Why aren’t banks serious about creating value for their customers?

By focusing on operational excellence, a path to creating value for their customers, banks could build customer loyalty, increase earnings while reducing fees charged to recover transaction costs. 

If you look out the window of the banking industry, you will quickly realize that banks are focused more in creating wealth for their employees and shareholders and perhaps not working hard for creating value for their customers. And shouldn’t it be the other way around?

So what do we mean by value creation for our customers and how can banks create value? Michael Treacy and Fred Wiersema in their article titled ‘customer intimacy and other value discipline’ published in the Harvard Business Review talk about companies that grew to become power houses in their respective industries, by pursuing one of three paths to attain market leadership. And clearly, there are no two opinions that organizations, regardless of the industry affiliation, need to create value for their customers to attain market leadership by choosing to focus on one or more of three value disciplines namely: Product Leadership, Customer Intimacy and Operational Excellence.

Let us examine how serious are banks in pursuing the three value disciplines to attain market leadership.

1. Product Leadership: Deriving comfort from the generally accepted view that the banking industry is more regulated than others, the industry leaders don’t take serious initiatives to innovate aggressively a key requirement for attaining product leadership.
2. Customer Intimacy: Barring a few, most banks are not serious about engaging their clients meaningfully for gaining customer loyalty. And yet large banks boast of their client base that is supposedly made up of millions of loyal customers, though more than 60% of them are likely to be a drag on their profits. Typically these are customers who maintain relationships merely to conduct low value transactions while routing all the juicy business through banks that are intimately connected to them. Unfortunately senior leadership in banks are blind to this fact as they live in the myth that they have won the loyalty of their customers based on their superior service and great product offerings compared to competition. Furthermore many customers are sticking to their existing banks not necessarily because banks have been caring about the relationship but because they dread going through the unpleasant experience while complying with the complex and long winded KYC procedures involved in opening a new account with another bank, only to go through newer form of pain caused by increased cost, time and strain working with multiple bank accounts.
3. Operational Excellence is another vertical resorted to by several leading companies-notably Toyota, Wall Mart and Fed EX- for value creation. It calls for streamlining processes and revamping procedures in order provide exceptional service at competitive price. By resorting to the principles of ‘lean thinking’ banks too can achieve operational excellence by optimizing capacity utilization. And that requires eliminating waste by getting rid of activities in the current operating procedures that do not add any value to the customer.

Lean thinking requires focusing on four issues in order to eliminate waste:

• Revisiting capacity (Value Plus Waste) already created,
• Reviewing Value- Activities for which customers are willing to pay
• Assessing Value Stream- Processes and procedures that deliver value
• Attaining perfection by making continuous improvement to past practices

However, most banks are unlikely to consider this path for value creation. Why would banks revisit the capacity in order to eliminate waste, when they have an easier option to coerce their customers to pay for every activity undertaken with the bank? And at times the charges so outrageous that depositors end up getting no real return after adjusting for inflation and transaction cost on their account.

The question banks need to ask- Will tomorrow’s customers place their money in deposits for no real return? Is it not time that banks consider creating value for their customers or get ready for mass defection.