Transactional Versus Advice-Based Banking Relationships

It is very likely that individualized experiences will be important to customers in the years to come, however it is still unknown if the banking experience will shift towards becoming more rational or more emotional. That is, will customers be looking for a simple, transactional experience, a means to an end with various providers? Or will they value a carefully selected, trusted, advice-based relationship with their financial advisor, and remain loyal to a financial institution that matches their values and is linked with their personal identity? In other words, are customers craving a more emotional banking experience, or do they care?

There are signs of movement towards banking becoming more rational as loyalty declines. As technology enables change in financial processes, the finance industry is in a transitional state. Innovative new startups and Fintech players are stealing share from traditional institutions. In the past, customers often had one trusted financial provider. Today, however, 46 percent of Americans surveyed have an account with an alternative provider (NTT Data, 2016). Furthermore, it is the younger demographic that seems to be the least loyal, with 18 percent of Millennials (aged 18 to 34) reporting that they switched their primary bank within the past 12 months (Accenture, 2015). Perhaps this low loyalty is simply a sign of increased access to information on alternatives or part of a larger trend across industries, however it could be an indicator that primary providers are not fully meeting their customers’ expectations.

Transaction-based banking relationships appear to be increasing as well. While many of the top banks use emotion-based positioning, such as a being a trusted financial partner or being there for you in different life stages, their branding efforts may not be enough. Seventy-nine percent of customers currently consider their banking relationship to be transactional (up eight percent since 2014) compared to 21 percent stating that it is advice/relationship driven (Accenture, 2015). A transactional relationship was described as being “defined by simple transactions like paying bills, checking account statements, etc.” while advice/relationship driven was described as being “defined by my bank providing advice that improves my financial well-being.” Furthermore, only five percent of customers say they stay with their bank because it provides the correct level of proactive financial advice (Accenture, 2015). This feedback may be concerning to banks since it reveals a shallow customer relationship.

So how should financial institutions react to this trend? One way is to accept the transactional attitude and work to create more functional, efficient, and useful services that can hopefully bring back customer loyalty. Another way is to fight it. If financial institutions can reverse this transactional relationship trend, the future of banking relationships could be based on trusted financial advice. To do this, customer needs need to be revisited and satisfied. At the 2016 CEB Financial Services Technology Summit, a key theme was that technology can help build deeper customer relationships by helping institutions better understand their customers and providing digital tools that reduce complexity, offer information, and motivate customers to reach their goals. Similarly, Accenture states that financial institutions can transform their customer relationships by “becoming vital resources that support customers’ daily activities, both financial and non-financial” through advice, access, and value.

Another possible explanation for why the majority of customers currently see their banking relationship as transactional may be because they have not been offered a compelling alternative and do not see enough differentiation between financial institutions. Therefore, innovation should be a top priority to create more distinct offerings. Additionally, relating to customers’ values can help to connect emotionally. For example, Vancity Credit Union prides itself on being a “values-based financial co-operative” that benefits the local community so members feel good about their choice in financial institution.

The future is not clear and may depend on the actions of financial institutions. If they are able to create more distinct, valuable services that connect with current customer needs, it is likely that loyalty will improve and emotion will return in the relationship. If banks embrace the transactional trend, the financial industry may become fragmented as each player specializes in different services and customers shop around for the best deals and most rational options. Either way, the financial landscape is shifting, and while a gap in services and expectations is not ideal, it also represents an opportunity for growth.

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