The International Monetary Fund (IMF) has lent its voice and unlike previous consultative warnings against interest controls, this time it has explicitly called for their removal. The IMF warns the controls are posing a risk to financial stability in east Africa’s biggest economy.
In the meantime the government remains a big borrower at affordable risk and return. For banks with some of the highest returns on equity in the continent, this cushioning strategy is not enough for nervous shareholders. Since the announcement, banks’ shares in the Kenyan capital market have plunged by 27%, the biggest decline in several years.
The bank fraternity remains hopeful that the unfavourable credit squeeze and experts’ opinions will sway government thinking. Until then the macro-economic and regulatory environment remains tight, competition is getting tougher, customers are demanding more and retaining key talent will be crucial.
The new normal therefore challenges banks to find a new balance.
The banking industry is a vital player in the health of the economy, and its future will be decided by the actions of today’s senior managers. Will they leave behind a legacy of change? Will they be remembered as the industry captains that innovated scalable and valuable new services, built a reputation as trusted advisors and attracted a new wave of young talent to the industry?
If they do not find new ways of innovating, they run the risk of becoming ideally suited for a market that has since passed.
Most banks are taking bold steps and have embarked on staff restructuring programmes to improve efficiency. Staff costs are the main cost element in banks, accounting for more than 50% of operating costs, hence the first target in cost-saving containment. However, further cost cut backs will be difficult without related impact on the bank’s customer value. This leaves sector players little choice but to look for other ways to lower costs.
The future belongs to the big banks and a few niche banks that scale up their customer proposition and leverage technology to capitalise on efficient but valuable propositions. It is therefore important to have a clear vision of the market dynamics and what experience customers demand.
Among bank customers, especially small business owners, loyalty to “my bank” will be key to reduce switching to other banks. Customers looking to switch banks, or diversifying their holdings across several banks, cite dissatisfaction with service levels, fees and inadequate product offers as the main reasons. These clients want faster service, and better human contact when they seek advice or to discuss their needs. They expect multi-channel access, simplicity and convenience in their transactions. They expect transparency and reliability in the products and services they use. In an age of bank failures and mentions in corruption scandals, they expect to be able to trust their bank.
At the same time, banks know the age of mass segments is riskier than ever. There is a growing segment of the middle class, SMEs and affluent clients with money to spend and higher expectations on service levels.
Interestingly, few banks focus on segmenting their customers and developing the right value proposition for key segments. Consequently, missing business opportunities by focusing too much on the profitability of each transaction, without thinking about the overall value of their customers.
If banks cherry-pick only the business they want from their customers, customers will cherry-pick only the services they want from each bank.
For example, the average retail customer uses products and services from three different banks. Some banking customers are also business owners and vice versa; banks often neglect to make the connection. Using single sources of data will provide a complete view of the customer’s value and set some banks apart.
Also crucial during change times, will be attracting and retaining key talent. Notwithstanding the costs pressures, banks need the right people to manage operations effectively, solve problems and serve the most desirable customers. They are looking for more creative ways to retain their employees than the standard bonuses and inflated titles. They are adopting talent segmented and personalised investments to develop, engage and gain the loyalty of high potential talent required to fill future leadership positions.
As the fight for customers intensifies, customer service cannot be left in the hands of front desk employees with minimal power and motivation. As banks leverage digital technology, more professional skills will be needed at all levels. As banks implement new strategies and change, effective leadership and management will be essential to getting strategies implemented.
It requires an innovative rethink not only of technology, but of the entire management system.