Chief Editor of Actuaries Digital Angat Sandhu discusses how Financial Services organisations can start winning back customer trust.
"Congratulations. We are extending you an invite for extra spending power."
"Click here to get the benefits and fulfil your wishes."
These were just a select few highlights from an email I recently received from a Financial Services (FS) provider. I would typically have ignored such an email but my recent home loan application process reminded me of the unintended consequences of being lured by such offers. A few months ago, I had agreed to increase my ‘spending power to better be able to fulfil my wishes’. I didn’t really have a strong need but convinced myself that there was limited downside of doing so.
How wrong and naïve I was. When going through my home application process, my bank reminded me that because the credit limit on my credit cards was high, the amount they were willing to lend me at the home loan rate (~4%) was reduced. However, they would be comfortable giving me a personal loan with a much higher rate (>10%) to fill the gap.
I felt betrayed. My perspective was that clearly the FS provider had my best interests in mind when sending me the invitation for extra spending power. I am sure that must have been based on analysis of my spending needs, their analysis of ‘people like me’ given they have had my transaction data for a number of years. Surely, they would have known that ‘people like me’ would soon be looking for a house and that accepting the other offer would negatively impact the ability to fulfil my genuine goals.
Furthermore, I had never fully used my credit card’s higher limit nor missed a payment yet felt like I was being penalised for accepting the terms and conditions of what appeared to be a harmless email. I also questioned the accuracy of the FS providers credit assessment process but was told ‘this is what the regulator expects’, which itself was interesting. In hindsight, this was completely my mistake as I should have read the ‘fine print’ and been more financially savvy about the implications of greater ‘spending power’.
Whilst the above is an overly simple example and arguably no fault of the FS provider, it did leave me less happy and trusting of the organisation. Both the email on extra spending power and home loan were with the same organisation where I have been a customer for over 15 years. Surely, they have enough data on me to understand my needs. Surely, given my loyalty to them, they would only be offering me products and services that are truly relevant for me. And surely, they would be giving me the right advice as my needs and requirements change. My experience left a lot to be desired.
The FS sector has experienced various conduct related scandals all over the world in the recent past. The ongoing Royal Commission into Misconduct in the Banking, Superannuation and FS Industry in Australia continues to bring to the surface multiple examples where customers have been let down by the FS sector.
So where does the problem lie and how can the sector start to respond?
Recognise the root causes
It is easy for executives to dismiss the issues that have arisen as ‘isolated incidents’. Many are driven by rogue behaviours of a select few or one-off failures in processes / governance. It is much harder to start investigating structural factors that may be directly or indirectly contributing to these failures. The specifics would vary for each country, industry and company, but some hot-spots that would warrant further investigation include:
Prioritisation: Organisations have suffered from being overly focused on initiatives that realise short-term financial gains, often at the expense of those that provide greater utility to customers over the longer-term. Understanding how an organisation prioritises investment decisions, and balances competing objectives (short-term vs. long-term, shareholder returns vs. customer satisfaction etc.) can enlighten us as to how seriously it is thinking about meeting customer needs.
Incentives: Are incentive structures of executives and management adequately aligned with the organisational objectives around better meeting customer needs? Is customer experience and satisfaction being measured and assessed in a meaningful way? The status quo for most organisations is either a limited focus on customer outcomes in incentive structures or use of very high-level aggregate metrics (e.g. use of NPS scores that are not granular enough as one of many metrics in a balanced scorecard)..
Culture: Whilst culture only tends to come into focus when things go wrong, there have been advances in measurement approaches that give a better and more objective gauge on organisational culture over time. In addition, it is helpful to assess whether the Board and Management are consistently putting customer outcomes at the core of their decision-making process. How customer complaints are handled can often also be a good proxy of this.
Rebuild and not just remediate
To their credit, CEOs and Boards of large FS organisations have been humble in admitting they have failed in meeting customer expectations. Most organisations have some form of remediation programme in place to compensate customers and start to fix existing processes that contributed to the issues.
Whilst this is important and needs to be done to address current regulatory and customer expectations, it is critical that organisations start to rethink whether making tactical changes to existing processes will minimise chances of similar events happening again. Some areas to consider here include:
Customer needs: To genuinely be able to meet customer needs, FS organisations need to better understand them. This not only requires additional data but also a better understanding of the customer segments they are serving: their motivations, goals, how they wish to engage with the organisation etc. This base of information can allow the organisation to better deliver the right propositions and at the right time / life stage for the customer.
Product design: It has been well known that the majority of FS products are overly complex. Organisations should be taking the opportunity to create simpler, more transparent products that are much easier to understand and better meet customer needs.
Finally, organisations need a step-change in their focus on measurement to not only continue to better understand customer needs over time, but also to have more effective controls and a governance framework that allows early identification of emerging risks. The MI of organisations has not been adequately granular, timely or accurate and has prevented Management and Boards from timely interventions. In an era where data is of strategic importance, it is imperative for FS organisations to address this and invest in the appropriate infrastructure and processes.
Gaining someone’s trust is hard. Trying to regain it once it has been shaken is even harder. Recent events have put the FS sector on notice. Whilst the path to regain trust is not straightforward, the costs of inaction are too high to ignore it.
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