Customer-Centricity And The Foreign Threat To Banks

BAI Strategies recently published an article in which it stated:

US banks are laggards in adopting a “customer centric” marketing strategy. As a result, foreign banks in the forefront of this strategy are likely to enter the US and gain market share at the expense of domestic institutions.”

My take: 1) I told you so, and 2) I’m not so sure I was right.

First off, in February 2004 I wrote:

Canadian firms boast higher levels of customer satisfaction and advocacy than US banks. The Canadian banks, whose branch focus is very relationship-focused in contrast to the transaction-orientation of US banks, are particularly well-poised to steal market share within the US.”

[And, by the way, when I alluded to advocacy, I did not mean “net promoter score.” Instead, I was referring to the perception on the part of customers that the banks did what was right for the customer and not just the bank’s bottom line, at the expense of the customer.]

The BAI article raises some questions that make me reconsider my position:

  • Are the Canadian banks truly customer-centric?
  • If so, are they more customer-centric than US community banks and credit unions?
  • And if the answer to these questions is yes, is that enough to steal share from domestic institutions?

My [new] take: Canadian (and other foreign) banks will have a very tough time translating their relationship success to the US market. Why?

1) The role of the branch. As I mentioned in my 2004 quote, the Canadian banks’ relationship-focus is delivered primarily in the branch. Jim Rager, former Vice-Chairman at RBC, once said at a conference “the big difference between Canadian and US banking customers is that Canadians go into the branch to talk to a banker, US customers go in to get some transaction done.”

So, to replicate their north-of-the-border success, Canadian banks would need to increase US consumers’ reliance on branches. Not only is that not happening, it’s moving in the other direction. Older consumers are becoming more comfortable with the online channel and are going into branches less and less. Younger consumers are the most comfortable with the online channel and, in general, have no problem interacting with their banks almost exclusively online.

2) M&A realities. My 2004 logic likely went like this: By acquiring US banks (e.g., Banknorth, Centura) Canadian banks could bring their model to the US. Who was I kidding? The reality of large scale mergers and acquisitions is that you can’t change org structures and incentive/reward policies overnight (let alone a few years), and you certainly can’t replace or even re-train a large percentage of employees.

3) US banks may not really be that far behind. The other side of the coin is whether or not US banks are truly lagging in customer-centricity. My [somewhat-educated] suspicion is that Canadian banks struggle with the same cross-LOB integration and coordination that US banks do. The fact that they’ve had more success in deepening their relationships with their customers does not, in and of itself, mean that Canadian banks are more customer-centric.

Bottom line: The BAI article is just another example of the indiscriminant use of the buzzword-of-the day. The term “customer-centric” is so widely misunderstood that it’s not particularly helpful to say “become customer-centric and you’ll succeed.”

The more important question, in my mind, is why banks are perceived to not be customer-centric in the first place. For me, the answer lies here: Business model. Most FIs have not figured out how to be profitable and grow while being perceived as being customer-centric.

Being customer-centric is more about alignment — alignment of the firms’ and customers’ interests — than it is about good customer service. With the exception of ING Direct, there aren’t a lot of FIs in the US that have figured that out. And yes, that includes credit unions. And foreign banks.


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