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Why Banks Can't Compete On Customer Service

A Snarketing post by Ron Shevlin, Director of Research at Cornerstone Advisors

@BrettKing’s new book, Bank 3.0, includes the following quote from social media celebrity Gary Vaynerchuk:

“I genuinely believe that any business can create a competitive advantage through giving outstanding customer care.”

My take: In a banking context, this might be true — but, as Ringo Starr would say, “it don’t come easy.”


There are three forces (or dimensions) that shape the competitive landscape in retail banking:

Customer Experience. I don’t like the term “customer experience” because it’s so indescript, but it’s hard to argue against the notion that whatever it is, it’s important. However customer experience is defined, though, customer service (or support) is just one component of the overall customer experience. Other components include self-service and the use of the product itself.

Value. This is a subjective determination (often sub-conscious, implicit, or qualitative) made by consumers regarding the extent to which the price paid for products/services is worth the benefits received.

Product Features. Bankers may think that financial products are commodities (I disagree), but that doesn’t mean there aren’t distinguishable product features. If the products are commodities, that simply means there is no differentiation in features.


The consumer research I’ve done has convinced me that there are three groups of banking consumers. Each chooses to do business with a provider that does the best job for them on one of the dimensions, as long as some acceptable level of performance is provided on the other two.

In practice, what this means is that consumers who place the highest emphasis on customer experience are willing to sacrifice — to a certain extent — value and product superiority.

Consumers who consider value to be the most important factor will trade-off (again, to a certain extent) customer experience and product features.

You can figure out for yourself what consumers who put the most emphasis on product features do.


Experience, value, and product are the external dynamics of the retail banking space. There are internal (to the firm, that is) dynamics as well. Competing and conflicting priorities create challenges in allocating resources and creating capabilities. Successful companies demonstrate three attributes:

  1. Focus. Whatever their chosen strategy, successful firms focus their resources on executing that strategy.
  2. Alignment. Successful firms find a way to align business units and functions around a chosen strategy.
  3. Discipline. Successful firms demonstrate discipline in sustaining focus and alignment over a sufficient period of time.


So why is it so hard for for banks to pursue a strategy that “creates a competitive advantage through giving outstanding customer care”?

The market isn’t big enough. Only so many consumers choose a financial provider for its “outstanding customer care.”  If you decide to focus on attracting and serving the segment that considers customer experience to be the most important dimension of the three listed above, you might be looking at anywhere from just 10% to 40% of a market as customers/prospects. But we’re talking about customer care here, which is only one component of the customer experience — and might not even be an important element of the experience to some portion of this segment.

The strategy isn’t measurable. Managers need to be able to gauge two things: 1) To what extent is their chosen strategy a smart strategy, and 2) How well are they executing on their chosen strategy. There’s no shortage of financial institutions (especially credit unions) who claim to provide superior customer care — with no ability to measure or prove that claim. Without adequate measurement, focus/alignment/discipline becomes impossible to achieve.

The strategy isn’t specific enough. An FI that chooses to compete by providing “superior customer care” still needs to determine the level of quality it needs to provide regarding value and product quality. I’m not saying this is impossible, but, in practice, focusing on creating an advantage through superior customer care may lead managers to neglect the value and product quality dimensions.  The lack of specificity also means that focus/alignment/discipline will be hard to achieve.

Existing organizational structure is a huge barrier. If you work in a mid-sized to large bank, you know what I mean. If you don’t, go ask someone who does.


In no way do I want to portray Mr. Vaynerchuk as a YASMM (yet another social media moron). But his statement reeks of the simplistic stuff spewed forth by the real YASMMs.

In the world of retail banking, “creating a competitive advantage through giving outstanding customer care” isn’t likely to happen.


I’m sure some readers will disagree with that last statement.  That’s OK — I’m open to hearing well-reasoned disagreements.

In fact, I can think of an FI that might prove me wrong: USAA.

USAA could be considered to have created a competitive advantage through outstanding customer care.

But USAA meets my criteria for having been able to provide strong levels of capability on the value and product feature dimensions. And it would appear to have achieved the focus/alignment/discipline requirements.

So, it’s not impossible to create a competitive advantage through outstanding customer care. But I’m betting that you can’t do it.


For a great article on this topic, see The Financial Brand’s Your Service Is Not What Differentiates You.

Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Get a copy of his best-selling book, Smarter Bank: Why Money Management is More Important Than Money Movement. And don't forget to follow him on Twitter at @rshevlin.

All content © 2017 by The Financial Brand and may not be reproduced by any means without permission.

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  1. Ron,

    If you take that quote out of context, then I agree – it is too simplistic. However, that quote is at the start of a chapter where I believe I attack the issues of how a bank can systematically improve customer engagement/service through channels like social media, VOIP, voice recognition, avatars, etc. The issue was to demonstrate that there are simple ways to improve customer care by changing the structural approach to the customer. The biggest problem right now is silo’d fragmentation of customer care, and lack of organizational metrics that incentivize real improvement in the customer experience.

    Did you actually finishing reading the chapter yet? 🙂


  2. Brett: I wasn’t impugning the book at all. In fact, I think you did a great job addressing the quote in the referred-to chapter. But that’s kind of what I’m doing here: Taking the statement — and addressing the issues with it.

    Taking the quote out of context is exactly what too many people (especially the social media fanatics) do: Take a statement like the one Mr. Vaynerchuk made and treat it as truth. The problem is no one knows what the “context” is. And what we end up with are simplistic statements.

    Your treatment of the quote in the that chapter is great — as is the rest of the book, which I read on vacation this past weekend. 🙂

  3. We published a report a few years ago that looked into customer satisfaction at credit unions versus banks, and what it means for business results. Interestingly, while credit unions consistently outperform banks in terms of customer satisfaction measures, market share remains relatively unchanged. Our report (in collaboration with McKinsey & Company) suggested that the problem is that credit unions tend to over-invest in customer service initiatives that do not lead to new business. While moving to an effective needs-based selling culture was the general takeaway, three specific moments of truth credit unions can focus on are the account opening process, complaint resolution, and home loan processing.

    I’m with you, though, Ron. The Ace Hardware store right down the street has the nicest and most knowledgable employees on the planet. For projects that require me to consult with an expert, consider options, and pay a premium, Ace is the place. The problem is, I haven’t done one of those projects in 12 years. Most of my hardware/home improvement needs involve getting a standard roll of duct tape, light bulbs, batteries, potting soil, and other basics. With few exceptions value, product quality, and product assortment trump service in retail.

    And then there’s Jackie at Krispy Kreme: http://www.youtube.com/watch?v=7Ax2CsVbrX0

  4. Ron,

    Interesting insights. Looking at the contrapositive, would you agree it’s true that a bank is at a competitive disadvantage with poor customer care? With little regard for the customer care force (tied to customer experience) a bank would have to excel at value and product features. I have a suspiscion that to truly understand those other two dimensions, a bank must have the means to listen to and understand their customers, tied closely to customer support. It would seem difficult to do those two well without dragging the other along.

    That being said, isn’t it likely it’s about the journey as much as the destination when it comes to customer experience?


    PS. I’m a USAA customer and was thinking about them when reading your note….they defintely come close to getting it right.

  5. If you could excell enough at product value, theoretically, I would think you could overcome poor customer care. The tough parts are: 1 – can you create a high enough product value to compensate for poor customer care?, 2 – is there a valuable enough segment of the marketplace that would be attracted to that business model?, and 3 – could you attract and sell to that segment profitably?

  6. Lee: A bank that has poor customer care is at a serious disadvantage. First of all, consumers who place Experience above other dimensions will not want to do business with that bank. Second, if the level of customer care is that poor, Value and Product Quality would have to be exceedingly high to compensate. That’s unlikely to be the case.

    I think a key thing to consider here is that I’m trying to dispel any notion (not that you have it) that a bank can compete on any SINGLE dimension. It’s too complicated. The contranegative being: It’s not that simple. 🙂

  7. Thanks for the clarification Ron. Glad you’re enjoying it, and hope I didn’t spoil your vacation too much 🙂


  8. Mike,

    All FS products are essentially commoditized these days. I don’t believe the ‘product value’ model is feasible in today’s society in banking without utility – hence you come back to customer care/experience being implicit.


  9. Let’s be honest… Most Banks and Credit Unions are pretty far away from Excellent Customer Service. Excellent Customer Service is hard… especially today when most of our transactions are automated. Indeed, most of us contact our branch only when things go wrong… The opportunities to demonstrate great Customer Service are few and far between, and most Bank and Credit Unions will fail when called upon.

    It is important to understand that Customer Service as a differentiator no longer works. A recent PWC study found that just 22% of consumers considered Superior Customer Service as the reason to initiate a banking relationship.

  10. Spoil my vacation? Hardly. It was my airplane reading. Sat next to my 12 year old, who leaned over to see what I was reading. I informed her it was Bank 3.0, to which she replied — exceedingly sarcastically, I must say — “Fascinating!”

    The apple doesn’t fall far from the tree.

  11. Serge: Totally agree with you — but it’s all relative. A bank only needs to provide some degree of service better than the competition to be considered “superior.” Having said that, I have seen USAA in action, and they’re pretty good.

  12. David Kreiman says:

    Ron, while I am still trying to make service/customer experience/etc. a game changer at our bank, I think that one roadblock many companies (not just banks) face is that the focus of good service is limited to the customer facing areas. In other words, let’s take all the areas where a customer interacts with us and put some darn friendly people and policies there. In banking, this could be considered the banking desks, teller lines, call center, and more. The problem happens when you overlook those traditional “operational” areas that not only interact with customers, but usually do so when they are in dire need of important documents or worse, are upset with a mistake made. For anyone whose umbrella of responsibility lies with customer service. there is nothing more deflating than not having the steering wheel to all other areas throughout your company … even worse if those who have that steering wheel don’t give a damn about service. Dennis Snow, an impressive speaker and consultant, uses the made up term “inculturate”. Until you can permeate the entire culture of your bank/company to get on board with your vision of excellence, you will always fall a bit short. Perhaps USAA has fully inculturated. If so, my hats off to them.

    And may I say to Brett King, while I have not read the book yet, I will tell you that as I head off to Wash DC in two weeks to start planning the 2013 Marketing Conference, your name is all over the pages and pages I have of 2012 attendee evaluations. Awesome stuff – thanks for stirring the pot!

  13. DK: It’s all in how you define stuff. Reading your comment made me think that what you were talking about was “operational excellence”, which the guys who wrote Discipline of Market Leaders (back in mid-90s) defined as one of the “disciplines.”

    I’m not sure I really understand what inculturate means, but from what I’ve seen, USAA comes about as close as any FI to having achieved it. Part of why they have achieved it (or achieved what they have) is that they know their customer. When a call center rep is on the phone w/ a member stationed 6 thousand miles away at some Army base somewhere, they understand what this person is going through, what their needs, and why it’s so damn important to satisfy those needs.

    David, if your bank doesn’t understand who your customers are, what their needs are, and what they’re going thru when they have the need to interact with you, I’m not sure you’ll achieve what USAA has achieved.

  14. To your point, Ron, wouldn’t a huge national bank, that…say…recently ticked off their customers recently by be a good example of compensating for customer care with value (largest branch and/or ATM network) and product quality? I’m starting to believe that those who really dislike their “big” bank would (literally) rather have their teeth pulled than close their accounts and move to a local credit union.

  15. Sorry – I typed a “less-than” and a “greater-than” sign and it totally omitted the phrase I inserted…. sorry about the confusing post.

  16. BK: I resist the notion that “all FS products are essentially commoditized.” In fact, I’m surprised to hear you say that. CRED is an example of a feature that differentiates Movenbank’s product(s). Differentiating features don’t need to be huge innovations. Cup holders in cars were a big differentiating feature when they first came out. For sure, they were quickly followed, which brought the competitive state back to equity. Bankers fall into a bad trap when they believe that their products are commodities and can’t be differentiated. Checking accounts are not salt.

  17. Ron, I’d add inertia and/or consumer indifference to the list of factors shaping the competitive landscape.

    It’s frustrating to hear financial marketers talk about their “superior service” strategies. Banks and credit unions provide a service, not a product. It’s called the financial SERVICE industry. So to say something like, “Banks can gain a competitive advantage with great service” is about as obvious and redundant as saying GM or Ford can compete by making great cars. More on this here:

  18. TATAs, the leading business house out of India, felt that salt is not salt and launched branded salt for the first time in India. It was a roaring hit and, some two decades after its launch, it’s still popular. Besides, it served as the beacon for the creation of an entire industry around branded sugar, rice, wheat flour and many other things that were formerly considered commodities. If that’s the case for salt, certainly financial products – even simple bank accounts – are nowhere near becoming commodities yet. Recently, while carrying out a CX audit for the online account opening process for a leading bank, we found that increasing clarity in packaging of and communications about the product could itself turn into a differentiator and increase conversion of visitors to customers. Turning to customer service, unfortunately it’s something that can be experienced only AFTER a customer makes the purchase, whereas a differentiator, by definition, is something that must be perceivable prior to the purchase. Therefore, except in a few industries like Offshore IT Services where existing customers contribute to 70-85% of a vendor’s revenues, customer service can’t be a strong differentiator in most other industries – retail / corporate banking included. This is even more true in banking since a superior product will typically keep the account ticking running smoothly, thereby obviating the need for too much customer service, whereas an inferior product (say, a flaky lending system) will cause so much hardship that even the best of customer service will not placate irate customers who are affected by it (they may still not switch banks, but that’s another topic). Besides, being a regulated industry, banks have a limit to the extent they can improve customer service, a point that I had made in my op-ed piece in The Journal of Internet Banking & Commerce (http://www.arraydev.com/commerce/jibc/articles.htm) a couple of months ago.

  19. Ketharaman: Thx for your comment. You’re so right. Maybe commoditization is in the eye of the beholder. But “clarity in packaging and communications”, while helpful in providing differentiation, doesn’t necessarily make the product a non-commodity. My argument here is that by copying each other feature for feature on their products, banks may be creating product parity, but that does NOT mean that the product itself is a commodity.

  20. David Kreiman says:

    Actually, not really focusing on operational excellence. Focusing more on service excellence throughout all areas of the bank, even operational areas. And that service excellence would be both staff-to-customer interaction and staff-staff interaction. In scenarios where a customer-facing staff member needs assistance from an operational staff member to assist their customer, we can’t underestimate the impact made when the operational person is efficient for the fellow staffer; especially if it’s an out-of-the-box request. Too many times, operational support responds immediately with a “no, we can’t do that” approach, That attitude will permeate up to the customer eventually.

    With that in mind, “inculturate” means that your service philosophy must be ingrained and accepted throughout your entire company – it must be the way things are … the expected standard … etc.

    While I would never say that my bank has it nailed down, I actually think we do a pretty good job on being “incultured”.

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