FinTech competition, consumer expectations will shape the future
Strong stock market performance and rising investment returns lifted trust in global banks, at least among high-wealth individuals and those feeling confident about their financial futures. A lot of people felt left behind, however, as revealed by the US election, Brexit, and the populist sentiment in continental Europe.
The BrandZ™ Global Top 10 declined 1 percent in value, compared with an 11 percent decline a year ago. However, it was not certain if banks could sustain this positive direction, almost a decade past the global financial crisis that threatened bank survival, resulted in complex regulations, and decimated consumer trust.
The strengthened US economy, rising interest rates, and plans to roll back the Dodd-Frank post-crisis financial regulations could tempt banks to resume their riskier behavior. Or banks could retain lessons learned and act with restraint, protect consumers, continue social responsibility programs, and cultivate trust. Several factors suggest that banks will continue to behave better.
First, banks have changed. Many have trimmed businesses, learned to make money in a low-interest-rate environment, focused internal structures on improving customer service, and digitized their operations to increase efficiency and competitiveness.
Second, the industry has changed. Relaxed regulations may make it easier for banks to grant home mortgages and other consumer loans, but consumer choice has increased dramatically with the explosion of financial technology (FinTech) companies. People who have lost trust in traditional banking brands have a wide range of options, many of them easily accessed online.
Third, consumers have changed. They are more skeptical of large institutions, more willing to assert control of their lives and finances, and conditioned as shoppers seek the best value. Empowered by technology, consumers are more likely to look beyond traditional brands for savings and investment products.
These characteristics apply especially to millennials. Now moving into their household formation years, millennials represent an expanding market for mortgages and other loans. But their relationships usually are not with traditional banks, but with technology companies that are moving into financial products.
Many of the global banks have taken steps to be more accessible to millennials and other consumer groups by expanding their online technology capabilities, either organically or through acquisition, and by transforming the availability, appearance, and service mission of their physical branch locations.
Bank brands traditionally expressed their core characteristics—security and reliability—with mausoleum-like flagship locations featuring soaring coffered ceilings and marble walls lined with teller cages. But for gaining the trust and patronage of today’s consumer, imposing architecture does not substitute for good behavior.
Consumers expect banks to act with the speed, efficiency, and convenience they find in other categories. Banks responded with pop-up locations to service limited needs, “nano” branches with reduced staff, and the next generation of ATM locations, where a camera and screen enable face-to-face contact. Increasingly, the bank branch is the hand-held smart device.
Partnering with FinTechs
Partnerships between major financial brands and financial technology (FinTech) companies increased, matching “big bank” capabilities, such as risk management, with the speed and innovation supplied by the FinTechs. By expanding into FinTech, banks not only improved service to existing customers, they also differentiated and expanded their reach to new customers.
To increase loans to small business, the venerable JP Morgan Chase & Co. partnered with OnDeck Capital, less than a decade old. Smaller and nimbler than a major bank, OnDeck Capital can review loan applications more expeditiously than a large bank. Morgan Stanley invested in 10 FinTech companies during 2016, to better serve its high-wealth customers, expand its digital investing options, and raise margins.
As part of its Citi FinTech initiative, Citi introduced an integrated financial app for its Citigold customers, combining functions for banking, wealth management services, and transferring money. In a commercial application of FinTech, Citi partnered with major technology companies, such as IBM, Microsoft, and Facebook, in an initiative aimed at helping governments increase accountability and transparency worldwide.
HSBC formed a partnership with Tradeshift, a FinTech company that can help the bank burnish its brand as a leader in global commercial banking. Tradeshift is a cloud platform that helps companies manage complicated supply chain networks. The companies served are potential HSBC loan customers. Santander also invested in Tradeshift.
As the banks category changed, the global bank brands took a variety of approaches to expressing purpose, building trust, and communicating increased customer-centricity. In a campaign called “Make it Here,” Citi invoked a phrase made famous by Frank Sinatra to affirm its New York roots and position the bank as a partner helping people succeed. Its Citibike program also linked the bank to New York, a financial capital.
Santander expressed a similar purpose but took a different approach, using user-generated content that mixed humor and emotion to explain that the bank helps customers prosper, whether their definition of prosperity is about increasing wealth or finding time to enjoy life.
In a purpose-oriented campaign called “Let’s go forward,” a series of Barclays ads illustrated how the bank helps people achieve their life goals. Some of the ads featured the Barclays LifeSkills program, a corporate social responsibility initiative that provides coaching to prepare young people with the skills they need to succeed in the workforce.
Communication effectiveness, along with competitive pressures and geopolitical factors, influenced year-on-year valuation changes. HSBC, with offices in 70 countries, retained its No. 1 rank in the BrandZÔ Global Banks Top 10. US-based Morgan Stanley and JP Morgan rose 22 percent and 18 percent, respectively, while Santander and BBVA, Spanish banks more dependent on slower growing markets in South America, declined in value. Brexit impacted the value of Barclays.
Brand-Building Action Points
1. Do the basics well
Help people grow and protect their money, and provide useful guidance as they take risky financial steps. Getting the basics right is fundamental to rebuilding trust.
2. Deliver positive customer experience
In a world where consumers expect to be treated impersonally, diverted into a long queue when engaging on the phone, exceeding customer expectations should not be difficult, and it will be memorable.
3. Act with restraint
Unless banks act too aggressively with fees, the consumer attitude may remain: We don’t love you we don’t hate you; we’ll stay with you. That tolerance could change with the addition of fees.
4. Sustain trust
Even as regulations relax, particularly in the US, internalize the lessons of past mistakes. Behave in ways that grow profits while meeting customer needs, while leveraging the investments made to revive trust.
5. Serve the underbanked
Many banks have focused on wealth management businesses. But, as revealed by Brexit and the US election, many people feel left behind by the global economy. Banks have an opportunity to speak to these consumers and meet their needs.
6. Take a stand
Own an issue that is relevant to the bank, improves a community or the world, and resonates with customers without alienating them.