Magazine article The Journal of Lending & Credit Risk Management

At Your Side, on Your Side

Magazine article The Journal of Lending & Credit Risk Management

At Your Side, on Your Side

Article excerpt

A powerful new opportunity is emerging that banks can use to ensure that they can be tomorrow's primary providers of financial services to consumers and small businesses. Such customers are increasingly concerned about their financial futures, including:

* Making the right choices from an ever-expanding and confusing menu of financial services.

* Worrying about the security of their financial transactions.

* Protecting privacy in a world of easy access to databases.

* Redressing grievances in an increasingly bureaucratic world.

* Being able to conduct their financial activities when, where, and how they want.

In this environment, the financial services companies that position themselves firmly on the customer's side will win.

Yet survey research indicates that consumers and small businesses are ambiguous about banks. They realize banks are important and they do use them, but they do not find banking services to be a good value nor do they believe banks are flexible in meeting their financial needs. And only a minority of consumers and small businesses believe that banks care about their community. Yet 80% of bank users consider a bank to be their primary financial institution, and most of these users are satisfied with their banks and are sympathetic to banks' profit needs.

Moreover, historically, customers have expected banks to protect their financial privacy. As the customers' environment shifts to a more distrusting and worrisome world, banks have an unusual opportunity to gain a distinction over nonbanks for which customers will pay: to become their customers' advocates by being at their side and on their side. Because of banks' probity, trustworthiness, and safety, they have an inherent advantage in executing such a strategy over nonbanks.

Current Strategies

The diminution of the payment system as a franchise protector for banks and the rapid evolution of new ways to deliver financial services pioneered by nonbanks have sent all banks searching for ways to protect and enhance their franchise. Bankers already recognize that in buying financial services, consumers and small businesses buy both the service and the manner in which it is delivered. For customers, product and delivery are intertwined. Thus, to gain competitive advantage against both banks and nonbanks, bankers have emphasized several strategies:

Low cost. Low price is now a competitive standard. All companies will have to be parity price/value providers unless they can find a differentiation in service or product for which customers will pay more.

Tailored products. Despite many efforts to create distinctive products and product packages, customization has not created lasting differentiation because of the speed with which all products can be matched in the current technological environment. Again, parity products are a competitive standard.

Community involvement. Consumers say they like community involvement, but they do not give loyalty in return. Wal-Mart's low prices and diverse products still kill local downtown merchants. In banking, community banks cannot rely solely on community involvement to generate loyalty.

Quality of service. Defined as friendliness, prompt response, quick correction of errors, or thoughtfulness, quality of service has also become a parity competitive baseline. In general, service quality standards are high in banking. Thus, bad service destroys differentiation quickly, and good service is expected. Only when a bank can make its service an unforgettable experience does quality of service become a differentiator - this is very difficult to do.

Ubiquity. Giving the customer access to financial services anywhere, anyhow, and anytime is a strategy of many banks, and technology is the major tool. While the evidence is not all in, there are no startling proofs that ubiquity is becoming a differentiator; rather, it is becoming another competitive standard. …

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