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The Emerging Crisis Banks and Credit Unions Face

There’s a crisis of confidence happening today in the financial services industry. According to Accenture Global Banking Consumer Study, only 29% of customers trust their bank to look after their long-term financial well-being, which is down from 43% two years earlier. The trust bond has been eroded as customers lose faith in their financial providers, creating major banking challenges. Your customers believe you’re more interested in your bottom line than theirs. That same study reported that customers were three times more likely to say their bank used their information to increase profits, versus improve their financial well-being. A dismal 15% believed that banks were invested in them and their goals.

This is a serious misalignment of interests. Banks and credit unions say that customers come first, but customers aren’t buying it. On top of that, this is leading to serious reputation implications. I recall that once upon a time, telling friends and family that you worked at a bank was worn as a badge of honour. Today, it’s dramatically different. As a financial professional, you’re hoping no one asks what you do or who you work for, for fear of hearing how badly they were under-served or overcharged.

Not only that, living in this post-Covid world, bank employees are leaving in droves. While they stayed put to serve their customers during the pandemic, they’ve ignited another pandemic today, as 2022 brought on a 23% turnover rate amongst financial service institutions. What was once held as a prestigious and promising career has fallen prey to quiet quitting where employees are buying time or are taking part in the great resignation as they embark on trying on a new gig. This data is important because it is a leading indicator of a lagging impact. 

If nothing changes, if financial service institutions do nothing, they are undoubtedly being exposed to the following banking challenges and credit union challenges. 

1. Client Loyalty Erosion

The financial service industry takes client loyalty seriously. It’s a key metric on everyone’s score card. However, how this measure is managed varies as much as Ben & Jerry’s ice cream selection. Based on a Harvard Business Review study we know that “Loyalty leaders grow revenues roughly 2.5 times as fast as their industry peers.”

This speed of growth is at risk as banks and credit unions lose out on the primary currency fueling this tank: trust.

 Every time customers see a new face, don’t have their needs addressed, leave frustrated with an unresolved issue, or feel ignored when using an automated, non-human channel, a competitor or the latest fin-tech solution piques their interest and engagement.

Customers vote with their dollars; the financial providers that win are the ones they trust will help them be more financially healthy, wealthy, and wise.

According to Gallup, “customers feel a deeper sense of financial well-being when they can strongly agree that their primary bank:

  • Helps them reach their financial goals.
  • Understands their financial situation.
  • Makes it easy for them to manage their finances.
  • Helps them make better financial decisions.
  • Looks out for their financial well-being.
  • Offers solutions to meet their financial needs.
  •  Puts their financial well-being ahead of the interests of the bank.
  •  Has their best interests at heart.”

Customers who strongly agreed with four or more of the financial well-being statements had a Net Promoter Score (NPS) of 94%. For customers who strongly agreed with two or three, the NPS dropped to 69%. When customers couldn’t strongly agree with any of the statements, that rating plummeted to -26%.

The Commonwealth Bank of Australia adopted a financial well-being strategy that saw an improvement of customers’ financial well-being by 1%.

“This one percent increase improved the bank’s return on investment in that customer up to fivefold, while customer attrition rates dropped 30 percent.”

Helping customers get what they want (financial well-being), helps banks and credit unions get what they want (loyal, engaged, and meaningful relationships).

2. Commodity Solidification

Financial service institutions are feverishly pursuing ways to outplay competition through digital transformation. Indeed, this is a game that must be won. However, the financial institutions (FIs) that receive the gold medal will be the ones who figure out how to humanize the digital experience. It’s your human touch that will outwit the competition, but more precisely, eliminate your biggest risk: becoming a digital commodity.

Commodities are assets that get traded for dollars. All banks and credit unions offer accounts, mortgages, loans, mutual funds, and term deposits. In the commodity market, clients choose prices and features, resorting these assets to transactional solutions.

 As FIs work towards making more convenient and seamless experiences for customers and efficient and effective experiences for their teams, they must not forget, omit, or delay the urgent need to elevate their human relationship and connection-amplifying skills.

 An example of this was Fidelity’s recent announcement on their purely digital investment management service called “Fidelity Go” and enhancing it into a hybrid offer that pairs automated investment management with human financial planners. They are capitalizing on an opportunity to provide financial planning and coaching to their clients. This evolved offering differentiates and gives them a competitive edge by granting clients access to real human advisors to not only help but coach clients to achieve their financial-planning goals.

A commodity business resorts to buying the business by being a price leader. It’s an expensive proposition that establishes cheap relationships. You don’t want to solidify your offers to being a commodity. Instead, you want to differentiate by creating empathetic experiences that emotionally connect clients to you and your brand.

3. Value Misrepresentation

Banks and credit unions bring more to the table than products, prices, and features. You shortchange your team and offers by misrepresenting your true value. There are two value propositions you must consider:

  1. Functional value.
  2. Emotional value.

Functionally, FIs safeguard money and process transactions. However, the heart of their true worth is determined by their ability to emotionally connect, engage, and fulfill their customers’ needs. 

Kiernan White, one of the co-authors of the Global Banking Consumer Study says this: Faith in a bank’s solidarity only goes so far. Over time, people will start to build faith that digital institutions and smaller players will be around long-term too and are capable of handling the transaction side of banking.

Fin-techs are taking advantage of market cracks, seeping in to meet transactional needs with state-of-the-art tech tools. But before the aperture closes, banks and credit unions have an opportunity to double down, not only on functional value through their ongoing digital transformation strategies, but additionally through the emotional value they deliver.

A Harvard Business Review study showed that customers who felt a true emotional connection with a brand were 52% more valuable than those who had a functional or transactional connection. Further to that study, when customers felt emotionally connected to a financial brand, their lifetime value was 35% higher.

Let’s take Patagonia as an example. For close to 10 years, the company has held a $1-billion valuation. They serve people who have a passion for the outdoors and want to look good doing it. They have exceptional products, but more than that, the company is a purpose-driven industry exemplar. Their mission: “We are in the business to save our home planet.” In 2021, amidst the pandemic nonetheless, after an all-time company record-breaking result of $10 million in sales during a Black Friday event, they gifted every single dollar to environmental groups around the world. They put their money where their mouth is and are rewarded with devoted customers who are willing to pay a premium for their products. Customers are emotionally connected to Patagonia through their purpose to save the planet and vote with their dollars to demonstrate support to this mission.

A purpose-driven study conducted by Accenture identified that “Purpose-Driven Banking Leaders achieved an average return on equity that was three percentage points higher than that of other banks in the study” and “53% of customers are attracted (after price and quality) to companies that put purpose before profit and do the right thing for their customers, their employees, and the world.”

Clients are craving emotional connection. They want their financial providers to represent something more than the functional needs they deliver. Triumph will come once banks and credit unions provide financial transactions that create emotional connections by being purpose-driven and walking the talk of the missions they stand behind.

4. Transactional Selling

The financial services industry is undergoing massive digital transformation. Legacy systems no longer meet client demand, fin-techs are poking holes into once steel-clad proof markets, and the revenue and profit game has turned into an expense and productivity ratio strategy. 

Digital efficiencies, AI personalization, and automated conveniences are coming at a high price. The tag: employee engagement and retention.

A June 2022 Gartner report showed that 30% of retail banking frontline employees say they’re actively looking for roles in other firms and 40% say they are working too hard and risk burnout.  Additionally, with all this investment funneling into technological advancements, employees are telling us that it has added burden, not benefit, to their plates. 52% say it added new tasks to their work and one-half said technology didn’t make their job easier.

There’s a slow and subtle creep occurring, and if you don’t pay attention, banks and credit unions will sleepwalk right into becoming transactional sellers (some already have).

When your team believes they are selling transactions, they’re disconnected, disengaged, and disempowered. When they perceive themselves to be a dispensable number, another cog in a wheel, and not appreciated for their individual contribution, they will look elsewhere to get their need to belong, connect, grow, and self-actualize.

Employees are not engaged because they’re not interested in checking off boxes or being order-takers. Recently I met with a branch manager who had left her 18-year career at a bank to move to a credit union. She said it felt good to use her brain, experience, and expertise. Her credit union had tools to support her member conversations, but it was her voice the client heard, not a programmed auto solution her computer ejected.

Employees want to be challenged, use their strengths, bring their ideas, and solve problems that their teams and clients are facing. They want to bring their unique value proposition, and unfortunately, this innate desire is not being met in the workplace.

There’s a win-win solution here. Customers want to be financially empowered. Employees want to support their customers’ financial empowerment journey. Wake up to this opportunity. As you digitize, humanize your employee and customer experience by equipping your people with skills, training, insights, and motivation to help themselves and their clients become financially healthy, wealthy, and wise.

Create Change and Financial Well-Being

The stakes are high. Banks and credit unions are exposed to client loyalty erosion, commoditization, a depreciating value proposition, and transaction-only providers. 

Today, more than ever, if you want to retain and grow your business, deepen client relationships, and build a profitable business you and your customers will love, you need to:

  • Help clients and customers get what they want (financial well-being).
  • Differentiate by creating empathetic experiences that emotionally connect clients.
  • Stand for something more than the functional needs you deliver.
  • Equip your people with skills, training, insights, and motivation to help themselves and their clients become financially healthy, wealthy, and wise.

What’s in it for you?

✔ Loyal customers = devoted advocates.

✔ Engaged employees = brand ambassadors.

✔ Mission-minded = purposeful profit.

✔ Financial empowerment and well-being for you, your clients, and the communities you serve.

Now who wouldn’t want more of that?

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