Financial Services

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Financial services after the crunch

At first glance, the banking world, and more generally the world of financial services, seems to be emerging from the credit crunch of 2008-2009 without having undergone any fundamental changes. One aspect repeatedly highlighted by the  media however, is that the world economy remains at risk from the lack of regulatory reform in the financial sector. Surprising news  eh when you think that the ability to take well-thought risks out is the core business of finance.  So how did a collapse triggered by overlending occur without bringing radical change to the industry?

Beyond pure compliance

The activities of risk managers have undoubtedly changed, or at least, the way the industry perceives them has.   According to some economists, RM tools could be at the root of the collapse, but today even the less radical managers are unwilling to apply their responses with a dogmatic approach. The a priori expected losses  have been systematically overcome, and with the concept of price-to-risk, the other side of the coin is beginning to show, i.e. if good clients are given a reasonable price and less appealing clients avoided, the net result is less business with a lower margin.  In light of these considerations, it seems that the entire financial system is being called upon to go a step further, beyond the pure compliance approach that has been adopted in the field for years. 

Governing price leverage 

Analysis has to be based on  the price element of financial services,  as the Bersani Law (Law n. 248 of 4th August 2006) has effectively forced the industry to provide pricing (as in any other sector), enabling the customer to make comparisons and possibly look elsewhere. Price competition is stimulated by regulatory elements and legislation, as well as market dynamics.  What appears to be universal is that the banking world seems to be overestimating the end customer’s price sensitivity and underestimating competitors’ ability to respond. In a market where volumes are constant when the economy is favourable, this reduces business and erodes margins. 

Living with new people, working with new methods 

In addition to this factor, there is the arrival of new operators; just think of the role of PayPal in the world of payment, Exchange Traded Funds as compared to traditional funds, the role of MutuiOnline as opposed to mortgage products, or the weight of new service channels in comparison with conventional ones. Consider the impact of the channel that is the web, its growth rate and how different the price sensitivity and ability to compare are of customers who come through the web. Customer visits to the branch are falling, and upselling and cross-selling in the retail segment are increasingly entrusted to call centres.  All these elements are already in motion, making modernisation of the rapport with the customer urgent.

From Complaints to Customer Intimacy

Also in this case, banks have to do better, going beyond, for example, the pure concept of Service Quality and beginning to monitor and process not only input that takes the form of a complaint. Financial institutions need to listen to their customers, process all feedback regardless of how it reached them.  The saying goes that a satisfied customer tells two people, a dissatisfied one ten, but what will the multiplier be on the internet?  Whether you call it word of mouth, buzz, or Internet sharing, the world of finance needs to pick up on these signals, decode them, and work them into the core of its products and customer relations.

Failure to take on board this unstructured feedback translates into new risks for the financial world. The challenge is to grasp the concept and develop it, in the same way that was done with customer satisfaction. CS has become common practice, and is now included in the goals and MBOs, even among the highest echelons of management in both business advertising and communication to analysts.

Smarter Bank with Smarter Analytics

The post-crunch period has not only altered the face of the financial world;  coming on top of new challenges (some on the horizon, others already there), it has changed banks deep down.  What banks have to do now is offer more, working on a value proposition that would enable them to support the volume of services provided and improving efficiency to protect their ability to make margins. Banks need to smarten up and analytical technologies could prove crucial to this transformation.