Financial services are no longer services, but experiences, and the modern customer constantly seeks for a better one. While a better experience can have a varying definition depending on the actor, one of the important hallmarks of a superior experience with a financial institution is the ability of the institution to connect with the customer meaningfully, thus demonstrating that personal aspirations and goals are of paramount importance to every member of the company.
De-verticalization institutions, a process which is underway in the financial services industry, will have to evolve from service providers to loyal, lifelong partners in order to set a strong footing in consumers’ lives. Describing the concept, the BBA coined a term “banking beyond banking.” To compete in the ever-transforming environment, modern banks will have to function in a radically different way, moving past banking for the sake of banking, towards banking as a way to empower individuals and remain deeply vested in clients’ interests during their lives.
Fortunately, banks have almost all the necessary prerequisites to form deeper connections with customers than any emerging competition:
- Strong and trusted brands – underlined by their customers’ willingness to entrust banks to care for their most valued financial and information assets.
- Long-standing relationships – often going back through customers’ lives or even into previous generations.
- Proven and long-established distribution infrastructure (both physical and digital) – brands and relationships are now supplemented by a newer and fast-growing asset: their wealth of data. The vast pool of customer data, which can be derived from such interactions, allows banks to understand more accurately what customers are trying to achieve. This data also uses digital systems to interact with clients in a more meaningful and relevant way with the aim of helping them make healthy financial decisions.
What does it mean for a bank to be a loyal, lifelong partner, rather than a financial service provider?
It means to be there for customers during their journey to financial independence and financial health, not only in the moment of a particular need.
“Rather than selling a mortgage when a customer asks for it, banks could provide an ongoing lifestyle solution that helps them plan for their first home in the years before the purchase.”
To improve customer relationship and boost customer loyalty, financial institutions need to recognize unique circumstances and long-term implications of the current event in one's life. They also need to anticipate important decisions and the relevant needs accompanying them.
“Successful banks will see each customer as a unique individual whom they advise, guide and influence to help them realize their life goals, and whose interests and values overlap with their own,” according to BBA professionals.
How to nurture a financially responsible and, eventually, a profitable customer? Start early.
To profitably serve customers with a variety of financial needs in their 40s, a financial institution has to invest in nurturing healthy financial habits from early childhood. It requires significant expansion of educational initiatives and investment of resources to bring up an educational program. It means that banks need to connect with their future customers through family, investing in educational efforts for younger generation through appropriate initiatives.
Bank of America Merrill Lynch highlighted appropriate money skills along with actions for growth for younger generations, taking into account social-emotional developments.
Source: From piggy banks to IRAs: A guide to mentoring financially responsible children, Bank of America Merrill Lynch
While family plays a critical role at earlier stages of introducing money, financial institutions have an untapped opportunity to become trusted allies to individuals at an age as early as 13-15 (if not earlier) by guiding and educating them about making financial decisions. Certainly, an 18-year-old wouldn't be an “investment” with the highest ROI in the short-term, as the spectrum of financial products that can be sold to a teenager is narrower than the range of products for a 30-year-old customer acquired for a mortgage product. However, in the long run, a carefully prepared and nurtured younger individual will present the most desirable partner. That is largely warranted by the knowledge and the accuracy of risk assessments involved in having a financial relationship with individuals over the course of their life, rather than picking up customers in their thirties.
In fact, FICO’s latest consumer research on why people switch banks found that millennials (25-34 years-old), a group at the peak of financial services usage, are 2 to 3 times more likely to close all accounts with their primary financial institution than people in other age groups. The same demographic was reported to be twice as likely to close all accounts and switch banks in 2016 as they were in 2015. This could increase the number of customers as this age group holds 6.27 financial products on average, compared to 5.79 for the entire U.S. adult population.
The Financial Education Handbook: Practical Ideas To Engage The Rising Generation, a guide published by Bank of America Merrill Lynch, breaks down financial literacy and responsibility into five core competencies and associated skills and activities across age brackets for developing every core competence. More importantly, it's an example of how early involvement and educational materials along with a call to connect with the institutional advisor for guidance can be leveraged for the benefit of a sustainable, enduring business. A brilliant step from the bank indeed: “We encourage you to reach out to your advisor, who can help better explain the financial concepts to your children, regardless of their ages.”
Source: Financial Education Handbook: Practical Ideas To Engage The Rising Generation from Bank of America Merrill Lynch
“Starting the ongoing conversation with your children, grandchildren, and other prospective successors early and often can be the key to effectively passing on family values and wealth. The earlier you start, the more opportunities you will have to create and take advantage of the personal, teachable moments that can be most effective in conveying key concepts for a lifetime — and beyond,” BofA Merrill Lynch professionals conclude.
Conclusion: Banking is a partnership, and the perfect partner can only be nurtured, not acquired.
First, a bank-individual relationship and bank-business relationship are not a service provider-customer relationship: it's a mutually beneficial partnership. For such a partnership to be sustainable and enduring, a financial institution needs to adopt an individual-centric approach. To do this, they need to look further and wider than the immediate transaction to understand a person’s surrounding journey, needs and aspirations.
Second, perfect customers cannot be acquired, but they can only be nurtured. Financial institutions do have an upper hand when it comes to cross-generational reach, and they can leverage available resources to educate their future audience. They can also build and strengthen customer relationships at the early stage, a move that will help them cut off competition at the root. Banks that will start investing in relationships with their audience earlier rather than later will have an upper hand in maintaining strong enduring ties with their audience.