Banks and their clients – a new relationship?

Individuals have more information about and autonomy over their personal finances than ever before. Apps, investment platforms and self-service tools have revolutionised the ease of managing money, raising a question as to whether the traditional relationship between institutions and their clients has evolved. Since customers can do so much on their own, why do they need help and guidance from their bank?

Certainly, the relationship is changing, but clients may ultimately come to value the relationship more, depending on how banks handle the transition. While they cannot always replicate the innovation and agility of disruptive fintech companies, banks are more than ever a source of wise counsel and reliable information at a time when it is not always clear who to trust.

The era of open banking, and the technological innovation that underpins it, have given banks’ customers unprecedented insight into how they can access and manage financial services. At the swipe of a smartphone, they can create sophisticated investment strategies, apply for mortgage loans, or analyse their spending in depth.

Consumption patterns

Used carefully, this information can bring about a significant change in the way people manage their finances. Rather than having to scroll through pages of a bank statement to assess their monthly grocery and leisure spending, they can identify what they’ve spent and where at the touch of a button. They can examine trends over weeks and months, and adapt their consumption habits if necessary.

These tools can help in managing household bills more effectively, including comparing providers’ prices and services. Savings products can be readily analysed and compared, too, and switches carried out in a few seconds. Rather than having to complete complex, paper-based applications, people can get responses on borrowing requests sometimes within minutes – and have the money paid into their accounts immediately afterward. For investment, it is possible to identify the ideal risk level and create a diversified portfolio easily, rather than brokers and advisers taking weeks to assess and implement a strategy, as was still the standard just a few years ago.

However, the widespread access to this information introduces new challenges for the banking sector. On one hand, it puts enormous power in the hands of a bank, which is likely to be at the heart of all financial relationships. It holds information on how much people earn, their spending patterns, and their other financial partners, such as credit card providers, insurance companies and wealth managers. But it also means the traditional advice offered by banks has less value. Banks need to reconsider how best to support their clients in this new era.

Most banks are very well aware they cannot rely on incumbency in a market where their clients can switch providers easily and cheaply.

Decline of the incumbency advantage

Most banks are aware that they cannot rely on their market dominance. Their clients can switch providers easily and cheaply. Digital onboarding has reshaped the market, and investors no longer continue to give their business to providers that do not treat them well or meet their needs satisfactorily. Initially, some institutions sought to put up barriers to dissuade clients from exiting, rather than asking why they wanted to leave in the first place. Ultimately, this approach is ineffective; banks must strive to ensure that clients stay because they choose to, not merely because it is inconvenient to leave.

The information now available gives banks an opportunity to understand their clients better and build their trust. Autonomy need not create distance – if anything, it should be a means to enhance the conversations banks hold with their clients. With routine operations handled by technology, there is more time to explore customers’ finances in depth.

Autonomy need not create distance – if anything, it should be a means to enhance the conversations banks hold with their clients.

What might that look like in practice? It looks frictionless. Banks have most of the information they need to make basic lending decisions or decide whether a savings product is suitable. Banks need to meet customers where they are. That does not necessarily mean a race toward digitalisation, but a well-considered evolution shaped by client needs. Institutions now have real insight into those needs; in the past, activities such as product development or marketing were often a hit-or-miss process, but now banks are in a position to understand their clients in depth.

The role of technology

The goal of the of technology underpinning mobile payments or digital wallets is clear – to ensure simplicity and create better channels of communication between banks and their clients. Clients expect seamless access through whatever channels they choose – via chatbots, smartphone apps or websites. Meanwhile, banks need to recognise that not everyone is comfortable accessing their personal finances using their smartphone, and ensure there are options for those clients as well, including the telephone or even visits to physical branches.

Then there is a wider question about whether banks should engage directly on social media or build communities in the same way as fintech businesses. For some clients this will be appealing, but for others it may be a turn-off. Banks should not ignore these channels completely: bad news spreads rapidly on social media, and sporadic poor service can quickly become a significant reputational problem. Whether banks choose to engage or not, there is a growing expectation of an intuitive and friendly experience, while maintaining complete professionalism.

Banks have a real opportunity to be a trusted partner to their clients. There are other sources of information – including on social media platforms. Recent years have seen the rise of so-called ‘finfluencers‘, who aim to make financial information more accessible and engaging. However, they are unregulated, their impartiality is not guaranteed, and the information they provide has often proved to be of poor quality. The UK’s domestic regulator has recently stepped up its oversight of online influencers in the financial services markets, concerned that in some cases they may be associated with fraud.

Reputation, regulation and supervision

Banks have a multiple role to play in this environment. They can help provide a useful check on the reliability of information people are receiving elsewhere, as well as providing their own clear and responsible information for clients. Unlike some smaller fintech businesses, banks have a reputation to defend, and are also subject to extensive regulation and close supervision. While this can be a disadvantage, making institutions less agile, it should also ensure that their clients have clear expectations about the way they will be served, and the recourse available if their treatment is unsatisfactory. That is a major advantage!

Institutions should be able to position themselves as champions of customer autonomy and play a central role in helping their clients manage the new digital environment successfully. Far from distancing banks from their clients, online platforms can provide the tools to bring them closer together in search of the ultimate goal of achieving more successful financial outcomes through increased customer satisfaction.