Recently, we polled executives throughout our global membership of over 200 banks on top priorities for 2012. The response was overwhelming: redesigning the product set and becoming more innovative topped the list for over 60% of respondents. These results prove a very important point: the retail banking industry is facing an unprecedented imperative to innovate.

Cost pressures and revenue challenges have led some banks to experiment with charging for traditionally fee-free products, and they have subsequently been met with public outrage.  Moving forward, banks cannot simply bet on charging for products that used to be free. Rather, they must re-imagine products and services that address customer needs, and charge appropriately. One of the keys to recouping revenue lies in product innovation.

Next week during our webinar, we will show leading examples of how banks are innovating their products to strengthen customer relationships and increase revenue. Our webinar will look at the growing role of the web, mobile, and social media within the product suite, the rapid change in payment technologies, and key innovations to core products.

Join us on December 15^th to hear our observations on innovation across the year and discover products and trends you won’t read about in the paper (or online) every day.

APAC members please sign up here.

Mobile banking remains an area where there is intense interest, but clear uncertainty around where to place bets. The only certainty, more than ten years on from when the first mobile banking experiment launched: few banks are making money from their investments. Yet with mobile set to become the principal banking platform by as early as 2015, providers can ill-afford to sit back and do nothing.

To ensure your institution is not under-studied and under-invested in the battleground for tomorow’s customer, The Council will be holding an executive work-shop as part of our inagural European Financial Services Conference, Resolve in Uncertainty.

Among the key points of discussion:

• Where is the revenue opportunity in mobile? Early investments have been more about cost reduction than revenue; transferring transactional flow from the branch, on-line and call centre. In many cases, we haven’t generated revenue because we haven’t given consumers the opportunity to pay. In other cases, we’ve focused too much on pay-per-use apps. Rarely has the focus been context selling – using the information generated about customers through mobile to seamlessly offer services wherever and whenever they are needed, better connecting consumers to their money and us, their providers. What are the competing views here, and what seems to work?
• How can we compete with non-bank competitors? With provocative industry commentators talking up the possibility of Apple introducing an itunes for financial services, relegating the industry to some back-end, commodity service provision, what role is their for traditional providers as  telcos, internet giants and consumer-champions jockey for position? Should we ”go-it-alone”, partner with providers, or start-ups, or seek other commercial alliances? What relationships should we try to forge with merchants so we can offer end-to-end service – sending a location-based offer, providing instant financing through SMS, and then transaction processing through  mobile wallet-type services.
• How can we execute on the technology side? After years of technology delivering efficiency at the expense of personalization, mobile is an opportunity to reverse that trend; yet many early efforts have simply shrunk the screen on their standard on-line offering, and called this ”mobile banking”? Is mobile just another channel – somewhere we should simply replicate all our existing on-line services – or does the technology exist to build something completely different?

Please register for this free event here, and e-mail the research team at CFCResearch@executiveboard.com if you would like to propose any changes to our member-driven agenda.

As banks seek to recoup revenue, one area to focus on is realizing greater revenue from service interactions. When customers enter a branch they are looking for and expecting personalized service and advice. Providing willing and capable help reassures the customer and limits the amount of effort they must exert in finding the information they need. This is essential because low customer effort is directly related to advocacy and cross-sales.

As the graph on the right shows, reduced customer effort increases advocacy – when customers exert little or no effort interacting with customer service to resolve their issues, they are much more willing to recommend the bank. These customers are also more likely to purchase more products and stay with the bank longer. To reduce customer effort, banks should look to:

• Provide willing and capable help
• Lower the time it takes to resolve issues
• Have fewer employee contacts interact to resolve the issue
• Make it as easy as possible for the customer to contact customer service 

How We Can Help

Access our full study, Realizing Greater Revenue from Service, to learn more about reducing customer effort.

Ensure your frontline employees are prepared to proactively discuss customers’ financial behavior and recommend potential solutions.

Understand various customer needs by creating financial check-ups and plans through in-depth customer interactions.

This week, the Economist released an article suggesting that the United States and Europe are not yet even midway through the housing crisis. Properties are still dramatically overvalued in many regions, and in others customers are still too debt-adverse to consider borrowing. Meanwhile, on the non-interest revenue side, regulations are attacking key revenue streams in nearly all markets. The graphic to the left shows the steep decline in overdraft fees at U.S. since 2008–roughly $3billion per quarter in lost revenue. The recent flogging of big American banks that attempted to introduce fees for debit cards, only to be beaten back by the government and angry consumers, signaled how difficult the road will be to regain revenue through fees—especially as the great financial crisis lingers.

The financial world thinks in cycles. Bubbles burst, and new bubbles form; growth slows, but then returns. But with the signs pointing to this being the “new normal” for revenue, we believe it is time for banks to think seriously about non-traditional, sustainable revenue sources. Fees—however attractive as quick solutions for revenue struggles—will likely prove little more than temporary fixes to eke out revenue from increasingly savvy customers. The real challenge for banks lies not in recovering the record revenues of the last decade. It is to reduce the cost of delivery while improving customer relationships.

To that end, CFC has launched two new initiatives. First, later this month, we will host a webinar on product innovation from around the world (click here if you are in the Asia-Pacific region), to highlight how leading institutions are using a combination of traditional products and new technologies to build more powerful value propositions for their customers. Second, we believe social media will play a crucial role in the future of customer relationships, and remains an underutilized tool for both reducing cost to serve and meeting customers on their terms. Our new Social Media Center provides a roadmap for how revenue and social media can be linked.

Based on the 60 member interviews the Council has conducted over the last six months, five guiding principles appear to separate those firms realizing the promise of social media from those continuing to flounder.

1)  Understand that social media is changing your consumers - The rise of social technologies is changing the way consumers want to interact with their bank, the way they buy products, and how they rationalize post-purchase decisions, as our consumer survey data demonstrates. Leading firms take this alone as mandate to better engage this more aware and self-directed consumer through social touch points.

2)  Build intestinal fortitude – and experience – by experimenting internally – For many banking executives social media is an anathema.  It hacks away mercilessly at the principles of “command and control” communication, which have safe-guarded information privacy and reputation management, the cornerstones of the industry, for centuries. By experimenting first with internal social networks, leading firms have not only built understanding and raised awareness, but by demonstrating the benefits of these tools, garnered considered executive support for more customer-facing initiatives.

3)  Consider investments as part of a coherent multi-channel strategy – Rather than attempting to emulate the functionality of established channels, leading banks are using social media for what it does best – forging the initial human connection – then driving traffic to established sales and service channels (branch, call-centre, on-line) to exploit the expertise and experience that already resides therein – a “social hub and spoke model”. Likewise, these firms are leveraging the human element of these technologies to deepen on-line relationships and replicate the all-important social component of in-branch interactions.  

4)  Get closer to customers by getting out of the way – As social media drives increased reliance on peer-2-peer communities for self-help, guidance and advice, leading firms are consciously re-imagining their role – their entire value proposition – around supporting and facilitating consumer networks. In effect, using corporate websites to host consumer networks. This approach not only disempowers “shadow” communities, bringing much of their authenticity and credibility on-brand, but generates a wealth of consumer data to help drive better calibrated product recommendations.   

5)  Build the type of community you hoped for with the branch  - For all the hyperbole of “new” surrounding social tools, leading firms take social media merely to be the newest expression of the oldest component of their business: building community and relationships. In particular, the community they hoped to build through branches, a meeting place for consumers and bank representatives, is now being pursued more effectively through the power of social media.

For more background on the “best practice” cases informing these guiding principles, and the Council’s full range of social media support tools, please access our new Resource Center (RC).

With Europe’s future teetering on the brink amid the sovereign debt crisis, executives must navigate seismic shifts in regulation, technology, and consumer behavior, many of which challenge the most foundational assumptions of the traditional branch-based sales and advisory model. Yet while there is growing acknowledgement of the need to change, there is little consensus around the type of change required, and even less on how we might go about accomplishing it.

The only certainty, almost three years on from when crisis first hit – things will not get better by themselves. The consumer confidence problem, if anything, has become more pronounced and better mobilized; new ideas have become new competitors, with Movenbank and Bank Simple ready for battle; while deteriorating economic conditions continue to render even the most imaginative cost cutting measures woefully inadequate.  

To help members build “Resolve in Uncertainty” – the confidence to make those big strategic decisions now, before it is too late – The Council is excited to announce our inaugural Financial Services Conference at the Park Lane Hotel, London. Alongside a number of high profile keynote speakers, the event will offer a series of executive work-shop sessions to drill down on the following key competitive challenges:

• Achieving High-Impact Channel Migration – Branches can no longer be the hub of all things financial. Learn how to migrate customers while preserving valuable relationships.
• Implementing Mobile Solutions – Realize opportunities the mobile channel presents for retail customers including payments and social media.
• Leveraging Social Media to Humanize the Virtual Experience – Determine how to change your firm’s strategy to meet the needs of the emerging segment of social bankers.
• Managing Operational Risk – Understand how to effectively manage capital and solvency requirements in the retail bank while taking out cost.
• Capturing the Mass Affluent Mindset – Discover how to serve the needs of the six sub-segments within this attractive yet complex group.
• Exploring Innovations in Global Payments – Learn about global payment initiatives around the world and how to leverage innovations in your business.

Register for this free event here, or visit  www.CEBTowerGroup2012.com for more information. The decisions we make today will likely determine relative market positions for many years to come.

In advance of our year-end trends in innovation webinar, we are examining areas where we see product innovation happening around the world. Here’s a preview:

1. Social media is driving customer engagement. Our customer survey data tells us that more and more customers are using social media for banking related purposes. The recent Bank Transfer Day movement in the United States and increasingly compelling social media campaigns from around the world show the potential influence of social media on customer relationships. Banks can no longer afford to sit on the sidelines. Leading banks are developing more advanced ways to not only communicate with their customers through social media, but also use emerging social tools to drive web and branch traffic. 
2. Mobile is leapfrogging online. Mobile banking opportunities range from expanding accessibility, reducing fraud, enabling payments, and leveraging mobile marketing. As customers are beginning to use the channel to access their accounts significantly more than the online channel, banks are beginning to realize that the app is their new best friend.
3. Financial Education can boost customer confidence. The crisis of confidence in banks makes the challenge of education more acute. While consumers once trusted their bank to recommend a product to suit their needs, consumers now feel responsible to solve their own problems. Leading banks are honing their web pages and financial tools to focus on more personalized advice and financial management. Helping customers get a hold of their financial situations can increase confidence and encourage a more profitable customer relationship.

Register for our upcoming webinar to learn more these trends and discover the remaining banking product trends from across the year.

Around the world, branch traffic is declining and its complexion changing as customer preference tilts toward electronic channels. Meanwhile, in much of the world, tough math on around cost-to-serve questions is compelling many banks to think carefully about who they serve and how.

Our view is that the retail banking industry is approaching a “strategic inflection point”—a term of art first put forward by Andrew Grove, former CEO of Intel, and Robert Burgelman of the Stanford Business School.  They were attempting to describe that moment in an industry’s history when an executive team’s prevailing assumptions about customers, technology and competitors begins to lag emerging realities.

Accelerating changes in customer channel behavior and the emergence of new competitors from technology fields outside of banking are the background phenomena to the more obvious issue of the revenue crunch now facing most retail banks.  The central competitive questions of the next three years will be less about marketing tactics and much more about fixing a business model and a value proposition for customers.

The Council is working to provide its members with the knowledge and strategic insights necessary to address this unique moment in our industry.

1) To understand why the traditional branch-based model is failing, we offer Rethinking Retail Channel Strategy, which examines the key forces acting on branch-centric sales models.

2) To understand how customers choose their channels and how to being to migrate customer groups, our members can access our recent webinar on 5 Profiles of Channel Segments, and our upcoming webinar looking at how banks are effectively migrating customers to lower cost-to-serve channels.

3) Finally, knowing that efficiency in the branch network has never been more important, our members can access the results of our Branch Salesforce Productivity study, which examined the habits of the best frontline employees.

To succeed over the next 3-5 years, banks must step back, examine their strategic positions, and question the assumptions that drive their businesses. To meet the challenges ahead, banks need a clear picture of the emerging competitive environment and the strategic steps necessary.

What makes customer behavior change? CFC recently surveyed customers across the globe on their channel preferences to better understand how customers choose channels and, in turn, what institutions can do to influence those choices in order to serve customers better while reducing costs.

Our findings suggest two important lessons for banks:

1) That basic experience is a major obstacle to migration. 30% of our global sample lacked experience using the internet for banking–meaning, quite simply, that they also lacked any frame of reference for making a qualitative choice about how to bank. One useful thought experiment: how many television advertisements for banks emphasize the power of the web? The industry has put its emphasis, education, and investments around the branch, and customers have followed.

2) That encouraging and managing customer migration requires understanding customer channel profiles. We asked customers how they prefer to conduct specific tasks. Out of a possible 625 different arrangements for conducting tasks by channel preference, we found that 95% of customers fall into 5 different channel profiles–ranging from those that prefer the branch for all tasks to those who prefer all activities remotely. Each of one of these profiles bears specific characteristics around financial competency, education, confidence in solving problems, and trust in financial services that directly impact channel preferences. Successfully managing customer relationships through channel migration requires that banks understand the unique characteristics of these groups and how they make decisions.

Download our research brief, “Channel Strategy: Replacing Consistency with Quality” to see more about customer channel profiles, how channel decisions are made, and three case studies of institutions working to create high-quality online experiences.

As we reflect on the trends in financial products over the past year in advance of our year-end innovation webinar, one trend in particular emerges: the idea to make online more like mobile in the ease of its functionality. Customers value simplicity, especially when conducting routine transactions and transfers, managing their finances, or connecting with bank staff. Leading banks are picking up on this sentiment and are rethinking their remote channel offers with customer experience and customer service top of mind.

Citibank’s iPad app is a good example of how banks are leveraging technology to serve customers better via remote channels. The app pairs the resources and functionality of the online experience with the convenience and simplicity of the mobile platform. Touch-screen functionality enables the bank to find newer, more intuitive ways of presenting information to customers. This means an opportunity not just to drop “more-of-the-same” apps down through the iPad channel, but to think creatively about how iPad functionality allows the bank to enhance the customer experience, something different from traditional on-line channel. In the process, a deeper connection between bank and customer is formed.

Be sure to join us next month when we examine other key product trends from the past year and share examples of each. Register for our webinar here.