Operational and customer excellence key to sustained recovery for banks

Boston Consulting Group’s global study says high-quality execution will distinguish winners from underperformers

Retail banks, even those in markets that have weathered the global financial crisis relatively well, must raise their game on a number of levels to overcome an altered industry landscape, changing customer behavior and expectations,

and stricter government regulation, according to a new report by The Boston Consulting Group (BCG). The report, titled Global Retail Banking 2010/2011: The Road to Excellence, was released recently.

Although the nature and impact of current industry trends vary by country and region, most retail banks are still recovering from significant financial stress endured over the past three years, the report says.

Margin pressure, sharp rises in loan loss provisions, and declines in asset volumes, revenues, and profits have taken a toll. In order to sustainably reverse these trends—as well as restore customer trust, which has been weakened by the crisis—retail banks must take bold and forceful steps to achieve higher levels of both operational and customer excellence.

“It is no longer an option to concentrate on just one large piece of the overall puzzle,” said Andy Maguire, a BCG senior partner and coauthor of the report. “To respond to the new environment, all facets of both the operational and customer sides of the business must be addressed simultaneously and relentlessly. Anything less will not capture the present opportunity.”

The report, while taking a global perspective on the retail banking industry, also provides overviews of specific trends in 18 major markets.

Operational excellence

BCG conducted an operational-performance benchmarking of 12 of the top 30 retail banks across North America, Europe, and Asia-Pacific. These 12 banks account for roughly 450 million customers, 51,000 branches, and over $14.5 trillion in assets.

The benchmarking enabled BCG to identify three key levers that banks must utilise in order to achieve operational excellence: streamline the organisation, develop efficient and effective processes, and improve overall end-to-end performance.

The report says that although none of the top global retail banks has demonstrated the ability to excel in all of these areas and become a true “process and productivity leader,” the scope of the opportunity is leading many banks to embark on multiyear efforts to improve. Cutting-edge banks have made these and related initiatives a high priority, pushing them to the top of their leadership agendas.

 “We strongly believe that banks should continue this endeavor,” Andy Maguire said. “Better still, they should accelerate their efforts and investments in order to reach a high level of operational excellence as quickly as possible. Those that do will not only reap vast benefits but also create the ability to sustain them.”

Customer excellence

The report emphasises that, in the wake of the financial crisis, retail banks must commit themselves to achieving a far higher degree of customer excellence in order to win a greater share of their customers’ business. They must combine sales and service excellence with low costs, take multichannel excellence to the next level, and create a truly differentiated customer experience.

These initiatives are critical to showing customers that they need only one bank to meet their financial-services needs. Many banks are aware of the need for a renewed focus on such goals, but their execution and attention to detail are frequently insufficient.

Banks often hurt themselves, the report says, by providing poor overall customer service and setting expectations that they cannot consistently meet. To address these shortcomings, they must be more actively supportive of their customers — for example, by warning them of potential overdraft scenarios and helping them figure out whether they can afford the car or house that they covet without overextending themselves.

Such support can be offered only if the bank captures comprehensive customer information, updates it continually, and understands it in a holistic way that builds in underwriting risk and appropriate pricing. By developing such integrated insight, banks can make every service opportunity a sales opportunity and vice versa.

The report notes that the primary checking or current account is clearly the anchor of the customer relationship. Because of the cross-selling opportunities these accounts present, customers who hold them are up to 10 times more profitable than those who do not—and are up to 25 percent less likely to have overdraft or default difficulties.

Multichannel excellence goes beyond making sure that channels are not competing with each other and that access to customer information is open and unified, according to the report. It also means monitoring channel usage and using that information to drive more high-quality interactions with the customer. It means shifting from a passive approach—merely displaying products “on the shelf”—to proactive, sales and service-oriented, multichannel lead management.

At a time when government regulation aimed at mitigating risk and beefing up consumer protection has been implemented in many countries and is on the horizon in others, the report advises banks to use customer excellence as an “antidote to regulation.”

“Many if not all retail banks are genuinely afraid of regulatory intervention,” Andy Maguire said. “Yet customer excellence may be the ultimate defense. Banks that take the time to capture and maintain their customers’ profiles—such as their demographic characteristics, attitude toward risk, product history and preferences, transaction and channel behavior, and financial boundaries and limitations—may find themselves less troubled by regulation because they really do know their customers and act in their interests, which is what regulators care about most.”