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GLOBAL 2016: Economic slowdown, regulations, fintech disruptors challenge banks

Initiatives aim to build reputation and reach millennials
 

Global banks felt the impact of slowing growth in key markets like Brazil, China and Russia, the plummet in crude oil prices, and low interest rates. Among the BrandZ™ Global Banks Top 10, only the Spanish bank BBVA increased in brand value. The Top 10 declined 11 percent in brand value, following a 2 percent decline a year ago.

 


Banks also faced reputational challenges and fines because of persistent regulatory compliance and legal issues, even as they advanced efforts to reform and reorganize their retail, commercial, and investment businesses, and attempted to improve customer service and attract and retain a talented workforce.
 
Responding to the prospect of UK regulations requiring banks to separate their investment businesses from the rest of their banking activities, certain banks, including HSBC and Barclays, began to divest holdings and restructure.
 
In the US, major banks faced higher capital reserve requirements and government scrutiny requiring banks to prove their ability to survive a financial crisis without public bailout. Citi aggressively trimmed its business and successfully passed this stress test.
 
Financial technology companies disrupted some banking activities by providing transactional services, like payments. Most banks responded relatively slowly because licensing and regulations securely fenced the most profitable aspects of their businesses.
 
Banks worked to improve the retail customer experience. Many banks, including Goldman Sachs, Morgan Stanley, and UBS, continued to enjoy success managing higher wealth clients.
But banks had less success attracting the next generation of banking customers.
 
Attracting the next generation
Attracting millennials requires building and sustaining trust with a group that seeks the stability of a banking relationship, but can easily be diverted by the higher interest rates and ease of transaction offered online by disrupter brands. Banks often appealed to millennials with transactional products, rather than with investment services that can build loyalty and produce greater profitability.
 
However, banks began to analyze the vast data they have on millennial customers. New research by WPP’s Vermeer contradicted conventional wisdom and suggested that many millennials prefer to establish trust through face-to-face encounters at physical locations before making online transactions.
 
Barclays developed a program called LifeSkills, an elaborate online resource aimed at helping potential young customers gain practical skill needed for success in the workplace. Separate modules addressed young people and those who can help them, including parents, teachers, and businesses.
 
In a campaign that spans generations, HSBC focused on supporting human ambition. The campaign includes a clever commercial called “The Museum of Procrastination,” which is full of unfinished novels and other abandoned projects. It ends with the line, “Wherever your ambitions take you, at HSBC we’ll help you on your way.”
 
Efforts like this were part of a banking industry attempt to strengthen reputation with more emotional marketing, including TV commercials. Banks seemed better able to sustain consumer trust in their competence rather than their character because of the steady drip of negative publicity. To repair and strengthen brand reputation, banks also implemented programs to reach the unbanked and economically disadvantaged, and they improved the social responsibility profile of their investment portfolios.
 
As part of its “Think Forward” strategy, ING Bank implemented a set of values and behaviors it called the Orange Code. It is an effort to create a culture in which bank associates are expected to be honest, responsible and prudent, to make things happen, help others succeed, and be proactive. ING Bank moved through a corporate restructuring to foster a level of interdepartmental collaboration that can result in programs that better anticipate and meet customer needs.
 
Disruption and regulation
Start-ups challenged banks with products that included micro lending, peer-to-peer payment services, or savings accounts at higher interest rates, which provided services that are profitable, but fall outside of licensing regulations. Focused on other business priorities, and weighted by a legacy of traditional systems and physical locations, the major bank brands moved more slowly.
 
The major bank brands are likely to gain innovative technology by acquiring these start-up companies over the next few years. This acquired expertise should help banks attract millennial customers. Most major banks have not become directly involved in this business, although J.P. Morgan purchased almost $1 billion of loans from Lending Club, an online peer-to-peer financial exchange.
 
In contrast, innovative banking technology, particularly mobile, is growing rapidly in parts of the world that have lacked banking infrastructure, such as Africa, where brands like Kenya-based Safaricom’s M-Pesa leapfrogged into mobile banking. In China, consumers use Alibaba’s Alipay or WeChat from the Internet portal Tencent to move seamlessly between social media, e-commerce and payment utilities.
 
Attracting talent
If banks are to implement reforms and customer service improvements, they must hire and retain talented people. The challenge for bank brands is that their reputational baggage, combined with work environments perceived as stodgy, dissuades young people from pursuing careers in financial services, when compared with seemingly more exciting categories like technology.
 
Citi introduced several options to better match the needs of young people seeking to balance career advancement with social action priorities and other interests. The program accelerates advancement opportunities and also provides an opportunity to take a year off to pursue charitable endeavors.
 
Another Citi option enables young employees to spend a month in Kenya working on microfinance projects. Goldman Sachs changed the tasks assigned to new bankers to make the work more varied and interesting. J.P. Morgan allows young workers to spend a portion of their time helping non-profit organizations.
 
Banks also continued efforts to build and sustain awareness. Citi, founded in 1812 as City Bank of New York, brands the bike share program that prominently places the name of the bank around the streets of New York. Santander brands the London program originated by Barclays. While experiencing strong results in the UK, Santander faced difficulties in key markets like Latin America.