For banks to succeed in the future, they will need to change how they define themselves internally and externally and adapt their mindset, operations, products and services to better meet customers’ evolving wants and needs, according to a new report from Equifax Financial Services.
The report, titled "The Changing Role of Financial Institutions" is based on the insights of a panel of senior banking executives who spoke at a recent Equifax forum, the company said.
Firstly, the reports advises banks to redefine the relationship between financial institution and customer. "It is imperative that financial institutions adapt to meet customers where their wants and needs are, rather than forcing customers into traditional banking models," a portion of the report reads.
For example, Equifax notes that banks "need to go beyond the checking account" and reach out to people who have a pre-paid card or other financial relationship. "There is profit to be made by catering to this new breed of bank customer who prefers various relationships conducted through multiple channels," the report says.
Equifax also says that data shows financial institutions are seeing a reduction in credit card activity, indicating that today's consumer looks at credit cards more as a payment vehicle than a credit one. This is especially true among Gen Y consumers, says Equifax, who are more cautious when using credit and more leery of accruing debt than older generations.
Also, the company advises financial institutions that affinity card usage is being driven by rewards, benefits and coupon offers rather than the status or affiliation with the brand as has been the case in the past. Being aware that rewards are driving transaction revenue, banks can improve take rates by focusing their efforts on designing products that attract reward seekers, says Equifax.
Among the other findings in the report is the need for banks to be viewed as a "true partner" and tailor products and services to particular customers' needs.
"Customizing offerings and pricing per customer will require banks to narrow their focus from a broader segment perspective to viewing customers through an individual lens," advises Equifax. "That, in turn, will necessitate collecting and mining the growing availability of customer data to better identify opportunities and risks."
However, the company notes that attaining a single customer view is not easy. "It requires banks to make large investments in their operations at a time when revenues across the industry have shrunk and regulatory costs have risen," the report says. "Also, the single view of customer is only as good as an organization’s ability to use it. Even if companies achieve this holistic view, often only a few people in the organization are actually able to see it and use it effectively."
Finally, Eqiufax notes the challenges banks face in developing new products and investing in innovation during a time when budget priority at many institutions is earmarked for compliance. The company says that as much as 80 to 90 percent of bank IT budgets are dedicated towards satisfying regulatory compliance requirements.
Still, Equifax notes that "the banks that are best able to match the change in the marketplace will have a clear competitive advantage in the years ahead."