HML. Homeloan Management Ltd

It’s also a word that isn’t usually associated with the financial services market. Consumers don’t love banks at the moment and banks don’t usually express their relationship with their clients in such strong emotional terms.

 

But 2012 may be the year in which the relationship between banks and their borrowers is put on an entirely new footing - one in which the former attempt to give consumers good reasons to love them once again.

 

This may sound like a strange prediction at a time when the housing market and the economy can best be described as flat.

 

There appears to be agreement among most market experts that 2012 is going to be a year of little growth or any major new market developments - stability will be the name of the game.

 

It will be a year in which banks will be busy rebuilding their balance sheets and getting to grips with the regulatory demands of Basel III. The emphasis will not not on growth, but on recapitalisation.

 

So, if the outlook is ‘dull’ why am I so convinced that banks are going to try to give their customers good reasons to fall in love with them all over again?

 

It's because most banks are now choosing to abandon traditional business models which have been based on increasing profits by increasing business volumes, and are instead turning to service differentiated strategies which are focused on added-value products and improving customer retention.

 

In other words, they want to grow by developing longer lasting and more profitable relationships with their customers, and to achieve, this they want their customers to love them once again.

 

Given the constraints on their capital and an instinct to now focus on quality rather than volume, it is entirely understandable that most banks have chosen to implement service differentiated business models.

 

Unfortunately, this switch of strategy places new pressures on their infrastructure at a time when many traditional banks are working with complex legacy systems, vast infrastructures and huge workforces whose attitudes, skills and objectives need to be aligned with their new strategies.

 

It’s not an ideal base from which to launch major customer service initiatives. Earlier this year, Deloitte published a research study entitled Building customer-centric business models in retail banking. 

 

"To deliver differentiated service, customer insight becomes more important," it says. "While basic customer information is enough for targeted marketing, more granular insight is required to create services that are tailored to specific segments or individuals.

 

"Banks need to form, and embed, a single view of the customer. As the data for such a view resides in pockets across the bank, operating models should be re-engineered to facilitate co-operation and data co-ordination throughout the firm."

 

Re-engineering their operating models will be a major challenge. Some banks (and building societies) will have to consider whether it’s more efficient and cost effective to make this transformation using existing in-house resources, or whether it would be faster and more efficient to outsource all or part of the task to a third-party specialist.

 

The task will be made even more challenging not only because of increasing competitive pressure from other organisations, some of which already have very customer centric operations and popular retail brands, but also because they have to restore customer confidence and trust after the significant damage that has been inflicted on their reputations’ over the past few years.

 

The Deloitte report identified that turning around UK consumers’ attitudes in the current climate is tough, and high-end customers’ attitudes are among the most difficult to turn. They are less loyal than the average customer and harder to retain.

 

Consumers can be like lovers spurned; once that magical bond has been broken, relationships are very difficult to repair.

 

Some banks may well have to dig a lot deeper and implement more radical reforms if they are to succeed in winning back the hearts and minds of their customers and build more profitable and lasting relationships.

 

The transformation has to be deep-rooted. Customers will have to see that their banks have fundamentally changed, or they will remain cynical that new initiatives are simply so-much window dressing. And change doesn’t just mean a cheery smile and promise to answer the phone quickly, but an entirely new approach to the way in which they deal with customers.

 

Savers and borrowers will only become loyal, multi-product users if they believe their custom is truly valued and that they will receive a service where their needs will be given the highest priority.

 

There are some who say that such a turnaround is not possible, because the reputations of some financial institutions have sunk so low that they’re irreparable.

 

I don’t subscribe to that theory. I believe consumers will forgive and forget and even love their banks once again, if they are given compelling reasons to do so.

 

But those reasons have to be based on very solid product and service enhancements; they cannot be based on superficial marketing campaigns or publicity stunts.

 

The changes that have to occur involve people, processes and technology and one of the first questions banks have to ask themselves is whether they have the resources to implement such change.

 

Whichever way you look at the situation there is a lot of work to be done to bring banks and customers together again. Only time will tell if this is to be a love story with a happy ending.