The Value of Banks

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I’ve just finished reading Brand Finance’s recently published report on the value of global banking brands. Not surprisingly, it records a fall in the value of European banks’ brands, and a rise in the value of those from the Far East. Still, HSBC tops the table, rising from third and Santander is fourth. The Royal Bank of Canada makes the top twenty too, while other Canadian banks rose significantly in the table. I mention this because we’ve always found Canadian banks do well in managing customers. Although their value is associated with tough regulation which has restricted competition, in my view is hasn’t resulted in any worse treatment of customers, and probably the opposite. Vicious competition isn’t always completely in the customer’s interest.

It’s hard to correlate brand value with success in managing customers. We did research some time ago correlating good practice in customer management and return on equity, the sheer size and variety of business of global banks makes it hard to identify the link. However, Brand Finance’s recommendations on how to improve brand value are very interesting. They are:

1. Be part of the solution – which in customer terms means helping them get through the economic crisis.

2. Be more transparent – which in customer terms means make it absolutely clear  - through how you work and how you communicate – that your main objective is to help customer.

3. Communicate better how banks work and how people can better manage their money.

This last recommendation worries me. Brand Finance suggests that better communication may require a more personal approach from branch staff and also on-line tools to help customers. However, the behavioural finance research carried out before and during the crisis showed how many customers made poor decisions, even with the support of advice and money management tools. This was for many reasons, including poor appreciation of risk, unjustified optimism or lack of understanding of their current financial position and prospects. The drive to make it easy for customers to make decisions and to buy product and services therefore led to many customers putting themselves in risky situations in investing or borrowing, particularly if they believed the optimistic statements coming from politicians.

If customers are to get a better deal from banks, they may need challenging, or advice which warns them to look again at their finances before making decisions, rather than being given the information and confidence that they really can make the right decisions. A little knowledge is a dangerous thing, as we have seen!

However, advising and warning customers takes time. Banks simply can’t afford to investigate most customers’ finances and advise them properly. That’s why some banks have withdrawn from some complex products which require advice.

Banks need to investigate what I call “supported self-service”, where customers are taught and helped to do the investigation and analysis needed to make the right general decision about category of product or service, and then helped to implement their decision correctly. Otherwise, becoming more transparent and still easier to deal with may lead to even more customers getting into trouble – an unintended consequence if ever there was one. That’s why at The Customer Framework we’re developing a service which helps financial services providers determine whether their processes for product development, communication and advice are right for customers, given their propensity to take the wrong or at least sub-optimal decisions. If you want to know more about this service, contact me.
 

Author details:

Merlin Stone, Research Director. Merlin is a leading expert in customer management, including strategies and tactics for customer recruitment, retention, and development and has been a leading contributor to the development of the customer management assessment methodologies for which The Customer Framework is best known. His work focuses on improving customer experience, satisfaction, loyalty and trust, and also the customer research, data analysis, systems decisions and supplier selection and management needed to support improved management of customers. He is also well known for his work on thought leadership and public relations – improving clients’ communications to the media and customers, including explaining complex propositions and conducting media interviews. This includes conference speaking (especially for client events) and thought leadership research, which focuses on clients’ customers and prospects, the issues they face, how they handle them, and where they need help. He is an active researcher on many aspects of customer management. merlin.stone@thecustomerframework.com