Trust is essential in developing a relationship in banking, because of its intensely personal nature and because it is a predictor of advocacy and future business. When trust is breached, the consequences can be severe.

Traditional banks have long considered trust to be a foundational strength, thanks to the visibility and familiarity of their brands and branches. But the survey results show that this competitive advantage is at risk. Therefore, banks must take action to restore trust.

• What is Relationship in Banking?
• How do Banks Improve Customer Relationships?
• How can Traditional Banks Attract Customer?
• What are the Problems Faced by Banks?

What is Relationship in Banking?

Relationship banking is a strategy used by banks to strengthen customer loyalty and provide a single point of service for a range of different products and services.

Read Also: Analyzing Top 3 CSR Issues in Modern Banking Systems

A customer of a bank may start out with a simple checking or savings account, but relationship banking involves a personal or business banker offering products designed to help customers attain financial goals while increasing revenue for the financial institution.

Understanding Relationship Banking

Banks that practice relationship banking take a consultative approach with customers, getting to know their particular situation and needs, and adapting to changes in their financial or business lives.

The relationship banking approach is easily observable in a small-town bank, but it is also practiced in the retail branches of the large money center banks.

Whether for an individual or small business, relationship bankers will engage in high-touch service to try to make their banks the ‘one-stop shop’ for their customer’s A-to-Z needs.

Examples of products offered in the banking world include certificates of deposit, safe deposit boxes, insurance plans, investments, credit cards, all types of loans, and business services (e.g., credit card or payroll processing).

Relationship bankers may also include specialized financial products designed for specific demographics, such as students, seniors, and high net worth individuals.

Cross-selling is the modus operandi of relationship bankers, but they must be careful. Federal anti-tying laws established by the Bank Holding Company Act Amendments of 1970 prevent banks from making the provision of one product or service contingent on another (with some exceptions).

How do Banks Improve Customer Relationships?

Customer engagement can not be achieved in a day, week or a month. It is the foundation of a relationship that includes trust, dialogue, a steady growth in service ownership and a growth in share of wallet if done correctly.

The alternative to focusing on building customer engagement is a relationship that does not meet its full potential or customer attrition.

Here are the secrets to setting the foundation for strong customer engagement:

1. Improve Acquisition Targeting

Customer engagement begins before a new customer even opens an account. With today’s depth of data and processing capability, it is possible to find new prospects that are similar to the best customers who already have accounts at a financial institution.

By building acquisition models that look at product usage, financial behavior and relationship profitability, opening accounts that have limited potential for engagement or growth is reduced.

Beyond demographic, financial behavior and product use modeling, geographic modeling is also important since the strongest potential trade areas are not always clearly defined by branch radius mapping.

2. Change the Conversation

One of the key elements of building an engaged customer relationship begins with the conversation during the initial account opening process.

To build trust, the conversation must focus on making sure the customer believes that you are genuinely interested in getting to know them, are willing to look out for them and that, over time, you will reward them for their business/loyalty.

This early conversation needs to focus more on capturing insight from the customer and discussing the value different products and services will have from the customer perspective as opposed to simply discussing features.

The goal is to illustrate to the customer that the products and services being sold will meet their unique financial and non-financial needs.

Some of the insight that should be collected (beyond the basics) includes:

• Financial objectives
• Primary financial decision maker in the household (it is often the wife)
• Communication channel preference(s)
• Accounts held elsewhere (balance details are not as important as knowing the category)

Unfortunately, research studies indicate that the majority of branch personnel have difficulty having in-depth conversations with customers around needs and the value of an organization’s services.

In other words, having a firm grasp of product knowledge is no longer enough. The initial focus should also be on sales quality as opposed to sales quantity.

Interestingly, some financial institutions have begun utilizing iPads to collect insight directly from the customer.

While seeming less personal, an iPad new account questionnaire standardizes the collection process and usually is able to collect far more personal information than the bank or credit union employee is comfortable collecting.

3. Communicate Early and Often

It is interesting how banks and credit unions set objectives for expanding a customer relationship and engagement and then establish arbitrary rules around communication frequency and cadence.

It is not uncommon for a bank to limit the number of ‘touches’ to one a month or less despite the fact that a new customer has been shown to desire significantly more interaction as part of their new relationship.

In fact, research from J.D. Power has found that the optimum number of communication messages during the first 90 day period from both a customer satisfaction and relationship growth perspective is seven ‘touches’ across various communication channels.

It is important to remember that at the very least, an engagement communications plan should include a ‘thank you’ message within the first 5 days of the account opening (from either as new or existing customer).

4. Personalize The Message

Despite the amount of insight that we collect on a new customer and the processing power most financial institutions have at their disposal, recent research studies show that more than 50 percent of engaged customers get mistargeted communication.

This includes communication about a product/service the customer already owns or about a service that is not in alignment with the insight that the customer shared with the institution.

Today’s consumer has come to expect well targeted and personalized communication. Anything less and trust already achieved is lost. This is especially true with financial services, where the customer has provided very personal information and expects this insight to be used for their advantage.

To build engagement, it is best to build an engagement service sales grid that indicates what services should be emphasized in communication given current product ownership. Engagement communication is not a ‘one size fits all’ dialogue. It should reflect the relationship in real-time.

5. Build Trust Before Selling

As in any relationship, it is imperative that a strong foundation of trust is established before moving the relationship forward. In banking, this equates to providing the necessary information required to best use the service opened before trying to sell another product or service.

If a customer opens a new checking account, the services that should be discussed include:

• Direct Deposit
• Online BillPay
• Online Banking
• Mobile Banking
• Privacy Protection/Security Services

Education around additional enhancements to a checking account that can further build an engaging relationship include:

• Mobile Deposit Capture
• Rewards Program
• Account to Account Transfers
• P2P Transfers
• Electronic Statements
• Notification Alerts

During this relationship growth process, additional insight into the customer’s needs should be collected whenever possible with personalized communication reflecting this new insight.

6. Reward Engagement

Unfortunately, the adage “If you build it, they will come” doesn’t usually apply in banking. While we may build great products and provide new, innovative services, customers often require additional encouragement to use a product optimally and for engagement to grow the way we would desire.

As a result, offers are often required to stimulate the desired behavior. In the development of offers, banks and credit unions should keep in mind that the offer should be built on the product(s) already held as opposed to the product or service being sold.

This is because, especially in financial services, a customer doesn’t completely understand the benefits of the new service.

Therefore, if the new account is a checking account, the offer should be one that reduces the cost of the checking, provides an added benefit to the checking or reinforces the checking relationship.

Potential offers could include waived fees or optimally enhanced level(s) of rewards for a specific action or limited duration. The benefit of using rewards would be that a reward program is a strong engagement tool itself.

7. Gear To The Mobile Customer

While direct mail and phone are highly effective in building an engaging relationship, the use of email and SMS texting can significantly improve results because of mobile communication consumption patterns.

The reading of email on mobile devices recently surpassed desktop consumption indicating that most messages should be geared to a person who is either on the go or multi-tasking (or both).

To communicate with the mobile customer, email and SMS texting should be direct and to the point. The customer does not want to know everything about the account, they want to know what’s in it for them and how do they respond.

While links should be used to provide additional product information if needed, a ‘single click’ option should be available to say “yes.”

With regard to links, many financial institutions have found that using short form videos is the best way to generate understanding and response. Excellent videos around online bill pay, mobile deposit capture and A2A/P2P transfers can not only educate, but immediately link to the “yes” button to close the sale.

When using educational sales videos, it is important to remember that the video should be short (under 30 seconds) and built for mobile consumption first. While a video built for mobile will always play well on larger devices, the opposite is usually not true.

8. Keep The Dialogue Going

A customer usually doesn’t react to the first message you send. Instead, they may need several alternative forms of encouragement to take action and to expand their relationship. As a result, the use of digital retargeting and sequential communication becomes important.

Digital retargeting could include reaching out to people who visited (and left) your website or did not respond to a landing page message. Retargeting can also be done for people who open emails but don’t respond, click online sales banners or are wandering the web shopping for services you provide.

Some of the most interesting forms of retargeting today include the ability to retarget customers or prospects who you have sent postal mail but want to reach them either on their computer or their phone as well.

While only available on about 30-40% of households currently, response rates can be increased significantly by combining both online and offline messaging.

9. Test and Learn

Unfortunately, there is no single formula for success for customer engagement in banking. Because of the difference in market areas, competition, product lines and customer profiles, all of the above secrets of engagement can take on different forms for different institutions.

The key is to continue to test your engagement process for optimal efficiency and effectiveness.

Some of the primary variables to test as you build your communications plan include:

• Cadence of communication (how much)
• Sequence of communication (when)
• Channel of communication (how)
• Target audiences (to whom)
• Products marketed (what)
• Offers

The most important lesson for an agile test and learn process is that perfect insight usually takes too long in today’s quickly changing environment.

As a result, it is sometimes best to make a quick ‘go/no go’ decision as opposed to a highly detailed analysis that may not yield significantly better results given the expense.

In an era of reduced fee income, increasing competition and a more demanding customer, the benefit of selling a standalone checking accounts will only get an organization so far in terms of revenue growth.

It is no longer enough for bankers to be knowledgeable about product options; they need to help customers understand how each option will fit into their overall lifestyle.

Banks need to invest in the personnel, support systems and communication process that will allow them to have the continued dialogue they need to build long-term, profitable customer relationships.

The benefits of this communication are real and imperative for success.

How can Traditional Banks Attract Customer?

We cannot expect active participation from the customer’s side in a day, week or a month. It is the base level of building a relationship that needs trust, dialogue, a steady growth in service ownership and a growth in share of wallet if done correctly.

The substitute to concentrating on establishing customer engagement is a relationship that does not satisfy its full potential or customer attrition.

Research suggests that the concrete advantages of a completely engaged customer, who is attitudinally loyal as well as emotionally attached to the bank is very important. 

The following measures can be followed to build and enhance relationship with customers −

Increased Revenues, Wallet Share and Product Penetration

Customers who are completely involved bring $402 in additional revenue per year to their primary bank as measured with those who are actively not involved, 10% greater wallet share in deposit balances and 14% greater wallet share in investments.

Completely involved customers also average 1.14 additional product categories with their primary bank than do customers who are ‘actively not involved.

Higher Purchase Intent and Consideration

Actively involved customers not only acquire more accounts at their primary bank, but also look to that same bank when thinking of future requirements. Nowadays, when almost everything is done online developing bank’s chances of being in the customer’s consideration set is essential.

Becoming a Financial Partner

Less concrete, but no less important. An actively engaged customer establishes a settlement with their bank or credit union that every financial foundation would covet.

We have seen how to improve customer bond. Another major aspect is to understand the guidelines on how the bonding with the customer can be made stronger. This can be done in the following ways −

Improve Acquisition Targeting

Customer engagement begins even before a new customer opens an account. The advanced technology today makes it possible to find new prospects that are identical to the best customers who have their accounts at a financial foundation.

The creation of an acquisition model monitors the product usage, financial behavior and relationship profitability, opening accounts with limited potential for involvement or growth is minimized.

Change the Conversation

Let us say breaking the ice or starting a communication or interacting with customers is one of the key elements to building an engaged customer relationship. This relationship bonding starts with the conversation during the process of account opening.

To develop trust, the conversation must stress on confirming that the customer believes that you are genuinely interested in knowing them, are willing to look out for them and after due course of time, they will be rewarded for their business or loyalty.

This initial interaction requires concentrating more on capturing insight from the customer and figuring out the value different products and services will have from the customer point of view as opposed to simply considering features.

The aim is to demonstrate to the customer that the products and services being sold must satisfy their unique financial and non-financial requirements.

Unfortunately, research shows that most of the branch personnel have problems in dealing with customers around requirements and the value of services provided by an enterprise.

In simple words, having an enterprise grasp of product knowledge is not sufficient. Initially, the enterprise should concentrate on sales quality as opposed to sales quantity.

Some financial foundations have started using iPads to collect insight directly from the customer.

While seeming less personal, an iPad new account questionnaire sets a standard collection process and basically is able to collect far more personal information than the bank or credit union employee are comfortable in collecting.

Communicate Early and Often

It is quite alluring how banks and credit unions set goals and objectives for broadening a customer relationship and involvement and then build arbitrary rules around interaction frequency and cadence.

It is not uncommon for a bank to minimize the number of interactions to one a month or less inspite of the fact that a new customer is expressing the desire for more interaction as part of their new relationship.

Research suggests that the optimum number of interaction messages within the first 90-day period from both a customer satisfaction and relationship growth point of view is seven times beyond different communication channels.

Personalize the Message

Studies show that more than 50 percent of actively involved customers get mis-targeted interaction.

Basically, this involves talking about a product or a service the customer already possesses or regarding a service that is not in sighting with the insight that the customer has in mutual with the foundation.

Presently, customers expect well targeted and personalized interacting sessions. Anything less than this makes them lose their trust on the banks.

This is mostly true with financial services, where the customer has provided very personal information and expects this insight to be used only for their benefits.

To establish proper engagement, it is best to involve service sales grid that reflects what services should be underlined in interaction, given present product ownership. Involvement communication is not a free size that fits all dialogue. It should show the relationship in real-time.

Build Trust before Selling

To establish proper engagement, it is best to involve service sales grid that reflects what services should be underlined in interaction, given present product ownership.

Involvement communication is not a free size that fits all dialogue. It should show the relationship in real-time.

If a customer opens a new checking account, then the services that should be discussed are as follows −

• Direct Deposit
• Online Bill Pay
• Online Banking
• Mobile Banking
• Privacy Protection/Security Services
• Benefits

Acknowledging customers beyond additional enhancements to a checking account that can further help in constructing an engaging relationship involve −

• Mobile Deposit Capture
• Rewards Program
• Account to Account Transfers
• P2P Transfers
• Electronic Statements
• Notification Alerts

All along this relationship growth process, supplementary insight into the customer’s requirements should be assembled whenever possible with personalized communication expressing this new insight.

Reward Engagement

Unfortunately, in banking the concept of “if you construct it, they will come” doesn’t work. While we may construct great products and supply new, innovative services, mostly customers need supplementary motivation to utilize a product optimally and for engagement to grow the way we would desire.

The outcome is, mostly proposals are required to provoke the desired behavior. In the development of proposals, banks and credit unions should make sure that the proposal should be established on the products already held as opposed to the product or service being sold.

Exclusively in financial services, a customer doesn’t completely understand the advantages of the new service. Thus, if the new account is a checking account, the proposal should be one that limits the cost of the checking, supplies an extra benefit to the checking or strengthens the checking relationship.

Potential proposals may involve waived fees or optimally improved stages of rewards for a precise action or limited duration. The advantage of using rewards would be that a reward program is a strong engagement tool itself.

Gear to the Mobile Customer

We know direct mail and phone are highly effective methods used for constructing an engaging relationship. The use of email and SMS texting has led to progressive outcomes due to mobile communication consumption patterns.

Recently the reading of email on mobile devices exceeded desktop consumption highlighting that most messages should be geared to a consumer who is either on the go or multi-tasking or both.

To interact with the mobile customer, email and SMS texting must be a point to point that is one on one conversation. The customer does not wish to know everything about the account, all that he wants to know is what is in it for them and how do they react.

As links should be used to support supplementary product information if it is required a single click option should be available to say yes.

With respect to these links, many financial foundations have found that using short form videos is the best way to produce understanding and response.

Brilliant videos around online bill pay, mobile deposit capture and A2A/P2P transfers not only educate people but immediately link to the yes button to close the sale.

It is very necessary to remember that the video should be short like under 30 seconds and constructed for mobile consumption first when using educational sales videos. As a video constructed for mobile will always play well on larger devices, the opposite is basically not true.

Mobile screen needs to be focused more as nowadays everything is done on phones itself and it’s not possible to carry a desktop everywhere. Also the customer will not always bother to check the links and videos in their desktop.

What are the Problems Faced by Banks?

The banking industry is undergoing a radical shift, one driven by new competition from FinTechs, changing business models, mounting regulation and compliance pressures, and disruptive technologies.

The emergence of FinTech/non-bank startups is changing the competitive landscape in financial services, forcing traditional institutions to rethink the way they do business.

As data breaches become prevalent and privacy concerns intensify, regulatory and compliance requirements become more restrictive as a result. And, if all of that wasn’t enough, customer demands are evolving as consumers seek round-the-clock personalized service.

These and other banking industry challenges can be resolved by the very technology that’s caused this disruption, but the transition from legacy systems to innovative solutions hasn’t always been an easy one.

That said, banks and credit unions need to embrace digital transformation if they wish to not only survive but thrive in the current landscape.

1. Customer Retention

Financial services customers expect personalized and meaningful experiences through simple and intuitive interfaces on any device, anywhere, and at any time.

Although customer experience can be hard to quantify, customer turnover is tangible and customer loyalty is quickly becoming an endangered concept.

Customer loyalty is a product of rich client relationships that begin with knowing the customer and their expectations, as well as implementing an ongoing client-centric approach.

In an Accenture Financial Services global study of nearly 33,000 banking customers spanning 18 markets, 49% of respondents indicated that customer service drives loyalty.

By knowing the customer and engaging with them accordingly, financial institutions can optimize interactions that result in increased customer satisfaction and wallet share, and a subsequent decrease in customer churn.

Bots are one new tool financial organizations can use to deliver superior customer service. Bots are a helpful way to increase customer engagement without incurring additional costs, and studies show that the majority of consumers prefer virtual assistance for timely issue resolution.

As the first line of customer interaction, bots can engage customers naturally, conversationally, and contextually, thereby improving resolution time and customer satisfaction.

Using sentiment analysis, bots are also able to gather information through dialogue, while understanding context through the recognition of emotional cues.

With this information, they can quickly evaluate, escalate, and route complex issues to humans for resolution.

2. Increasing Competition

The threat posed by FinTechs, which typically target some of the most profitable areas in financial services, is significant. Goldman Sachs predicted that these startups would account for upwards of $4.7 trillion in annual revenue being diverted from traditional financial services companies.

These new industry entrants are forcing many financial institutions to seek partnerships and/or acquisition opportunities as a stop-gap measure; in fact, Goldman Sachs, themselves, recently made headlines for heavily investing in FinTech.

In order to maintain a competitive edge, traditional banks and credit unions must learn from FinTechs, which owe their success to providing a simplified and intuitive customer experience.

3. Changing Business Models

The cost associated with compliance management is just one of many banking industry challenges forcing financial institutions to change the way they do business.

The increasing cost of capital combined with sustained low interest rates, decreasing return on equity, and decreased proprietary trading are all putting pressure on traditional sources of banking profitability. In spite of this, shareholder expectations remain unchanged.

This culmination of factors has led many institutions to create new competitive service offerings, rationalize business lines, and seek sustainable improvements in operational efficiencies to maintain profitability.

Failure to adapt to changing demands is not an option; therefore, financial institutions must be structured for agility and be prepared to pivot when necessary.

4. Security Breaches

With a series of high-profile breaches over the past few years, security is one of the leading banking industry challenges, as well as a major concern for bank and credit union customers.

Financial institutions must invest in the latest technology-driven security measures to keep sensitive customer safe, such as:

Address Verification Service (AVS)	AVS “checks the billing address submitted by the card user with the cardholder’s billing address on record at the issuing bank” in order to identify suspicious transactions and prevent fraudulent activity.
End-to-End Encryption (E2EE)	E2EE “is a method of secure communication that prevents third-parties from accessing data while it’s transferred from one end system or device to another.” E2EE uses cryptographic keys, which are stored at each endpoint, to encrypt and decrypt private messages.Banks and credit unions can use E2EE to secure mobile transactions and other online payments, so that funds are securely transferred from one account to another, or from a customer to a retailer.
Authentication	Biometric authentication “is a security process that relies on the unique biological characteristics of an individual to verify that he is who he says he is. Biometric authentication systems compare a biometric data capture to stored, confirmed authentic data in a database.” Common forms of biometric authentication include voice and facial recognition and iris and fingerprint scans. Banks and credit unions can use biometric authentication in place of PINs, as it’s more difficult to replicate and, therefore, more secure.Location-based authentication (sometimes referred to as geolocation identification) “is a special procedure to prove an individual’s identity and authenticity on appearance simply by detecting its presence at a distinct location.” Banks can use location-based authentication in conjunction with mobile banking to prevent fraud by either sending out a push notification to a customer’s mobile device authorizing a transaction, or by triangulating the customer’s location to determine whether they’re in the same location in which the transaction is taking place.Out-of-band authentication (OOBA) refers to “a process where authentication requires two different signals from two different networks or channels… [By] using two different channels, authentication systems can guard against fraudulent users that may only have access to one of these channels.” Banks can use OOBA to generate a one-time security code, which the customer receives via automated voice call, SMS text message, or email; the customer then enters that security code to access their account, thereby verifying their identity.Risk-based authentication (RBA) — also known as adaptive authentication or step-up authentication — “is a method of applying varying levels of stringency to authentication processes based on the likelihood that access to a given system could result in its being compromised.” RBA enables banks and credit unions to tailor their security measures to the risk level of each customer transaction.

5. Continuous Innovation

Sustainable success in business requires insight, agility, rich client relationships, and continuous innovation. Benchmarking effective practices throughout the industry can provide valuable insight, helping banks and credit unions stay competitive.

However, benchmarking alone only enables institutions to keep up with the pack — it rarely leads to innovation.

As the cliché goes, businesses must benchmark to survive, but innovate to thrive; innovation is a key differentiator that separates the wheat from the chaff.

Read Also: Five Ways the Banking Industry has been Transformed by IT

Innovation stems from insights, and insights are discovered through customer interactions and continuous organizational analysis.

Insights without action, however, are impotent — it’s vital that financial institutions be prepared to pivot when necessary to address market demands while improving upon the customer experience.

Financial service organizations leveraging the latest business technology, particularly around cloud applications, have a key advantage in the digital transformation race: They can innovate faster.

The power of cloud technology is its agility and scalability. Without system hardware limiting flexibility, cloud technology enables systems to evolve along with your business.