added value, they opt to integrate their interactions both across the bank and with other service providers.

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Meeting emerging customer needs

Enterprise, mobile, and multimedia technologies are redefining the value equation of the services delivered at bank branches. As TowerGroup surveys have shown, despite the wide availability and popularity of electronic access to bank services, customers still typically visit the branch once a month and value the human touch.

To justify the expense of maintaining branches, banks are seeking ways to offer new services of value at their branches and looking for better ways to cross-sell and up-sell there. New branch designs based on personal touch and friendly layouts are essential to lure customers into visiting a branch more frequently. Collaborative workflows and advanced technologies at the branch will prompt customers to engage bank personnel in advisory discussions on personal finance, thus leading to incremental business.

During the past two centuries, banks have kept a stronghold on the risk-management function. Technology shifts, new markets, and younger customer generations are causing other industries to become more involved in financial services. As customers interact with other industries, the question is, who owns the relationship? From the vantage point of consumers and corporations, banking is just a means to achieve economic and lifestyle goals. Unless banks can deliver new and premier value to their customers to address emerging needs, other industries will step in.

Guillermo Kopp is vice president of financial services strategies at TowerGroup, a leading advisory research and consulting firm focusing on the global financial services industry. He can be reached at gkopp@towergroup.com.

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