The biggest risk: I won’t give you my money…

During the global financial crisis, governments spent billions to bail out banks in an effort to keep liquidity in the banking sector, largely so that lending could continue at a time when businesses needed as much help as they could get. However, in a financial crisis when the economy is in recession, it is counter-intuitive for a bank to lend money to customers who might get into further trouble. So the bail out didn’t work in stimulating the economy the way it was intended. The autopilot ‘internal’ risk function kicked in and prevented it from doing so.

Some could argue that the ‘risk’ function within banking, while acting to protect institutions, may have actually negatively impacted the speed of recovery. While we have all sorts of classifications around risk within the business environment today (operational, legal, socio-political, financial and market) the greatest risk we potentially face in the banking sector is actually none of these. Our risk “compass” needs to be re-tuned in the light of customer behavioral shift.

Industry Reputational Risk

Bankers often talk about the ‘trust’ consumers have in banking as a defining characteristic of why customers give us their money instead of simply keeping it under a mattress. It’s also why many bankers have difficulty understanding why customers of today seem perfectly happy to give money to the likes of PayPal, M-PESA, Lending Club or Zopa. The fact is trust in banking is stubbornly stuck in the doldrums, largely as a result of the whole sub-prime, CDO debacle.

So will trust return? This is a big theme this year. We are essentially dealing with reputational risk. Not for an individual brand or institution, but the collective reputation of the industry as a whole.

That’s the regulator’s job…

To assume we can fix this problem is to ascertain that we can have a coordinated approach to restoring consumer confidence as an industry. There are a few issues with this, namely that we generally leave such broader issues to the regulators. After all, what can one bank do about this on it’s own?

The problem with this approach is that regulators can only regulate, they can’t make us do good things for our customers. Despite strong regulation, 11 banks (Including the Big 4) are facing class action in Australia by customers over fees. Despite toughening regulation in the United States, the “Move Your Money” campaign continues to live on to this day. It is also why peer-to-peer lending networks are flourishing, why Mint and Blippy are garnering the trust of millions, and why PayPal is the world’s leading online payment network. Customers are moving on, plainly because the industry is no longer differentiated by a reputation built on trust.

Let’s face it – regulation is not going to restore trust. The only two things that will fix this gap is building transparency and delivering great service at the coal face.

Restoring trust requires us to be un-bank-like…

I’ve heard many banks talk about service and being more transparent, but the reality is this is a tough target. When we look at service as a sector we see costs and those costs have to be justified – the question always will be; will an increase in service bring more revenue or simply translate to costs? When we look at transparency, this is counter-intuitive for banks. We have spent our entire existence finding ways to hide margin, fees, and to justify those elements as part of the banking ‘system’ in order to return EPS.

The problem is if you screw up with customers today when they’re standing in the branch in a lengthy queue during their lunch break, they are just as likely to start Tweeting or shouting out to friends on Facebook about how “hopeless bank ABC is in the city branch today, this queue is massive!”

How do banks respond to such communications?

1. Most ignore these Tweets as inconsequential – does that restore trust?
2. Some respond positively to the tweet, explaining how sorry they are and what they are doing to resolve it…
3. Unfortunately, some Respond negatively; I’m sorry the customer feels this way, but this is not what we are like – really, some people are just never happy!

The only of these responses that will work positively to rebuild trust in the sector is to suck it up, respond positively, and figure how to create a better service culture or resolve the process problems that created them. You can’t do that if you aren’t listening.

Excellence is trustworthy

When you build a great service environment, then there is no need to worry about being transparent. Customers these days will pay a premium for great service. If service is not your thing, then be transparent about that, but explain you don’t charge as much as those other banks and that is the benefit of your bank. If, however, you want to keep fully loaded fee structures in place, then you’ll have to be transparent about the cost of delivering great service. If you aren’t delivering great service, and you are still leveraging fees like it was the 90s, you’ll find out that this strategy doesn’t work – just ask the big 4 banks in Australia. NAB, thus far, is the only bank to positively respond to this pressure by taking a new, transparent stance on fees.

There are some simple steps to take that will bring rapid improvements:

1. Simplify bank language through a plain-language initiative – refer Centre for Plain Language and Whitney Quesenbery
2. Make it easy to find the best phone numbers to speak to the right area of the bank on your website, circumvent IVR menu trees where possible. Citi in the US does this pretty well.
3. Mystery shop, not competitors, but the most common processes in your multi-channel environment and see where these need to be drastically simplified, and use Observational Field Studies to see how customers work in real-world settings.
4. Put a social media listening post in place and respond positively and openly at every opportunity – check out Gatorade’s Mission Control
5. Review the biggest complaints you get in the call centre, and try to fix those customer journeys proactively. We call these Torch Points…

Building trust starts with creating great customer journeys that improve service levels and demonstrate a willingness to be transparent. We can’t rebuild trust without these elements. The biggest risk today, is simply that I don’t trust you enough to give you my money.

Customer’s tell banks “We don’t believe you anymore…” (HuffPost Blog)

Brand reputation the key to banks leveraging social media.
Check out the original entry on Huffington Post…

Recently I posted on how shifts in consumer behavior and technology adoption is significantly changing the marketing dynamic for banks. Essentially my message was that for marketing to continue to be effective in measurable ways, that a large portion of effort needed to be redirected to optimizing the mechanisms for reaching and enabling customers, rather than just reinforcing brand recall and directing campaigns. I have had some brand marketers bristle at this suggestion and asking me how brands themselves would get started or get known it it wasn’t for the fundamentals of brand marketing.

First of all, I don’t believe that brand marketing will disappear, however, I think it is far to say that social media brings a transparency and honesty that means that despite the best brand marketing money can buy, if you screw up your customer relationships it won’t matter – social media will punish you. Google was able to build its brand entirely online, so some might argue that the need for traditional brand marketing is no longer a given either. However, for banks right now, they need all the help they can get, so it can’t hurt.

Brand marketing is useful for telling us as consumers the core brand values of these organizations who want our business. Banks have long held up their brands as bastions of stability, trust and understanding. They kept telling us that they were safe places to hold our hard earned savings, and that when they loaned us money we should be eternally grateful, because it was only out of their gracious generosity that we were able to afford to buy that new home, car or trip to the Caymans. We could trust banks because they were ‘as safe as houses’! Well, guess what…thanks to banks even houses aren’t safe anymore.

The side-effect of the global financial crisis, and the huge botch up that leading financial brands like Bank of America, Citi, Merrill, JP Morgan, Goldman Sachs, RBS and others have made with their bonuses and lack of prudence, is that trust for banks is at an all time low. Brand marketing is not going to save the banks in this environment.

Right now if you go and do a twitter feed search on say… Bank of America you’ll find a plethora of negativity out there in cyberspace. Now to be fair BofA has a twitter feed (@BofA_Help) and they have a Blogsite (http://message.bankofamerica.com/futurebanking/) – although it should be pointed out that their blog has no content as yet…

The key issue is that although Bank of America has a brand built over more than a century, their brand presence across the USA is pervasive, and their marketing capability staggering, they face an uphill battle. None of that capability really can help them in the current environment where they lack transparency on fees, are generally seen as out of touch with customers and are struggling in the war on customer word of mouth impact. Brand marketing is not enough to win in the 21st Century – the BANK 2.0 paradigm. Bank’s need to rebuild their brand reputation – and telling us how fantastic they are won’t cut it anymore. We just don’t trust those messages anymore.

What customers long to see is banks that care. Banks that reward you for the more business you do with them. Banks that are prepared occasionally to waive fees because you are a good customer. Banks that try to make it easier to work with them, instead of the endless compliance hoops we have to jump through because the banks find it to much trouble to change their internal processes.

We want the banks to build their brand reputation by restoring their reputation with us – the customer.

Social media is empowering customers – giving them a voice. It’s time major brands took the time to listen and adapt. Most banks spend millions on focus groups, customer satisfaction surveys and mystery shopping exercises each year to find out what they can learn for free just by listening to their customers on social networks and blogs. It’s not rocket science – but it is good branding.