Now is the time to review the state of the banking industry and make predictions on the future. All the major banks have posted their annual reports but they have not started on the budget for next year yet. So, I will take the opportunity in this blog post to give my personal view on what the big four banks (Handelsbanken, Nordea, SEB and Swedbank) should focus on. In addition, given my cynical nature, I will give my prediction what they actually will be forced to prioritize.
When looking back ten years, it is evident that the four banks have made great strides in managing customers as well as costs. The chart below presents the development in Customer Satisfaction as measured by Svenskt Kvalitetsindex (presented with the orange line on the axis to the left) and the Cost/Income ratio for the banks (presented with the blue line on the axis to the right).
The big four are approaching the 50% cost/income ratio that has been the long term objective for most banks for decades. But, as Nordea explained in their latest annual report, we have a new normal now where the banks have to be even more cost efficient to compensate for the inflated balance sheet needed to meet the Basel III-requirements. So it is likely that Cost Centricity will remain an issue even if I would hope for an increased Customer Centricity. It is true that the improvements in Customer satisfaction are the most evident trend, but I argue that the gap to Länsförsäkringar, that is best in class, is more urgent. They are off the chart with a score slightly above 80. In addition, all banks have a burning platform in addressing the channel integration. The fury in which actors have developed mobile banking solutions has only increased the problem with an additional channel without a clear strategy on their optimal channel mix. It is time to become customer centric and take the view of the multichannel customers on how they want to use channels during their buying process.
But, It is unlikely that Customer, or for that matter Channel, Centricity will be top priority. Not even Costs will overrule the big “C”, i.e. Compliance. New regulations like Solvency II, Basel III and FATCA will remain a top priority for the next years. In a previous blog post, I advised banks to see the half-full glass and look at the intent of the MiFID-regulation to find ways to improve their offerings and customer value. And I sincerely hope they do because the economies of scope for the universal banks is challenged when all offerings are strained by new regulations and the multichannel customers find it hard to value on-stop-shopping, especially when they do not get proper support during their buying process within a single offering. Who knows, the universal banks’ next competitor may be an entirely new actor that, like Steve Jobs, see the beauty in simplicity and find a way to disentangle compliance and provide a superior Customer Experience.