Linking Financial Services—A Good Idea?
January 2001
Is it a good idea for the insurance industry
to provide one-stop shopping for financial services? While not a new idea, it
does seem to be the wave of the future. This article explains that the key,
however, is not selling the services, but providing good customer service.
by Gary
J. Bausom
Bausom & Associates, Inc.
Is it a good idea to have one-stop shopping for financial services? Some
banks and insurance companies apparently think so, as there have been cross-industry
acquisitions. Numerous others have formed strategic alliances to provide customers
broader product offerings. Even greater numbers are reviewing their options.
Linking financial services is not a new idea. Fifteen years ago a few money
center bank holding companies like Citi Corp and BankAmerica entered the insurance
business through strategic alliances in life/investment, health, and property/casualty
insurance. These offerings had to be carefully constructed due to regulations
such as the Glass Steagall Act. Today, Glass Steagall has been repealed.
The competitive landscape has changed, principally due to many very large
mergers and acquisitions within both the banking and insurance industries. Additionally,
there are some notable sized mergers taking place across industry lines, like
Citi-Travelers, Credit Suisse-Winterthur, and State Farm-State Farm Bank, to
provide a few examples.
Why Expand Financial Service Offerings?
Banks are seeking a means to generate non-interest-sensitive income. Insurance
companies are seeking alternative (not necessarily replacement) distribution
channels. Both are seeking to expand their customer base with broader financial
service offerings in order to pay for their fixed costs.
How Are Services Being Extended?
Financial service mergers are being structured as either strategic alliances
or as acquisitions. Combinations of services are not always well understood
by firms that have not been engaged in such activity in the past. There have
been differences in how services are sold to the customer and how services are
delivered. In most cases it has been product specific, without a well-thought-out
plan to link "solutions" to customers' objectives.
Lessons Learned?
Some institutions promote the concept of "best buy." This approach implies
a commodity with high-volume transactions driven by price. In numerous cases,
selling price leads to losing customers to a lower price. Current challenges
of improving profitable growth are not solved by selling price alone.
The Customer's Perspective
What does all of this activity imply from a customer perspective? Larger
business customers are seeking global reach, a reduction of a few basis points
on transactional funding, foreign exchange, and the best rates on debt financing.
Large businesses generate fees that allow money center banks to devote time
and attention to these customers. Small businesses and individual customers
find that the regional banks can provide more personal attention and services
that better fit their needs.
Today, the question of one-stop shopping for financial services comes down
to the quality of the customer experience. Although large business customers
obtain quality services through sheer size and total fees paid, most large customers
choose multiple banks for their total range of needs. Small businesses and individuals
tend to concentrate their relationships in fewer institutions in order to maximize
their importance and the level of service obtained. Customer reactions are similar
when dealing with the insurance industry.
Selling
Banks and insurance companies are beginning to offer Internet capabilities
for transactional purposes. The Internet is fine when you know what you want
and where to obtain it. Otherwise, it's exceptional service that wins and keeps
customers. Keep in mind that the Internet sales channel is not excused from
quality customer service.
What are the drivers behind where one purchases insurance and banking service?
Banks supply capital, cash management, disbursement and collection, trust, and
safe-deposit services. Insurance companies provide asset/liability protection
as well as short-term earnings replacement, all of which are subject to fortuitous
events.
As a reminder, financial services support primary objectives of individuals
or businesses. Individual primary objectives may be building or buying a new
home or car. Business objectives may be expanding into a new market or product
line. In both cases, capital is required, as well as insurance, to protect the
new investments.
Consider a customer's view of a bank offering checking accounts that stumbles
when getting accurate and timely statements to customers. Will those customers
have a strong interest in determining what that bank might do for them regarding
credit and/or debit cards? What about the insurance offerings of this bank,
say for insuring one's home or business assets. I think not! Likewise, an insurance
firm that cannot clearly articulate the needs of customers relative to specific
insurance products is not likely to get an opportunity to offer its extended
financial services, such as credit cards, checking accounts, etc.
Building a Partnership
Total customer experience is about delivering as represented, on time, every
time. Customers want assistance from financial service firms that disburse funds
as promptly as they accept payments. This requires the management of financial
institutions to place their efforts on building and maintaining quality customer
and investment portfolios that are not dependent on skilled attorneys to retard
cash outflows. Firms in the financial services business need to form a "partner
relationship" with customers, not an adversarial one. The relationship is one
where customers have a trusted advisor who helps them achieve their objectives,
not one who constantly challenges and seeks roadblocks.
Customers' seek to identify financial service partners who focus on their
needs. Selected rating agencies can help with an initial quality check. References
from current or former customers are also used when judging quality beyond mere
representations.
Once chosen, financial services partners need to commit to the following
goals.
- Deliver exceptional customer service in any offerings you choose to
make, every time.
- Listen to customers and understand their objectives.
- Do not expect any newly added financial service(s) to go together effortlessly
in 3-6 months.
Is Linking Financial Services a Good Idea?
Yes, it can be a good idea, with both sellers and buyers benefiting. The
challenge is to be able to clearly answer some fundamental questions and then
deliver total customer service. Consider these quotes.
- "If you are not thinking customer, you are not thinking."
- "We have difficulty in living with the tension between pragmatism and
idealism or what I call numbers and values."
- "Companies can't give job security, only customers can!"—Jack Welsh,
General Electric Company
- "Customer led thinking provides greater opportunity, and product led
thinking provides less opportunity."—Ted Levitt, Harvard Business School
- "The most effective sales people are well informed, trustworthy, reliable,
and good listeners."—Philip Kotler, Kellogg School, Northwestern University
The following fundamental questions need to be answered and implemented into
daily business practices.
- How can customers' objectives be understood and validated?
- What are customers' information sources for establishing their expectations?
- Does organization bureaucracy guide customer delivery decisions?
- In customer terms, is your firm a partner/trusted advisor or a gatekeeper?
- What are your firm's measures of success in customer and financial terms?
- Do financial results and the timing drive customer experience?
- Given stakeholders that include shareholders, managers/employees, and
customers, what is your top short-term priority? What will support your
firm's results over the next 3 years?
Implementation requires "a clean sheet of paper" and someone willing to "break
some china," coupled with customer focus and some first-hand research, as a
good start. In other words, set current practices aside (momentarily), identify
someone willing to introduce different thinking about the business approach,
and find out, first hand, what your customers want and why.
Conclusion
What sort of "report card" do you receive from customers? How do you improve
your "grades"? Good customer service requires thinking about business fundamentals
and taking action based on customers' objectives and preferences. Many times
an external catalyst is required to help the organization think beyond "generally
accepted current practices." External advisors are a good idea, particularly
if they are experienced with mergers (pre and post), cultural disintermediation,
and are bilingual (finance and insurance). The challenges can be more than offset
by the effort to move to the next level in performance.
If you want it to happen, it will! Think, act, and deliver total customer
experience, every time.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.