There are two ways consumers buy financial services; as a commodity and as a relationship. As a commodity, we are forced to offer the lowest price, or at least the lowest effective price when considering the utility of convenience. As a relationship, consumers are willing to pay a premium, or at least a higher margin knowing that the relationship has some effective value. While we’ve focused on cross-sell to gain wallet share to deepen relationships to improve profitability, there are two critical elements that mustn’t be overlooked. Does the consumer want a relationship with you and do they trust you. Sadly, many consumers feel that their bank isn’t concerned with their welfare.
Customer Advocacy is a measure of consumers’ perception that an institution will place consumers’ needs ahead of their profit motive. At the head of the pack we find USAA, whose mission expects them to place their members’ financial stability at the top of the list. As a member myself, I can attest that they deliver on that mission. To be fair, they don’t always have the best interest rate and sometimes their policies are frustrating, but even when dissatisfied, the consumer still believes that the underlying motivation is good. If you’re interested in seeing the entire ranking, you contact Brad Strothkamp at Forrester Research.
Customer advocacy matters because it is at the heart of coming changes in the financial industry. Consumers today are short on trust in their banks. I don’t mean the Occupy Wall Street crowd, but normal bank customers with jobs. I asked a co-worker if a nearby branch was important to her. Of course, she replied. It turns out she rarely visits the branch and doesn’t need any of its services. She wants the branch as a safety net, just in case a problem arises. Certainly, she could call the 800-number or visit a branch 2 miles away? No. She, like many consumers, demands nearby branches for a sense of security. This safety net is needed to overcome insecurity about an organization that has her money and won’t always act in her best interests. If banks can improve their trust, consumers will be more willing to entrust them with the keys to their financial lifestyle.
It is easy to mistake branches as a critical part of banking. There are horror/victory stories of banks closing a branch to see a mass exodus to another bank that remains in the community. Consumers seem to think they are being abandoned or the bank is weak. Ultimately, the real problem is that they don’t feel a sense of trust, of mutual commitment. USAA has avoided this perception problem, while only maintaining one branch. They prove that consumers are seeking trust, not a location. Branches act as a partial, and expensive, proxy for trust. It is critical to understand that personal contact is not the point of banking, it is merely an effective way to gain trust.
Mr. Strothkamp can provide you a review of how banks can gain trust and improve their customer advocacy score. The point of this article is simply to stress that without a focus on advocacy, banks will be hard pressed to make changes without consumers responding poorly. Unless some changes are made, many banks will be hard pressed to remain profitable. There is some low hanging fruit and bankers are well advised to consider those. Start with two ideas in mind: what can you offer consumers that empower them to better manage their finances and how can you improve communications. Here are a couple examples.
Personal Financial Management (PFM) solutions greatly improve consumer’s sense of control. Consumers trust their bank with this information more than they trust third-party providers. So banks that offer these solutions should see reasonable adoption. Even better news is that PFM software is the first step towards providing financial lifestyle services. In others words, no business is better suited to lead and benefit from the coming revolution in financial management than banks. The question is whether banks are ready to lead that revolution.
In terms of communication, the key is to realize that spending a little extra on improving a communication has a great ROI. Not convinced, consider the fate of Netflix and BofA’s fee increases. It is not that the fees were unreasonable, but the botched communication turned consumers against a favored brand. In a shortage of communication, it is human nature to assume the worst. Good news poorly delivered can create suspicion. Yet, even the worst news, delivered honestly and directly, can inspire people to great ends.
Trust is an interesting concept. We trust everyone on some level; we trust thieves to steal, shareholders to expect profits, and most people to act in their own self interest. It is really an expectation, more than trust. I don’t trust my lawyer to perform brain surgery, nor do I trust a surgeon to manage my finances. I trust my mortgage broker to earn a profit on my loan. Perhaps real trust occurs when we expect someone to act against their obvious self interest. Macy’s sending a customer to Gimbal’s. A bank offering a less profitable product because it better fits the consumers needs. This expectation is what the customer advocacy score measures. You can think of it as a measure of friendship. Do you have my back? Does your institution have your customers’ backs?
As consumers reevaluate their banking relationships in the coming years, and they will reconsider their choices as mobile evolves from a mobile branch to a mobile lifestyle, customer advocacy will become increasingly important. Today, it drives loyalty and provides some relief on rates. In a few years, consumers will come to expect that their bank should be their financial advocate. If banks don’t deliver on this promise, there are a host of consumer companies ready to step in on their behalf. Perhaps the best news is that there is now a score and methodology to evaluate your effectiveness on this measure.
If you’ve read the Forrester report and have an opinion, please add a comment. I’m curious to hear your views.