Customer Services in Financial Organisations Market Assessment
Key Note Publications Ltd, January 1999
As the market for financial services becomes more competitive, with companies offering a wider range of products and new entrants to the market offering direct services and more attractive interest rates, customer service is often a key differential between financial organisations.
Levels of savings and investments depend largely on economic factors and the perception of future trends amongst the general public. Indicators show a
levelling-off of growth in the UK, with further reductions in interest rates likely, as a result of subdued inflation. The economy is less stable than 2 years previously due to global financial crises. However, savings continue to rise in particular with regards to pensions and life assurance. Consumers are increasingly considering their long term financial future, and can no longer rely on the welfare state to support them in their retirement. In addition, changes in higher education funding mean that parents need to consider saving to pay for the education of their children. Likewise, those in higher education are likely to have to fund debts which will have implications for their financial future.
Financial services need to improve customer service in order to differentiate themselves from the multitude of organisations offering competitive products. There are many new developments in customer service including 24 hour telephone banking, benefiting those who are unable to visit their branch during office hours. The latest development is Internet and PC banking which will enable customers to take control of their finances online.
Original NOP research shows that the most important aspects of customer service are traditional, established factors such as well informed, courteous staff, clear, concise information and literature, and the convenient location of branches and cash dispensers. Younger consumers are more likely to use new forms of banking such as the Internet and telephone banking whereas older consumers prefer more traditional methods of carrying out transactions. In addition, younger consumers are generally more likely to be influenced by specific loyalty schemes such as store discounts and Air Miles.
There is evidence of branch closures within the building societies and banks sectors, as a result of a drive towards providing more efficient direct services. However, the NOP research shows that branch services are the most important aspect of consumer service and these need to be maintained and developed in line with developments in financial products.
Cash machines are now an essential part of customer service and are replacing branches in handling simple transactions such as checking account balances, deposits, and of course, obtaining cash. As a result many cash machines are now being located away from the branch in convenient locations such as services stations and shopping malls.
Payment services are a consideration in customer provision in terms of convenience. This is increasingly important due to the trend towards plastic card payment rather than cheques and cash. It is essential for current and credit card accounts to have payment cards acceptable in a wide variety of places.
Twenty four hour availability of banking services is increasing to provide for those who are not able to visit their branch in office hours. These services are available at home, thus aiding the less mobile. Currently, telephone and Internet banking services are not regarded as important by a very high proportion of adults. However, surveys have suggested that telephone services are well regarded, and the household penetration of telephones means that such services are potentially available to most people in the UK. Internet services will become more widely used with increased take up of interactive digital television services.
Customer loyalty schemes, primarily in the form of loyalty cards, are a growth industry. These were first introduced in the UK in 1995 by large food retailers. They were effective initially but now consumers have loyalty cards for all the major supermarkets and such cards have not changed their spending patterns. The reward card becomes just another retailer offer, similar to running price discounts for a long period of time. A review of loyalty schemes across different markets shows that the loyalty cycle appears the same: programmes are launched, become sophisticated, are copied, and become commonplace.
Loyalty cards do help organisations to collect data on their customers which can then be used to personalise communication and aid direct marketing schemes. Customer databases are becoming more sophisticated and facilitate personalised services which in turn inspire consumer confidence and loyalty.
Supermarkets and other organisations are now entering the financial services market. Supermarkets start from a powerful position, with millions of customers every week. If they can become their customers' banker, they secure further control over where the money is spent. This trend is predicated on the fact that supermarkets have become homogenous and grocery shopping is seen as a commodity activity where margins will be under constant pressure. The supermarkets have to find ways of differentiating themselves, managing their cost base and retaining customer loyalty.
Future prospects for the financial services industry involve greater customer education with schemes being set up to enable consumers to understand financial products better. In addition, customer services will improve and become increasingly automated with an increase in the use of electronic banking as the Internet becomes more widespread.
Challenged for the industry to overcome in the future include the Millennium Bug (or Year 2000 problem), and, longer term, the introduction of the euro.
Financial organisations are all making provisions to ensure that their information technology is Year 2000 compliant. This not only involves combating the problem in-house but also reassuring the customer that their finances will be safe. Any organisation which experiences problem over the millennium change will then face a crisis in corporate and brand reputation.
In terms of EMU, financial organisations must be prepared not only to offer all their range of services in euros, but they must also be prepared for an increase in competition throughout the EU, in particular from the strengthening positions of retailers entering the financial market.
Both events will involve a review of operations for financial service organisations, and a review of personal finances management by consumers needing to feel confident about the security of their money.
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