The history of banking shows a series of events that have gradually weakened the bond between traditional institutions and their customers. The 1980s were a time when banks tried “modernizing” by pushing deregulatory legislation. The consequence was an increased propensity for risk-taking which ultimately led to a large number of bank failures between 1980 and 1994. Many banks were forced to consolidate to survive.
As technology developed, alternatives to institutionalized banking began emerging. Companies like Robinhood and M1 Finance capitalized on customers’ growing distrust for traditional institutions and provided modern alternatives. In addition, technology has made switching institutions hassle-free. The new challenge for banks is discovering how to earn and keep the trust and loyalty of their customers in a rapidly changing and highly competitive landscape.
Customers’ loyalty is largely dependent on their financial wellbeing
One of the best ways for banks to secure trust is to prioritize their customers’ financial well-being. To meet this need, banking services are evolving. While primary services still include safekeeping assets, payments, loans, and investments, the scope of consumer expectations has expanded.
People want to know that their banks care. Customer service ratings show the level of trust consumers have in their bank. These ratings hinge upon how well banks help their customers change their spending habits and avoid pitfalls. To prove their worth, banks need to understand their customers at a micro level. Technology helps deliver this personalized experience and allows a scalable way to reach customers individually and provide them with guidance.
Technology plays an increasing role in customers’ financial wellbeing
With the involvement and increasing importance of technology, the digital piece to the puzzle is crucial. But it’s not just about tools, customers want a personalized and easy-to-use experience. Sophisticated software and improved data strategies can help banks provide the best possible guidance for their customers.
This is not to say that the human element isn’t important. In fact, according to a Merrill Edge report, 89% of Americans still prefer in-person investment advice, though 52% of Gen X and 49% of Millenials have already adopted digital banking. A 2018 report by the CFA Institute indicates that technology “enhances trust but does not replace the need for humans.” If banks want to foster financial wellbeing, they need high-end technology combined with the human element.
Banks and Financial Wellness
It’s vital for banks to adopt and implement financial wellness platforms. Why? These platforms will help build trusting customers. And what does it mean for those customers? It means a personalized experience. People need access to coaching and industry experts to better understand their finances and track their progress. Technology is key for engagement and for delivering quality customer service, which equates to trust.
Unfortunately, the traditional relationship between banks and financial wellness is best described as love-hate. In a world of numbers and dollar signs, banks want to be able to measure the effectiveness of their program. But they seem to have difficulty quantifying the ROI of such programs or platforms because they don’t know how to define financial wellness. Financial wellness is a term that means different things to different people. At Questis, we believe there are four key elements that define the state of financial well-being:
Have control over day-to-day, month-to-month finances;
Have the capacity to absorb a financial shock;
Are on track to meet your financial goals; and
Have the financial freedom to make the choices that allow you to enjoy life.
Knowing the definition of financial wellness can help determine its ROI. It’s clear that the challenge banks face in today’s world is winning customer loyalty through engagement and trust. Helping customers on their financial wellness journey is one of the best ways to do both.