Why Banks Need To Do More To Help Customers Become Financially Successful
It's easy to think of banks as primarily performing services like making loans, taking deposits and issuing credit cards. But the purpose of banks is becoming more complex.
Many banks are rethinking how to serve customers by optimizing the banks' digital banking services and brick-and-mortar bank branches. During the Covid-19 crisis, digital banking has accelerated into becoming the new normal, as people shift more of their everyday banking transactions to online tools and mobile banking apps. Banks are also seeing stiffer competition from fintechs — offering a wide variety of innovative financial services — that challenge the traditional banking model.
The future of banking is already happening, and it's going to be more digital, more personalized and more focused on higher-value financial services.
What do banks and credit unions need to do next to keep their customers happy? And what does this mean for the everyday experience of banking customers?
For one thing, banks may need to do more to help their customers be financially successful. Beyond loans and deposits, banks could support consumers' need for financial education by offering more financial advice, financial planning, financial insights and higher-level digital tools to help people manage their money. Many banks and credit unions are already embracing this future, and others will follow.
Here are several reasons why the future of banking could be more focused on personal financial advice and what that may look like for bank customers.
Bank Customers Need Better Financial Help
Banks are no longer just in the business of taking deposits, processing payments or issuing loans and credit cards. There's an opportunity for banks to do more to directly help their customers improve their financial success by providing financial advice, financial insights and other services.
A 2021 survey of American consumers by fintech company MX Technologies Inc. found that many bank customers are not getting enough financial help from their banks. When asked if their bank or credit union helps them become financially strong, 50% of respondents said, "No, they don't really help," and 4% said, "No, they make things worse."
It seems consumers may be looking for better information about managing their money, deeper insights into how to control their spending and better advice on how to be more thoughtful about saving and investing. Banks can help bridge these gaps.
By offering better financial information, banks can help their customers be more successful. This could make banks more successful, too. Instead of spending money to acquire new customers, banks could invest more resources in helping their current customers get wealthier.
Bank Customers Need More Digital Tools
There's untapped potential to connect bank customers with better digital tools for managing their money. The 2021 MX survey found that while 48% of bank customers use apps from their bank or credit union to help manage their money, 17% use an independent financial management app, 35% use digital spreadsheets like Excel or Google Sheets and 39% are still using pen and paper record keeping.
Banks and credit unions may become more proactive—encouraging customers to use mobile apps and expanding the services and features that are available via the app.
According to the J.D. Power 2020 U.S. Retail Banking Advice Satisfaction Study, banks are offering more financial advice via digital channels. The J.D. Power study found that 36% of retail bank customers receive advice and guidance through their bank's digital channels. And bank customers are feeling better about the quality of digital advice. Customer satisfaction for digital advice has increased by 21 points compared to the previous survey.
Banks Can Help Americans Improve Their Finances
The pandemic has had devastating effects on millions of Americans' financial lives. People have lost jobs, lost businesses and suffered significant setbacks in their careers and financial goals. Even people who have survived the pandemic without losing jobs or incomes are worried about their finances, wanting to make smarter financial decisions going forward. What does this mean for banks?
Banks need to get better at offering financial advice that helps strengthen people's personal finances.
"Great financial advice is a key differentiator for retail banks at a critical moment in time when, according to our research, 41% of U.S. bank customers feel unsatisfied with their current financial condition and 39% are not confident they are doing everything they can to meet their long-term goals," said Bob Neuhaus, vice president of financial services intelligence at J.D. Power, in a press release.
The 2021 MX survey found that, for nearly half of Americans, insufficient income is the biggest obstacle to increasing savings. Banks could help by connecting customers with advice and resources on how to earn more money.
Banks also could be proactive about offering money management services. Many people are already using money management apps that help with budgeting, tracking spending and making automatic transfers to savings from the everyday cash flow in their checking accounts. Banks have the option of upgrading what currently may be primarily a DIY experience.
Some financial institutions are already offering these services. For example, Bank of America provides spending and budgeting tools with interactive charts on its mobile app so you can see where your money goes. CommunityWide Federal Credit Union has a partnership with GreenPath Financial Wellness, where members can get free financial counseling.
Look for more banks to offer apps and services to help customers make better financial decisions, such as identifying possible monthly subscriptions and expenses to cut, advice on how to improve credit scores, how to pay off debt faster or qualify for loans and how to make better long-term financial plans and investment decisions.
Banks already have access to massive amounts of customer data. If they know how people spend money, they can help them identify better ways to manage their finances. Many of the necessary tools are already becoming available. Some banks are developing their own apps and services, while others partner with fintechs to provide budgeting apps and other financial advice.
Bottom Line
What should bank customers do next? Pay attention to which banks or credit unions offer the financial advice or specialized financial apps, tools and features you would like to have. And make a habit of expecting more from your bank or credit union.
Banks should not just be a place to deposit your paycheck or get a credit card or open a checking account — your bank should be a valuable partner in your long-term financial success. The best banks will keep getting more proactive at helping their customers educate themselves and become financially stronger, whether that means helping them save more money, spend smarter or boost their income.