An Accident of History
Financial Services Organizations Were Born Under a Bad Sign
"The rich are different from you and me."
— F. Scott Fitzgerald
"Yes, they have more money."
— Ernest Hemingway
I should be more careful about what I hope for. I’ve been "covering" the financial services industry in these pages for five or six years now. Every year, I’ve sat at this desk, and looked into the white expanse of the word processing "new blank document" screen and wondered: What the heck do I know about the financial services industry?
"Why can’t it be different this year? Why can’t something happen that would give me a hook: a relevant news event... a greater social behavioral shift... a juicy scandal?" I always asked myself, hopefully.
Well, I guess I hit the trifecta this year. The financial services industries (plural) have endured more agita in the last 12 months than a roomful of prom mothers. So when I sat down to talk with Theresa Kollath, senior director of product management for content management at ASG Software Solutions, it became immediately clear that the near-term outlook for the financial service marketplace is anything but clear. I started, as usual, by trying to get a grip on what, exactly, the financial services industry seems to be focusing on...
"I would have answered this question differently six months ago..." she began, using a phrase she would repeat several times during our chat. "Right now, given the sub-prime mortgage crisis, given that the stock market is doing absolutely weird things, I’d say that organizations are focused primarily on cost-cutting," she said. "For example, there have been announcements recently from major financial institutions that they will be making workforce reductions. If that’s not the worst kind of cost cutting, I’m not sure what is!"
It’s hard to separate the condition of the technology aspect of financial services from the condition of the economy at large. "We’re starting to hear about ‘stagflation,’" said Theresa, "which hasn’t happened since the mid-’80s. There have been times in the past when we had major personnel layoffs and major cost-cutting initiatives, and it took a really long time for organizations to rebound." And then she began the next sentence with the other two words she would also repeat several times: "I hope..."
"I hope this is just an adjustment," she said. "Organizations of all kinds—not just financial institutions—were already operating at peak efficiency. You can only cut so much before you pare down services that customers need. Once you do that, you risk damaging any new initiatives you try to start, because you’re communicating fear to your customer base. Customers, especially in the financial arena, may become reluctant to try anything new... if they stay with you at all."
Theresa advised that financial services companies try to avoid any radical reversals, and simply stick with the knitting. "Financial institutions have to evaluate how they’re doing business," she said. "Even in a time of cost reduction, it sometimes makes sense to move forward with new initiatives that, say, cut the costs of service delivery, or show a return in a more hard ROI assessment. And sometimes they’ll need to spend money in order to go forward, even while they’re cutting costs." They should take a long view, she advised. "Both the short- and long-term effect of that spending can be aggregated so there can be major cost savings down the line.
"I hope (there it is again) they take a pragmatic approach, paired with new initiatives that result in leaner organizations that are also more effective," Theresa continued. "It’s too early to tell if the pendulum has swung too far, and it’s become an over-adjustment. But financial gurus are starting to recommend that people maintain a fairly heavy cash position." She checked herself: "Not that you should bury money in the backyard in tin cans or anything like that, but they are encouraging people to keep more cash available than you might expect." It’s not quite It’s the economy, stupid time yet, said Theresa, "but we might be hearing that soon."
Mean, Lean and Green
Equally important are environmental concerns, according to Theresa. "The cost of oil is obviously something consumers are aware of; some of the considerations for financial institutions will include the ability to deliver services so the customer doesn’t have to drive somewhere! These green initiatives could also offset some of the negative press that the financial industry is getting..."
Whether or not electronic delivery of services such as bank statements is welcome, green or not, may be a generational condition, thinks Theresa. "It may depend on the age of the consumer," along with how effectively the institution has communicated the benefits of having e-delivery. "Showing how you can balance your checkbook on your laptop in five minutes in your kitchen... that type of message to a busy person is very powerful."
One thing we can certainly agree on is this: For the upcoming generation—whatever they’re called (the Millennium babies?)—there will be a far greater adoption of electronic delivery. "They’ve always had computers; they’ve always had cell phones. It’s in their vernacular. The ‘hard-sell’ job to them is probably not as necessary as to those of us who are, say, 40 and above," said Theresa. "You’ll also have more adoption for customers who are urban, or work in a tech-related field. You have to target your marketing in certain ways. But I can guarantee one thing: if you DON’T offer electronic delivery of services, there’s a growing number of consumers that won’t adopt you at all."
I suggested that it’s currently an additional burden for today’s financial institutions to have to provide both personal touch AND electronic delivery...but they don’t have a choice. They’re stuck. Accident of history.
"You’re going to have a mixed market for the next 20 to 40 years," agreed Theresa. "Now, I don’t know whether financial institutions have a 20-year plan for what they want to be when they grow up. But I hope they have a five- to 10-year plan, because...well, we all should!"
I wondered whether there were any indicators that financial institutions are laying groundwork now for an "all-electronic future."
"There are certain organizations—VISA comes to mind —currently doing an excellent job of educating people for what will come next," answered Theresa. "Look at those TV ads where everybody is dancing in lock step and synched up, and the sun is shining...then somebody tries to pay with cash. It all comes to a screeching halt." I had to admit that those ads are a not-so-subtle attempt at social/behavioral change that ...well, it works. It’s kinda brilliant.
"But I hope there will never be the need for everything to be electronic. I hope there will always be the need for customer contact... or to at least have the option to look a person in the eye, even if your preference is to do things electronically. You shouldn’t be forced down any particular path. That’s what I think the financial institutions will do, at least for a while: make the option available, and not make it mandatory to go one way or the other. Institutions do strive for democratization of treatment," insisted Theresa, "but it’s also known that if you have more money than somebody else, you have the luxury to at least ask for more."
The rich are, in fact, different.
I wanted to return to the idea that it’s possible to "over-automate," and perhaps today’s extra-cautious, cost-sensitive financial services company could be tempted to jump that shark and do more harm than good. "Over-automation is certainly a danger, but it’s too early to tell if that’s happening anywhere," Theresa began. "This is another one of those questions I would have answered differently six months ago. I think there will be a level of cautiousness toward going too far with e-delivery, mainly due to the mess we’re in surrounding subprime mortgages. The perception is that much of the blame for that mess lies in transactions that were done online or over the phone, and that there was very little solid checking of references," she said. "The tension between over-reliance on automation versus the ability to allow customers to do their banking on Sunday morning in their jammies will be an interesting balancing act for the financial services companies to pull off."