Banks: Complex Problems, Simple Solutions By The Staff of the Corporate Executive Board 08-07-09

Banks: Complex Problems, Simple Solutions By The Staff of the Corporate Executive Board 08-07-09

Banks: Complex Problems, Simple Solutions
Consumers' complex financial issues are best solved with simple bank products. Financial services firms focused on selling complex solutions may be missing the mark, as well as the largest sales opportunity of the recession
By The Staff of the Corporate Executive Board
Business Week
August 7, 2009

In response to consumer fears, financial institutions are marketing their solvency and stability. By advertising their long history of safe lending practices, strong values, and community focus, banks are hoping to prevent widespread customer attrition and capture new business.

However, new research from the Financial Services Practice of The Corporate Executive Board finds that investing in this type of customer trust is overvalued. The opportunity presented by customers seeking safe depository products and institutions is quickly fading as the U.S. government steps in to insure and capitalize banks.

Instead, the biggest opportunity for financial institutions today lies with customers seeking help to rebuild their financial foundations that were shattered by the crisis. These are customers facing tough challenges to their basic financial well-being: such as a home to live in, a steady income, a minimum standard of living, even savings for emergencies.

Although customers view these challenges as complex, the solution is composed of relatively simple, traditional banking products like a 30-year fixed-rate mortgage. Customers need simple solutions not only because these products are best suited to address the issues but also because more complex products require the customer to take a leap of faith with the banker that may seem off-putting in today's environment.

Efforts to simplify customers' purchase decision-making process risks increasing their distrust and driving away potential business. Instead, create a sales process that clearly connects customers' complex problems with simple solutions through staff tools, frontline coaching and training, new online capabilities, and product development.

Banks must create a sales process that is thorough, transparent, and drives to a solution that customers will be certain will work. By providing their customers with more information on products, a clearer understanding of alternatives and risks, and precise clarity on how a particular product will solve their problem, banks will be better positioned for accomplishing two key goals: helping consumers regain their financial footing and capturing the post-crisis sales opportunity.

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Big Banks Get Bigger During Recession

What will come of the banks as a result of the Stimulus Money? It seems that there are challenges that the larger banks can surpass easier than the small ones. This article identifies the benefits of being a "big dog" in the wake of the economic downturn and resulting bailout.

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Banks that were deemed “too big to fail” in the run up to the recent financial meltdown have gotten even larger as a result of assistance from the federal government.

The bailouts favored big banks, which can borrow money at a lower rate because of their perceived lower risk of failure. However, the imbalance could eventually weed out smaller outfits, with some senior government officials insisting that consumers already are seeing their choices narrow and the costs go up for financial services.

There also is the concern that banks could return to risky lending following the bailouts, which may have reinforced their presumptions that the federal government will intervene rather than allow them to fail.

At present, about one of every two mortgages and two of every three credit cards are issued by J.P. Morgan Chase, Bank of America, Wells Fargo, and Citigroup, according to government data. Regulators are watching these banks to ensure consumers continue to have choices.

Source: Washington Post, David Cho (08/28/09)