Building a Customer-Centric, Compliant Model in Banking

by Abhik Sengupta

These days, we seem to be continuously confronted with banking scandals. Recent headlines have included accusations of alleged money laundering, irresponsible lending practices, wealth adviser breaches and rate rigging. Banks seem to be having a challenging time. So, how will they navigate yet another round of regulatory scrutiny, and will this put at risk recent improvements in customer and employee experience? In this blog, we put the current regulatory environment in historical perspective and offer an opinion on building the foundations for a more customer-centric, compliant banking model.

Regulation is the most common lever society has for combatting perceived poor banking practices.  Levels of regulatory intervention have continued to rise over the last two decades. The most recent examples are the Sedgewick Review into sales commissions and product incentives and increasing focus on responsible lending from ASIC and APRA in response to rising house prices and household debt levels. Regulation plays a vital part in stabilising the financial services industry, but rising levels of scrutiny could also drive the banks into a ‘compliance-constrained’ mode. Friction would then be placed on frontline processes, putting at risk the hard-won improvements in customer and employee experience of the last few years.

This begs the question - is it possible for banks to satisfy the letter and spirit of regulation while delivering the best commercial outcomes from frontline activity, and supplying customers with the seamless experience they have now come to expect?

Before we answer this question, let us take a moment to reflect on how we got here:

Bank scandals are nothing new – who can forget the Medici family in 1494 and Charles Ponzi in 1918? In fact, the earliest banking scandal on record occurred in 375BC in Athens[1], where it was discovered that treasurers were lending government funds to private banks and pocketing the interest for themselves.  When one of the private banks collapsed and could therefore not repay the loan, the panicked treasurer conspired to torch a sacred building on the Acropolis to hide the loss of principal.  He was later thwarted and the secret exposed.

Scandals aside, banks have long held multiple roles in society - providing a critical societal good, forming a cornerstone of the consumer economy and providing liquidity to commercial enterprise.  However, it is this very importance that attracts public scrutiny and fuels the need for prudent regulation. The impetus for regulators to stay ahead of rogue elements of the industry and banks in turn to stay aligned to the letter and intent of regulation, continues unabated.

In the 2000s, the primary focus of regulation was to protect banks from internal risks (e.g. rogue and insider trading), with the banks responding by reducing internal discretions, risk and compliance practices being upgraded, and an elevated focus on board responsibility.  Post the Global Financial Crisis, regulation developed to reduce conflict in the provision of products and advice.  The response from the banking and broader financial services industry, has been a focus on remediation of poor advice, increased governance and regulatory reporting, review of remuneration practices, investment in core systems and in some instances, moves to unbundle or exit from advice.

Saving the customer from themselves?

Now, with global share markets buoyant again, rising household debt and house prices at all-time highs, the regulators are increasingly concerned about the risk to Australian household finances and resultant risks to the economy. This time however, the fault may not lie in the banks, but rather with the exuberant investing of customers.  Regulators are looking to the banks to leverage their position in the economy and save the customer from themselves!

The silver lining is that Australian banks are in a better position to lean into these challenges than ever before, with:
  • Stronger balance sheets coupled with good economic fundamentals
  • Investments in core technology and the flexibility of open APIs, digital, cloud and robotics
  • Experience facing major regulatory change, and a playbook on how to manage change through the organisation
  • Improved operating models (frontline capability, capacity and streamlined operations) with multiple options to source external expertise

However, even with this stronger position, it remains critical that banks do not take on a passive role by simply responding to regulatory change.  Instead they should stay ahead of the curve by doubling down on customer-centricity and frontline productivity, while proactively building compliance into systems, processes and operating models. 

There are four steps that are crucial in achieving this delicate balance:

1. Top Down Vision and Sponsorship

A compelling and well-articulated vision that motivates and inspires is a differentiator for organisations that want to delight customers, be more competitive and thrive in uncertain times. However, a compelling vision of what the future state will look and feel like for an organisation, is not enough on its own.  With the challenge being around balancing customer and commercial success while staying firmly ahead of regulation, the banks will need to build a strong leadership backbone aligned to their new vision. 

The entire leadership team need to be onboard, hands-on and constantly present to drive change.  They must display an unwavering focus through internal and external communications, reward behaviour though recognition programs and staff incentives, and make sure all projects and initiatives measure the impact on customer and employee experience as non-negotiables.  

2. Engaging Data Driven Customer Journeys

The first step towards understanding customer needs is to build a true 360-degree view of the customer.  Many firms aim for a single view of the customer, but often fall well short of that ideal.  Building a complete picture involves gaining access to insights about the customer from non-proprietary sources, which raises issues of technical and moral complexity - but is nonetheless required for achieving full customer-centricity.

With a complete view of customer needs, the right analytics infrastructure and adaptive knowledge management, the mythical ‘omni-channel’ customer journeys can become a reality.   Appropriate triage rules and seamless interchange between channels can make the customer feel engaged and valued throughout the process, while the investment in data and scalable self-service can simultaneously drive down cost to sell and serve.

3. Changes Coded into Core Systems

A normal response to additional regulation is to layer in extra staff and additional process stages to manage compliance, which is expensive and leads to delays and degradation in customer and frontline experience.  To minimise cost and remove friction for customers and staff, compliance guardrails should be built directly into frontline systems.  This ensures that problematic transactions are stopped real-time at the source rather than downstream after the fact.

4. DNA Level Change in Frontline Staff

The ‘banker of the future’ must be a customer advocate with technology proficiency, commercial acumen, technical and product understanding and emotional intelligence to be a holistic problem solver for the customer. Investment needs to be made in role and goal clarity, sales processes, needs based conversation models and staff capability.  The big shift here for the frontline is the move from product sales to insight based solution selling. 

Successfully embedding change requires a series of enablers – KPIs, dashboards, remuneration and rewards aligned to behaviours, ways of working, compliance and customer outcomes.  Ongoing reinforcement needs to be put in place in the form of disciplined meeting rhythms, coaching and performance improvement frameworks.  The changes may lead to some short-term turnover in staff, but regrettable loss can be minimised through strong change management disciplines.

The Silver Lining

Even though heightened regulation in financial services seems to have become the new normal, it’s not all bad news.  The savvy banking organisation can navigate through this evolution of the industry, staying aligned to the regulator while retaining the hard-fought gains in employee and customer experience of the last decade. 

[1] Source: Ebbs and Flows of Ancient Imperial Power, 3000 BC - 900 AD; Will Slatyer; published 2012 by Trafford Publishing