The Eagles Nest

Where Have The Customers Gone?

Thu, 17 May 2012 15:04:00 GMT

In our business we visit many branches of financial institutions regularly and you can't help but recognize the vast change in branch traffic past the ATM foyer. Most FI's say that less than 10% of their customers now visit a branch during a month and the over the counter transaction volumes have fallen sharply as well. Some branches have been transformed into sales and interaction centres with hours catering to the local working population or residents. The latter is very noticeable in the bedroom communities where branches are open seven days a week when the people are there.

At the same time, branch resources are changing in skill sets and interpersonal, proactive behaviours to ensure that "the retail store" is generating enough new business to cover overheads and contribute to the overall franchise value. Yet, there are still some organizations who have not made the sales culture shift and still maintain transaction branches with the historical complements and reactive service postures that surely are not profitable. In fact, these same units have ATM's in their foyers which don't meet breakeven levels and no one seems to focus on where the customers have gone to other channels, intermediaries and mobile choices. Today if you don't have a proactive social media strategy synchronized with consumer preferences, then you are not on the same planet.

Technology is a primary strategic performance driver in financial services in all aspects of the business, especially integrated distribution. Consequently, you have to have the resources to invest and/or partner properly or you can't survive. Small banks and credit unions face an immense "customer migration risk" in proportions never seen before and complacency will accelerate their demise. Every business must be customer-centric and go where the customers are going and rationalize where they have left. In some regards it is a channel revolution versus an evolution. Look at the consumer preferences, emerging technologies and telephonies and go with them. Understand the strategic implications of the numerous channel choices and how to be there today and tomorrow.

Reputational Risk

Fri, 04 May 2012 09:58:00 GMT

Since the recession began we have seen more events and situations which have heightened focuses on reputational risk in the financial industry, with particular segments or individual institutions as well as targeting the behaviours of specific directors, officers or employees. From the outside consumers and businesses have become more perplexed over the erosion of reputations and the industry's foundation of "TRUST". Plus, media are having a field-day with negative attacks and investigative reporting. A couple questions come to mind as industry practitioners. Where are those responsible for governance and how come the public relations personnel are generally doing a poor responsive role as situations emerge??

Perhaps in defence of people, evidence will conclude that they were caught unawares or that they truly had no "probing experience" when it comes to reputational risks. Unfortunately, the defences are weak and steps should be well underway to prevent these events from recurring in the future, or at least be better prepared to deal with the consequences. Let's not confuse this with "brand management" even though reputational issues do impact brand perceptions. The keys here are Board governance, leadership ethics (or lack thereof) and behaviours, management controls and independent oversight by auditors and regulators. Yes, some reactions by the latter groups will push the pendulum back too far with excessive controls, regulations and administrative costs. Strong leadership values and practices coupled with competent directors are essential building blocks. There needs to be zero tolerance for any reputational compromises regardless of the profit motives, or previous principles and processes. If you don't have your reputation, what is left?

Creating Destinations

Mon, 23 Apr 2012 19:41:00 GMT

Amongst financial institutions, branches or stores present a continuous, evolving challenge of purpose and payback. Is the unit to be a service centre, sales originator, a proactive or reactive outlet, a referral catalyst, the organization's face or simply a commodity production house- perhaps all of these? In the vast majority of customer motives, the branch is usually a destination with a predetermined purpose. In fact, only a small percentage of customers continue to visit regularly, although some segments do drop in more than others e.g. seniors.

Two key questions come to mind: How do you increase its destination attractiveness for more people? How do visitors get motivated to increase their purchases and return involvements once they have visited the "brick & mortar"?

The answers to these questions will improve your units' productivity---hence the bottomline. With the first question, the marketing mix includes various medium and traditional messages to increase awareness and convenience with the branch. It is about brand and value propositions. If your pricing, products and channels de-emphasize the stores as they fit into customer behaviours, then they are more likely to avoid your units. Let's face it, in most cases less than 10% of customers visit branches today and incidences of transactions can be handled on other channels. In the second question there is a presumption that you can entice prospects into your mini-kingdoms! Perhaps there is a greater propensity for some than others. Generally, your traffic and transactions will tell you if you have a real destination still.

Many FI's continue to close their branches, which are transaction centres and not outstanding sales and service stores. The units are generic with very little visible eye catching reason "to drop in". Inside, the experiences may be friendly but how many are simply after a social experience? So, what do you want your branches to be-destinations or a declining channel? First, start by determining what customers and prospects want from FI branches for the future in specific trading areas that have considerable traffic or residents. Next uncover the key catalyst of branches' attractiveness and purposes. Finally, build a culture of interaction with people, technology and knowledge. Destination branches can improve the customer experience and financial contributions, if you have the innovative mind set and resources.

Bankrupt in Common Sense

Mon, 02 Apr 2012 00:35:00 GMT

Common sense has always been the great check and balance in my life and probably for many of you, both at home and work. Unfortunately, I see too many cases where clinical rules over-ride any reality check from a customer-centric view-point. Last week, another screaming example came to my attention that tells me that common sense is lost in some financial institutions.

First the facts! The recession coupled with severe health situations have dealt difficult consequences on many good people who ended up having to file for bankruptcy protection. One highly dedicated business woman was caught up in the fall-out of her husband's near death experience and business failure. They were discharged from bankruptcy over two years ago and the wife supports both husband and mother who are incapacitated. She is an outstanding example of conscientious empathy. Her work generates solid income on top of pensions received by the family. With one third the cost of a new vehicle in hand she went to purchase a replacement SUV along with the guarantee of a well-to-do supporter. The two Canadian banks approached by the anxious car dealer would not consider any contributing circumstances to her bankruptcy or the financial resources at her disposal. The message was, "You were bankrupt and we will not give you any credit under any circumstances for another 5 years". Incidently, the car dealer does not direct any potential customer loans to credit unions for consideration.

Let's be honest policies are established for a reason and common sense tells you that there are exceptions. I guess with two banks at least, this attitude is void or the customer interfacing people don't want to escalate unique situations. The car dealer was astounded; the woman deeply hurt; her supporter angry and the fall-out will affect the banks in question. Compassion is not a weakness under the right circumstances and common sense is still valuable in life.

Recessionary Pricing

Tue, 27 Mar 2012 21:33:00 GMT

With recessionary affects lingering around, governments are still trying to digout from the deficit depths and the average citizen is either running a tighter budget or still looking for work, especially if you are a young adult. Concurrently, some commodity prices, such as oil, continue to reach new heights creating a further squeeze on every consumer and business.

We were hoping that the banking sector leaders would consider the economic and social costs affecting their customers and would take an empathetic approach to policies and pricing. The initial signals are not positive. Service fees in many large banks are going up in double digit fashion and previous allowances to seniors are being cut back. This is their effort to compensate for regulatory restrictions on certain charges and fees as well as the soft appetites for consumer and commercial loans.

In the USA last year the credit unions had an influx of over a million new members leaving the banks due to their predatory pricing. Well no lesson has been learned from what we see going into 2012. Not just in the USA but Canada also. Unfortunately, some bank executives are not customer-centric and don't mind sacrificing thousands of clients and institutional loyalty for the short term gain on millions of customers' fee increases.

All of us in the industry should not be complacent because of our size or perceived competitive advantages. More and more competitors are entering daily and they will attract people who realize insensitivities by their suppliers in any product or service.

New Revenue Sources

Fri, 16 Mar 2012 08:51:00 GMT

A major topic today is new revenue sources! Now I am not talking about FI's who simply try to increase current fees without any change in features or costs. Nor do I put in this category, others who introduce charges on services they already render free. We need to investigate new value-added opportunities that will attract customers and prospects to purchase these from us.

In our primary research around the world we do ask customers what new, complimentary or ancillary services would they purchase from their FI if they were available. Everyone has something in mind especially if prompted. For example, travel services, tax preparation, community tickets (transportation and entertainment), licences and accounting services have come up more than others. Normally this question is only one of many in our research questionnaire. On the other hand it does point to the fact that interest is there if you ask and then research the cost-benefits properly. Many of these complimentary offerings can be arranged simply through partnership arrangements, especially utilizing the Internet.

Naturally, the major way to add significant new revenue streams is to acquire complimentary, permitted businesses which have to be investigated through your regulations and assessing the financial dynamics. If you do your proper customer preference research you will uncover all the possibilities associated with various critical segments in your business. I caution you not to simply look at adding "more commodities"! Develop enriched value propositions that can stand the test of time against competitors and shifting market forces. There are lots of industry examples where "add-ons" have been highly successful. Do your homework with your customers and don't be tempted to create more pricing sensitivities by simply adding new fees or incremental charges,

Reduce Sales Costs

Thu, 08 Mar 2012 22:57:00 GMT

Productivity is an ongoing priority of progressive financial institutions. This can be created by significant savings on the sales or revenue generation side of the equation. Unfortunately many FI's don't have a clear handle on their "all-inclusive sales costs" by channel. Secondly, a lot of promotion dollars are aimed at prospects in the general marketplace rather than specific segment targets.

Let's look at the latter point first. Selling to current customers generally is about 25% of the cost of soliciting new customers. Some may argue that they don't have the data base or CRM information necessary to pin point the best opportunities among current customers so they use a shotgun blast approach. Today I was talking to an executive of a small credit union and we explored the hidden diamonds in the rough potentially existing in their membership knowledge and available basic data. Quickly, we came to some opportunity target conclusions that could unlock greater sales lift internally.

On the sales costs by channel, one does not have to have an exact science to realize that face to face selling in the branches is a higher cost than commissioned mobile agents, contact centre agents, and especially Internet and mobile device applications. But if you also have a good handle on various segment channel preferences when purchasing financial products you can even optimize your sales costs . The whole promotion/selling mix of customer components needs to be understood relative the customers' behaviours.

Productivity improvement needs increased revenue generation and the potential impacts can far out weigh cost cutting by intentionally reducing sales costs!

The Consumer Squeeze!

Wed, 29 Feb 2012 23:36:00 GMT

Strong signals are coming out of banking circles that their lending and capital market businesses are going to be soft in 2012 putting a major dent in revenues and hence profitability. At the same time, the banking institutions are being encouraged to tighten up on lending criteria and to increase consumer and small business rates. Naturally, this kind of pressure further compounds the retraction in interest revenue and net interest margins. Obviously, the banks will not sit still and will be looking for ways to replace lost income from lending activities.

First, the consumers and businesses will see increased fees and new charges, even though costs have not grown significantly for service activities since the recession began. The banks have millions of customers so even a twenty five cent service charge bump means millions upon millions of incremental revenue. On the other hand the smaller competitors, such as credit unions, can not undertake the same strategy and hope to see sizeable income improvements. Second, and the preferred route from our perspective, is adding new products, services and value propositions to generate the needed funds flow. In the past, this has been done by adding insurance businesses and wealth management services or in some instances innovative products and collaborative services, especially through Internet options.

Consumers and businesses do realize that there are options for no fee services or more economical arrangements. So, expect more customer shopping and commoditizaton psychology which will erode revenues and create more relationship churning, which has a costly impact with no gain. The first strategy described above does not demonstrate customer-centricity. We find it amazing that many of the large banks say that they focus on the customer but their actions and organizations promote a product-centricity in actuality. This time, don't go to more "nickel and diming" but to added-value revenue tactics.

Deregulation, Disintermediation, Diversification

Wed, 22 Feb 2012 15:45:00 GMT

The 3 D's have been a continuous topic over the past two decades but still some FI's are not making the necessary transformations. Let's summarize the evolution again:

The deregulation of the various pillars in the financial services industry in most countries has attracted many more competitors to disintermediate your business. Plus, more continue to emerge as virtual-Internet entities or product-line extensions of well-known retail brands such as WalMart, Canadian Tire, etc. At the same time the middle class has not kept pace with economic progress in terms of wealth, wages and well-being particularly since the recession started a few years ago. Therefore the mass market is not increasing its demand for financial services and they are encouraged to rationalize their debt loads by governments (who can't get their own spending in order). The younger people, or Gen Y, who are not tied to traditional channels are even more difficult to target market. Consequently, the wealth management segment receives an over abundance of relationship competition while the rest are in a commodity competition mode. Naturally margins shrink and outlooks are bleak!

Now comes the need to diversify revenue streams, which the large banks have done well with their deep investment pockets to grab even larger wallet shares from the consumers. Our assessments of small and medium sized FI's point to real inertia when it comes to diversification. Other operating revenues, or non interest revenues are relatively stagnant or demonstrate no new streams of income. There is a self-defeating complacency rather that an aggressive collaborative outreach to expand the value propositions offered. In a lot of cases the knowledge and skills of the people in these institutions are not relevant to the revenue innovation challenge which exists and the Boards are not demanding more contemporary results from their leadership who tend to use the recession as their excuse. Expanding revenue with complimentary product offerings is an imperative and innovation needs to be a strategic priority which results in quantifiable new income annually

Call Centres Reinvented

Fri, 17 Feb 2012 21:51:00 GMT

In the 90's call or contact centres matured into important sales and service channels for many financial institutions 7/24/365. In fact their effectiveness attracted many companies into the space to the point that consumers were irritated at the many "supper-time marketing calls". Then the governments in many countries introduced the "no-call list legislation" to screen out unwanted solicitations. Yes, some relocated their centres to other countries to try and avoid the no call barrier. Also many consumers forgot that they had to renew the no call requests periodically and couldn't understand why the calls escalated again. Consequently, call centres lost some of their luster for a few years and some FI's lost sight of their evolving value in the distribution business.

This week I spend an enjoyable couple hours brainstorming the exciting new role that these distribution channel intergration centres are emerging to become, with a long time friend and change catalyst in this area. Without a doubt the new integration centre is the hub for all distribution channels i.e. branches, mobile devices, homepreneurs, partners, etc. Today's IP capabilities combined with emerging software is allowing consumers and businesses to truly receive the seamless service that we have talked about for over two decades. Relationship management is now possible and value creation can be customized to each and every customer. Finally, with data base management and preference research, proactive, real differentiation can take place when, where and how the consumer or business chooses. The innovators will eliminate the product organization structure and become the customer-centric distributors in highly competitive markets.

Unfortunately, an organization cannot attain this integration level if their vision is not based on virtual customer-centricity and connectivity. Small and medium sized institutions will need to find wholesale partners who will offer the integration solutions that the market will demand. Is your contact centre ready for its reinvention?

Banks' Lending Standards

Mon, 06 Feb 2012 12:40:00 GMT

Last week the newspapers highlighted Ottawa's claim that the banks have to tighten up their lending especially around mortgages and lines of credit. Bureaucrats pointed to the high levels of personal debt and the commodity competitions taking place on mortgages e.g BMO's 2.99% variable rate.

First of all the Bank of Canada and the marketplace establish the base interest rates in our economy, not the chartered banks.

Secondly, I never met a bank or credit union that didn't have strict lending and approval criteria. Many also do sensitivity analysis on interest rates to ensure customers understand and can meet interest rate escalations. Also some of these financial institutions have encouraged consumers to get rid of their credit card burdens through lines of credit covered by collateral mortgages.

On the other hand, consumers need more education on debt management and responsible credit, which is provided by many FI's. Ottawa should look closer at mortgage and lending brokers plus monoline credit card companies who do handle a significant volume of personal debt and find alternative financial firms to book the mortgages.

One chartered bank has now announced that they will "toughen-up" on entrepreneurs declared income acceptance in their lending criteria. Another example of how some banks run hot and cold supporting small business in our country even though they are our "job creators". Be careful when turning the tap off on these important economic catalyst!

Canadians do have high personal debt but let's not treat the symptoms, look at the causes- consumer knowledge, spending habits and multiple sources of funds everywhere including retailers and others. Our banks should maintain quality standards and consumer values in the open marketplace. We need to help people manage their financial obligations and avoid the pitfalls of high interest, alternative credit.

Branch Contributions

Fri, 03 Feb 2012 12:52:00 GMT

We hear many people in the financial industry saying that they don't know their individual branch contributions or that they only measure sales! Both of these comments trouble us as we wonder if they really understand the customer-centric role of branches and how they inter-related to the other delivery channels.

First, it is easy to estimate a financial contribution if you have branch assets, liabilities,other revenue, non-interest expenses and an estimate of Head Office overhead (e.g. 30%). Take your total assets and liabilities and use a 1% spread which you add to the other revenue. Deduct non-interest expenses and Head Office overhead and the net is the proxy for branch contribution. Additionally you want to evaluate if revenues are growing faster than costs and that your net sales are positive.

Second, consider the role that branches play for customers and the organization in an integrated set of multiple choices:- online, mobile, contact centre, mobile representatives, ATM's, partners and others. Approximately 15% of customers visit a branch monthly but how is the branch rated in terms of sales, advice, or service dependence by key segments- consumers and businesses. Also if you have a strong sales culture, your branch staff are key sales lead generators supporting all channels. To ensure that branches continue an overall positive contribution, they have to evolve in their design and multi-facet, proactive and reactive roles. For example, a small branch or start-up can use the "universal employee" concept effectively.

The bottomline is you need to know the total value contributions of your stores and evolve their dynamics as market trading areas dictate.

Financial Literacy

Mon, 09 Jan 2012 07:03:00 GMT

In our research with families, parents regularly complain about their children's financial literacy and the lack of basic education on the subject in schools, especially at the elementary level. Many of them remember the time when financial institutions would come to the schools and have tours at their local branches-the vault was the big hit! The foundation of the teachings was "saving money" and having our own account. Unfortunately today, the parents say that their children learn spending but not saving (from whom?). I guess they have not been successful in transferring their knowledge to them or have their habits been the role model?

Some financial institutions, particularly credit unions, do have initiatives where they visit elementary schools, not only to discuss the benefits and process of savings, but also to return weekly to take students' small deposits. Yes, by all calculations the latter is a loss leader and there are security concerns. But, on the other hand have we forgotten the long term benefits of attachment and loyalty in a crowded marketplace? Having play sites in branches for children while parents do "banking" does not teach the basics- the activities are designed to occupy their time only. Then when you go to web sites, how often to you find basic videos and educational games that teach financial literacy?

Many youngsters today are on Facebook and other social media but all do not have savings accounts nor electronic access to their "information only". The Credit Union National Association has made financial literacy a top priority in the USA and many initiatives are under way for children, young adults, parents and seniors alike. Education programs and tailored advice are needed at every financial institution as part of each segment's basic value proposition. Perhaps 2012 is a good time to start the block building approach at your organization? The debt loads of consumers and their financial behaviours today need resolution at every age.

The SALES Jouney

Wed, 28 Dec 2011 17:50:00 GMT

As we enter another tough year for growth, our sales cultures will be even more important for survival and productivity. Yes, it is a journey! The foundation of strategy, structure, systems, etc has to be built for the long term in a dynamic environment and amongst continuous competitive disintermediation. Rolling out another training course without the foundation in place wastes money, staff time and confuses customers.

Start with the premise that everyone in your organization is part of the sales culture from the CEO to the newest recruit. Accept the principles of continuous learning and innovative thinking. Generally, institutions need external expertise to get the foundation right even though internal staff believe that they can do it without that experience. I remember back in 1985 when my employer RBC (Canada's largest bank) decided to start its journey and asked me to head it up, the first thing we did was reach out for professional guidance on a number of fronts.

Build your strategy around customers' preferences plus your channel and product profitability. Remember, customers control channel access/convenience and they are multi-channel users. You can not survive on branch sales alone even if everyone therein is actively engaged in the sales experience and not tied down or hidden behind "administrative duties".

This Christmas Season again saw the rapid expansion of online purchases by all age groups for a mass variety of products and services. Additionally we saw more collaborative or partnership selling with productline extensions everywhere. Look at WalMart with their Super Stores and how much they sell online including financial services. In Canada, Rogers Communications, who have filed for a banking licence, will also add a new national dimension to mobile sales.

The sales culture requires experienced leadership and knowledge with an integrated distribution strategy. Let the learning begin properly or results will be compromised.

Bias Costs!

Fri, 23 Dec 2011 21:51:00 GMT

This week before Christmas, Bank of America has agreed to pay US$335 millions to settle allegations against its subsidiary, Countrywide Financial Corp.for discriminatory mortgage lending towards blacks and Hispanics charged higher fees and rates when their creditworthiness did not warrant the additional costs. Four other major banks are negotiating with federal and state officials on alleged foreclosure abuses.

There are a couple key lessons here for all financial institutions if not all companies. Policies and practices have to be reviewed and policed continuously for any bias against any segment of the population-minorities or otherwise. In the USA the government officials are like eagles swooping down on complacent directives and actions. The second lesson is the heightened public awareness to bias or any discrimination by financial institutions which the press and supervisory officials in any country will be investigating more rigorously.

The unfortunate social and economic costs perpetrated on consumers has created life scars and ruined financial and physical healths. Where is the corrective formula for these unsuspecting people? In Countrywide's case it is estimated that 200,000 customers were impacted. The criteria that allowed this to happen must be removed swiftly from any institution to protect consumers and corporate reputations. Assess your principles and policies followed by affinity training for all staff and hiring practices that recognize the benefits of having appropriate representation of all population groups in your staff base. We are one people!