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September 13, 2013

Consumers Can Win When Banks Change Course

Posted by Rajashekara V. Maiya (View Profile | View All Posts) at 8:16 AM

Reuters Breakingviews: How to stop banks treating customers like meat [Source:http://www.youtube.com/watch?v=UeVchohzkeo]

Stripped down to its most basic elements, banking is a fairly straightforward business. A bank can make money on interest rate spreads or the fees it charges its customers. Beyond that, everything else is icing on the cake.

For the better part of a decade, financial services firms have expanded mainly thanks to the second way: increasing their existing fees and coming up with new ones. Credit the overall sluggish nature of the global economy for this phenomenon. When one business line becomes more challenging, it's common sense to ramp up your other source of income.

But now banks of all sizes are increasingly making money the other way - on interest rate spreads. As with everything else in a cyclical economy, I suppose it was only a matter of time this would happen. What I'm curious to see, however, is if some of the world's largest banks - including the ones that are touted as "too big to fail" in the West - will embrace the changing interest rate environment as an opportunity to connect with consumers.

Maybe it's a matter of re-connecting with the consumers they already have. You might come to the conclusion that it's better to focus on your organization's existing clientele before you embark on a mission to build up your consumer base. If you can't win over and retain the opens you already have, you'll be hard pressed to achieve substantial organic growth.

In fact, of the many interesting results of the recent Engaging Digital Consumers survey by Infosys, there's one that should make all banks sit up and take notice: Three-quarters of the survey's respondents said they would consider switching banks if another bank offered them greater assurance that their data would be safer with them than with their current institution. And 82 percent said they wanted their banks to mine for data to detect anomalies from identity thieves. Data protection is one of the best ways of retaining and building up a satisfied consumer base in today's changing bank environment. I also reckon that additional security could actually help take the sting away from the scramble for new fees.

A friend of mine said he was amazed at what happened to him when he recently received a wire transfer. His bank, which touts itself as customer-friendly, nevertheless charged him for receiving the money. He had been accustomed to paying a fee for making wire transfers. But in his opinion, charging him for nothing but receiving a wire transfer smacked of an overly aggressive fee structure. It was difficult to see how that particular bank lived up to its claim as being customer-focused when he saw that added charge on his monthly statement.

Some banks don't even appear to go through the motions of building consumer confidence. That can be a dangerous thing if their leaders allow that perception to linger for too long. Battered by years of an anaemic economy, devising new fees was the only way many banks could stay afloat. Don't get me wrong: It takes talented financiers to think up a lot of these fees. But now that those banks can make money without adding fees, maybe they can be just as innovative in devising ways to re-establish ties with consumers. It takes talented financiers to achieve that as well.

So what are the most effective ways a bank can reassert its commitment to the consumer? One way is to embrace new ways consumers prefer to do make transactions. The previously mentioned survey shows how many opportunities exist for banks in this evolving marketplace. We polled 5,000 people; nearly 65 percent of them said they wanted their banks to communicate their account information over their smartphones. Half of respondents expressed their desire for banks to send them updates using social media and email.

When asked to comment on the results of the survey, one of our company's experts recommended using an Internet strategy specially tailored to the financial services sector in order to draw in mobile users. No bland, one-size-fits-all plans allowed! A rising interest rate environment, the first in decades, presents an opportunity that banks should seize to establish smart, customer-focused strategies. With less emphasis on fees, they're well positioned to transform themselves into the sort of digitally savvy institutions for which their customers have been clamoring.

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