The Realities Of Customer-Centricity In Banking

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If “customer-centric” isn’t the worst-named buzzword the business world has come up with, it’s pretty damn close. Just as bad is the fact that it’s a meaningless term. Oh, I know there are people who will dispute that, but the fact that there’s even a discussion about its definition proves that it’s a meaningless term.

Thankfully, the author of a recent American Banker article titled her piece Customer-Focused? Prove It instead of throwing in the -centric moniker. The article provides advice to banks on how to be “customer-focused” and I wouldn’t dispute the logic of the prescriptions.

Except that doing what the author prescribes: 1) Will have no impact on your business, and 2) Misses the real reasons banks aren’t customer-focused or customer-centric.

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The crux of the article is that the author’s bank sent her a letter informing her that her HELOC was being cut in half based on a “random audit.” According to the author, her reaction was “what a strange way to treat a long time customer.” The author was told by the mortgage officer that she couldn’t help the author, and advised the customer to contact the call center. The author advises banks to:

“1) Take note of what other banks are doing wrong…
2) Remember that technology is not a substitute for service.
3) Give customers real answers.”

First, “taking note” and “remembering” are nice things to do, but don’t accomplish anything. And if it’s your bank that’s the one screwing up all the time, how does taking note of what other banks are doing wrong help you?

Second, I don’t believe that there a lot of bankers who think that technology is a “substitute” for service. They think technology IS the service. And there is plenty of evidence that there are plenty of consumers who are more than happy to use technology to resolve issues or problems without having to talk to anyone from the bank.

Third, “giving customers real answers” is great advice. You should take it. Except that I don’t think you can.

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Why can’t you give real answers?

Well, this takes us to the real reasons why banks aren’t–and can’t be–customer-focused, or customer-centric. The first is that you can’t (or won’t) give real answers because your bank is compliance-centric, not customer-centric.

I don’t doubt for a second that the mortgage officer wanted to help the author of the article. But she couldn’t. And no ranting, raving, or training about being more customer-centric would change that.

“Taking note of what other banks are doing wrong” or “remembering that technology isn’t a substitute for service” isn’t going to change the fact that the mortgage office had her hands tied by compliance.

And that’s not going to change any time soon. Compliance violations cost a helluva lot more than the lost profits incurred when one or two (or even 100) HELOC customers walk out the door (and note to author of the AB article: You’ve heard that saying regarding the grass not being greener, haven’t you?).

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There’s a second reason why you can’t be customer-centric: Not all customers are equal.

I sympathize with the author of the article. We all like to see ourselves as important customers of the firms we do business with, especially when we’ve been with them for a long time.

But the reality of customer profitability and the customer life cycle is that if a customer doesn’t continue to add accounts, add balances, or generate fees it doesn’t really matter if that customer has been around for 17 years or 17 months.

(Side note: there is another way a long time customer can add value beyond the three ways I just mentioned: Providing referrals that help the bank acquire new customers. But too many of you would prefer to track referral intention instead of actual referral behavior. So you wouldn’t even know if that long-time customer isn’t adding value in the absence of account activity)

The reality of customer-centricity is that not all customers can be in the center of that centricity.

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At one credit union’s recent board of directors meeting, the speaker before me (a very smart and well-respected person in the credit union industry) presented some slides on customer- (or, in this case, member-) centricity.

The slide taken from a consulting firm that showed six stages of customer-centricity with nirvana achieved in stage six was particularly gag-inducing.

The topic generated some discussion among board members with some advocating for some changes in the name of member-centricity with others retorting with the reasons why those changes would be harmful to the credit union’s bottom line.

I had to hold my tongue on this one (yes, that does happen from time to time), but my counsel would have been: Without first determining which members (either by segment or even individually) are most important, you can’t make the tough decisions on what to change.

If becoming customer-centric were easy, everyone would do it. They don’t because it requires tradeoffs. Tradeoffs that typically have an immediate, short-term negative economic impact. And since there is no shortage of the tradeoffs that could be made, becoming completely customer-centric is likely to put you out of business within a month.

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So good luck with your quest to become customer-centric. Tell my great-great-great-great grandchildren when you get there.

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