Online Finance

Creating New Business Models Around Relationships


By Billy Glennon




Banking is gearing up across the world for massive shifts in the basics of business. While the Internet provides a part of the momentum, it goes much deeper than technology. An entirely new style of banking is emerging. Some of its main components are:


– direct interaction with customers instead of passively waiting for them to come into branches

– narrowcast targeting of both customers and offers, instead of relying on broad marketing programmes

– relationships rather than products as the source of success
giving customers new power and flexibility in the management of accounts

– rewarding staff for their contributions to customer relationships


Transforming revenues and costs


The institutions pioneering this new style are discovering that they can transform both the banks’ revenue and cost base. Established product transaction banking business model is being replaced with what we’ll call a customer conversation business model.


Banks everywhere are rushing to cut costs as the self-evident first response. In the US, overall efficiency ratios have improved by around 15% in the past 10 years. The number of banks has dropped by over a third – from 14,500 to 9,000.


To grow revenues, banks have increased the risks they take. ‘Sub-prime lending’ – loans to consumers with poor credit and payment records – has tripled for cars and mortgages since 1994.


Banks are confronted with a climate of enormous opportunity. The key is to recognise that the customer relationship conversation is central to every aspect of banking future, including the use of technology. The most valuable technical tool is the telephone call centre, not as a transaction machine but as a style of customer interaction. There are more and more successful examples of this style in banks, other financial service providers and business in general.


There are huge opportunities for banks to offer an integrated direct banking service combining telephone call centre and Internet technologies and built around the customer conversation model.


Building relationships via technology


While many of us believe that the Internet will be the long-term medium of relationship with customers for much of banking, that case is unproven as yet and very expensive in terms of marketing and initial losses. The Internet should not be a single strand but part of the integrated offer.


It takes a long time to build the customer relationship conversations, of which there are four basic types:


– transaction conversation

– research and evaluation conversation

– account management conversation

– collaboration conversation

– When a firm achieves these, it establishes a new brand, a trusted relationship, and creates a new marketplace for itself.


Underlying the specifics of Web commerce are some general principles that do open up new areas for banks. The Web enables a relationship approach to the basics of banking that is literally defined in terms of conversations. For instance, Amazon’s product offers are undistinguished from any other provider’s but it manages relationship conversations superbly. So, too, does Dell Computer, which built a multi-billion dollar business on 1-800 phone calls and catalogues and extended the relationship conversations through the Web. It’s the conversations that matter, not the technologies themselves.


Call centre strategy


A telephone and call centre-based strategy should start small and address short-term revenue and cost needs. It can then be scaled up rapidly to meet mid-term demands, and provide the base for a more aggressive and large-scale long-term strategy.


Most US and European companies are investing heavily in call centres. To be effective, they must combine three capabilities:


– new selling culture that manages the customer conversation

– access to customer and product information

– call centre technology and operations base


Many companies’ investments in call centres have centred on the software and equipment involved, and missed the third element. Staff are managed to meet transaction quotas, keep calls short, and talk at rather than listen to customers, to interact and make offers. Often call centres are staffed with poorly paid workers who communicate unhappy moods and do not establish the conversations that are at the very core of future business success.

If a company provides a superb account relationship service via technology – phone and/or Web, it encourages customer self-management. Rather like a salad bar or buffet in a restaurant, the customer does some of the work and sees this as an attraction. A key to profitability in service-dependent business such as banking is to facilitate such self-management.

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