As a results of news stories regarding Lloyds and Wells Fargo, the need for customer-centric and responsible sales practices have risen to top of mind. The rise of digital banking and increasingly stringent regulatory requirements has resulted in some retail banks considering sales driven growth as a framework for boosting their top lines, and some have resorted to questionable sales practices to meet targets and drive profits. Clearly, this is not sustainable or right.
Banks are facing a wide variety of pressures. With revenue growth at the top of the agenda – 62 per cent of bank CEOs listed this in their top three business priorities in a 2016 Gartner study – they must also contend with regulatory scrutiny, the shift to digital, and increasing disruption by FinTechs and other third parties.
Compliance might sound like the least exciting area of focus, but against a backdrop of massive fines for several major institutions in the past several years, managing conduct risk is not an optional priority.
In its broadest terms, conduct risk refers to bank staff acting unethically or illegally risking fair outcomes to clients. This may manifest itself in a lack of transparency, excessive fees, unfair pricing, or the much publicised mis-selling of products.
Of course, it’s not only fines at stake, but major reputational risk, affecting share prices, and bringing a loss of public trust and confidence.
The solution is part procedural, part technological, but also part cultural. The bank has to get past thinking about the customer as “prey”. Cross-selling metrics and revenue goals will continue to be a big part of the equation, but “gotcha”-type tactics aren’t a sustainable growth strategy.
Banks must be ready to think about how they can nurture the customer relationship in a way that brings value for both sides, uniting client experience with profitability.
Product and pricing 101
Product and fee management sit at the heart of this transparency. Banks were early adopters of software systems that automated banking tasks. Many banks continue to operate these legacy systems, which can effectively manage transactions, but are not suitably agile for today’s requirements. Product definition and pricing are generally tangled together in one system, which typically operate in siloes and limit the bank’s ability to see the full customer relationship.
By separating product definition and pricing capabilities into a separate “layer” from their core operating systems, banks can define and enforce suitability and eligibility rules for a product or bundle, as well as start to define pricing based on product usage or type of customer. Which customer or segment is this product targeted to? Why? What conditions are required to be eligible for the product?
This type of approach can also build in approval workflows to help manage requests made by the sales team that fall outside of established parameters on agreed pricing. A bank must be very clear on who is responsible for creating and approving product and pricing changes, and who is ultimately accountable for the launch of a new product.
Importantly, this also allows the bank to provide a full audit trail to explain why a customer received a specific product or price – or indeed, why a fee was waived – clearly demonstrating the underlying reasons for why this is fair. Banks must be able to defend their position not only to customers, by providing a granular breakdown of all changes, but to regulators as well.
Product design and pricing is an important lever for banks to deepen customer relationships through cross-selling, as well we incentivising desired behaviour – such as mobile app usage – to unlock additional value. However, this strategy will quickly turn sour if banks are not able to deliver this in a way that fits with customer expectations of transparency and digital delivery.
Developing elegant, customer-centric solutions should be the goal for banks looking to compete in today’s retail banking landscape. Effective customer loyalty hinges on smart monetisation of data, personalisation, and seamless delivery of relevant products and offers. From a staff perspective, properly implemented and monitored incentives can attract and retain top employees.
Time is up on the mis-selling of financial products – it’s up to banks how they choose to move forward.
Nancy Langer is president and COO of Zafin