Financial Services Moves From “Bankers’ Hours” to Customer Satisfaction
The financial services industry has seen many changes since I worked for a large multinational bank years ago. The regulatory environment, structural change resulting from mergers and acquisitions, and technological advances are largely responsible. The industry has become vastly more competitive than it was in the past.
Consumers have mixed feelings about their financial institutions. It wasn’t that long ago when people joked about “bankers’ hours.” In today’s always on, 24/7, world, it’s hard to believe that banks used to open at 10 a.m. and close at 2 or 3 p.m. They did, they really did! Those were the days when bankers did not consider dealing with competition an important part of their jobs. They were the “only game in town” and the customer experience mattered little to them. As Adlib’s Isabell Berry points out in her article, competitive advantage is now “life or death in financial services.”
Not Your Father’s Financial Institution
Competition has been spurred by regulatory activities. Glass-Steagall, the act that separated commercial from investment banking, was in effect from 1933 to 1991. It ended with the Gramm-Leach-Bliley Act granting financial institutions greater latitude in services they could offer, such as opening up commercial banking to underwriting securities. Other rules and regulations affect financial institutions, particularly increased oversight from the Consumer Financial Protection Bureau on all types of financial institutions, which must retain customer trust to get and maintain their competitive edge.
Another limiting factor for banking was regulatory restraints based on geography. In the 1980s, I was astonished to learn that Kansas banking law prohibited branch banking across contiguous counties. My bank in Johnson County could not have a branch in the adjoining five counties, but could skip over those and establish a branch in a non-contiguous county. I’m sure the law was originally intended to restrain the power of banks and maintain the integrity of local, community banking, but the result was low asset bases for Kansas banks, which led to an inability to lend large sums of money to the agricultural industry, a mainstay of the Kansas economy. The unintended result of the geographic restrictions was borrowers going to larger, out-of-state, banks for their loans. As legal restrictions eased, the next unintended result was larger banks buying the smaller Kansas banks.
Mergers and Acquisitions
Increased merger and acquisition activity is another driver of change. The bank I worked for in California acquired several other banks and then was itself acquired. New management moved the headquarters location, changed the name, and rebranded as a national financial institution. Later, it bought a brokerage house to add to its repertoire of financial products.
Financial services is an umbrella term that encompasses banking, credit unions, insurance, credit card companies, accounting firms, consumer finance companies, stock brokerages, and investment funds—anything, really, that deals with money. Once discrete entities, we now see overlaps and ownership across the various entities that comprise the industry.
Impact of Technology
Another old banker joke was the 3-6-3 rule. Banks paid 3% on deposits, charged 6% interest on loans, and their bankers were on the golf course by 3 p.m. That has all changed as well. Some of the change can be attributed to major shifts in what qualifies as a financial institution, but chalk other changes up to technology.
With internet banking, financial institutions of all stripes are open all the time. Even brick and mortar branches keep normal business hours, no more of this 10 to 2 nonsense. Customers expect immediate access to their financial information. Deposit a check from your phone? Of course. It’s 2 in the morning? No problem. Check your balance? Done. Did a payment clear? Also done. Wear your debit or credit card on your wrist? Why not? Up next might be “robo-advisors” for investment advice or trading in Bitcoins.
Tight regulations in the past meant banks weren’t all that concerned about competition. Boy, has that changed! Mind you, financial institutions don’t enjoy the intellectual property protection that manufacturing companies live by. A financial institution that comes up with a novel new way of doing business can enjoy it for only a short while before it’s copycatted. Financial institutions must rely on good customer service to differentiate themselves and technology provides significant competitive advantage. Technology has also made some financial services’ products obsolete. Travelers checks is one example.
The dual trends of technology and consolidation should result in fewer brick and mortar branches. Thus, I’m surprised at how many new bank branch buildings are dotting the landscape where I live. They’re sprouting like dandelions in the spring on my front lawn—although not so yellow. I can only assume that customers want the flexibility of walking into an actual branch as well as doing business with their financial institutions online.
Customer service? In the not so distant past, the financial services industry didn’t care much about customer service. There’s another attitude that’s gone by the wayside. In today’s financial services environment, the customer is front and center. The financial services industry has to know who its customers are, that “John Jones, “Jones Construction Company,” and “JJ’s Family Trust” are related, and treat them well. Knowing your customers and being agile is essential. Not only do financial institutions need to migrate from legacy systems to modern financial technology, but they also need to do so in a way that prevents fraud and ensures regulatory compliance.
Lines have blurred among the various components of the financial services industry. Following the turmoil of the Lehman Brothers collapse, the TARP rescue, and the redefinition of commercial banking in the U.S. to include investment banks, a seismic shift occurred. What didn’t change was customer reliance on financial service institutions. Their expectations changed. To keep up, all financial institutions need to move their customer experience to the next level and use technology, as Berry puts it, “proactively and intuitively.”