Guiding Growth Amidst Volatility.
The last several years of high wage growth, low unemployment, rising home prices, and low interest rates created buoyant conditions for growing consumer wealth. But in 2022, the tables turned as an overheating economy met forceful action from central banks trying to restore equilibrium in the wake of severe macroeconomic shocks. With discretionary household spending projected to fall as much as 20% in some overseas markets, consumers confront inflation at the fuel pump and the grocery checkout, while reversals in the lending landscape put pressure on overall housing affordability and sales velocity. It’s the perfect storm.
The shifting landscape warrants an urgent and proactive treatment to serve and retain clients across the bank portfolio. For clients drawing on savings to meet current obligations, a shrinking financial safety net spells the potential for trouble. For retail banks, some of the most lucrative business (e.g. home loan refinancing) is vulnerable as clients shop around.
As Strategy Consultant to an overseas Big Four Bank, I led a multi-phased customer experience redesign across three divisions (Everyday Banking, Savings, Home Lending) as part of a larger enterprise-wide initiative to shift from a product-centric offering to a whole-scale focus on clients’ comprehensive financial well-being. By refocusing company objectives toward client initiatives, the bank is taking steps to enhance the trajectory of change, to buffer risks, and ultimately deliver a more modern, integrated package that meets customer needs with greater urgency and flexibility.
Past performance is no guarantee for future results
Home ownership is one of the biggest drivers of personal wealth accumulation and overall financial well-being, and offers a valuable lens for understanding the tectonic market shifts underway. For this particular overseas bank, the effects are profound. During the prior seven years of consecutive interest rate reductions, homeowners became accustomed to securing a better interest rate upon each “re-fix.” In a favorable borrowing environment, short-term loans (e.g. two years) offered the most favorable rates and helped borrowers avoid the prospect of prepayment penalties on longer term loans. The appeal was so strong that as of November 2021, 70% of residential home loans nationally were slated for a re-fix in the following 12 months. With rapid hikes in central bank rates since, the financial consequences are deep and far-reaching.
One of the key measures of market share, “Main Bank” status has always been a top priority as clients tend to concentrate their banking with a particular provider, and rarely move their assets to other banks due to perceived hassles. So when Main Bank share begins to slip, the evidence points to change that is already well underway, with any number of factors and interactions driving the banking client's decision.
Believe Behaviors, Beware of Expectations.
The prevailing worldview in banking and financial services is that customers are rational. More information = better awareness. More education = better decision making. In reality, people rarely have the capacity to analyze all their options objectively in the moment, and when clients take their business elsewhere, it’s not simply information asymmetry. There’s more at stake beyond the transaction.
During periods of economic expansion, banks compete on a similar basis: secure customers, cross-sell products, stay competitive with the market. The client relationship is defined by the product and transaction. This can gradually lead to a sort of marketing inertia, where term-based products are governed by calendar-driven milestones, and little variation in engagement in-between.
How do we build trust outside of a transaction?
Trust plays a significant role in the client relationship, with the biggest drivers of experience satisfaction and dissatisfaction correlated to discrete moments of personalized interaction, or lack thereof. Beyond words, trust is conveyed in the consistency and direction of our actions. Scaling up that human touch during influential moments comes down to listening to customer cues (signals and events) and utilizing the right customer dimensions in automation to maximize flexibility across disparate audiences.
Emotional loyalty influences decision-making beyond transactional moments.
Enhancing the trajectory of change
Creating the systems and structures that gradually invite deeper interactions to help clients manage their money—and see the benefits of those interactions—opens the door to receiving education and personalized guidance that empowers clients to make a positive change.
Fans of the book Atomic Habits might recall that goals help us gain focus, but it’s the strength of our systems that determine progress. For the bank, smarter systems help us address those influential “in-between” moments where we can step up support, nudge positive behaviors, offer timely incentives, and celebrate progress.
What if the bank could use proactive nudges to help selected clients, rather than optimize for penalizing delinquent clients with fees that do little to elicit positive behavior change?
It’s the interplay of rational economic benefits (competitive financial products) with meaningful emotional engagement (building trust in a more secure future) that, together, create affinity for the brand. Ultimately, stronger client retention is a cumulative outcome of these multiple touch points over time.
For our Big Four Bank, the business solution is a new process for creating initiatives—not a lockstep set of initiatives to do next—as part of a dynamic discipline that is committed to robust engagement that is personal, flexible, and improves with learning.
Strong customer relationships are about building habit and trust through the consistency and direction of our actions.
Reflections
Deep customer learning in parallel with customer experience development is about being of service to customers in ways that align to their profile, behavior, value, and attitudes in the moment. With behavioral insight, we can be better positioned to help people avoid harmful choices and preempt systematic mistakes, and more importantly to help positively shape omni-channel experiences to engage, educate, and support people as part of an ongoing relationship beyond a transaction.
