The Innovations In Banking

Published Date: 02 Nov 2017

Introduction

Satisfaction is the sum total of customer's expressions of service quality and depends upon customer's own perceptions and expectations. Service Satisfaction of the customers is an invaluable asset for the modern organizations, providing unmatched competitive edge. It helps in building long term relationship as well as brand equity. If the organization (in this case bank) deliver acceptable level of customer satisfaction, that will enhance client’s retention. Upon loyal customers, organization can build strong partnership for long run. Today is not important whether you have economy of scale or economy or scope or an even competitive advantage, what is more important is to build true customer loyalty and customer retention, one customer at a time. Why is that so, true loyalist is one who does not see any other shop or marketplace, the only who exist is You. They do not even take into consideration any other shops or marketplaces. People (customers) used to go to places, marketplaces, companies and institutions where the fill safe, comfortable, welcome and where they can get more quality for less money. In order to build strong sustainability and profitable company, it is necessary to build on first place strong relationship with loyal customer, they will dictate stream of profit, new product, innovations and business on long run. Company with strong loyal customers can build fast growth and also can grow very fast comparing with other companies. With loyal customer company can easily overtake financial crisis and even take an advantages of it and turn it into its own benefit. In order to have satisfied customer, company must have satisfy employees, they are direct reflection on customer satisfaction. Using customers feedbacks as a knowledge and turn it into reasonable action, will produce long term business relationship. It is not important what type of goods and services you are producing as long as you have strong and loyal customer.

Nowadays, most important issue is to eliminate bad customer perceptions and to build positive opinions and word of mouth. Brand image is priceless treasure in banking sector. No matter how unreachable your business is, if they turn back on your business, products and services everything else will be misused. Best way to stabilize business activities is to stone and boost up positive customer relationship. Everything is replaceable indeed, but no customer loyalty and customer relationship management. They will stay with the organization (in our case bank) as long as they are finding satisfaction and happiness with offered products and services.

Nature of the Banking

In order to clearly differentiate banks versus other nonfinancial institutions, a bank is a financial institution that provides banking and other financial services to their customers. A bank is generally understood as an institution which provides fundamental banking services such as accepting deposits and providing loans. There are also nonbanking institutions that provide certain banking services without meeting the legal definition of a bank. Banks are a subset of the financial services industry. Almost in any country, banks represent main pillar of financial stability. Beside financial intermediaries, banks play an important rule as national financial institutions which in every day of its activities deal with humans.

A banking system also referred as a system which provide and offer cash management services for customers, reporting the transactions of their accounts and portfolios throughout the day, trade with financial and bank’s financial instruments, offer exchange of currency and disburse different type of fund. The Banks are the main participants of the financial system in any country. The Banking sector offers several facilities and opportunities to their customers. All the banks safeguard the money and valuables and provide loans, credit, and payment services, such as checking accounts, money orders, and cashier’s checks. The banks also offer investment and insurance products. As a variety of models for cooperation and integration among finance industries have emerged, some of the traditional distinctions between banks, insurance companies, and securities firms have diminished. In spite of these changes, banks continue to maintain and perform their primary role accepting deposits and lending funds from these deposits. On the other side, main advantages which differentiate bank from any other institutions, banks are offering and deliver payment system domestically and internationally. This advantages other institutions are not able to perform. Next fields are covering general banking activities:

Banks take deposits and give the loans as financial instruments

Besides giving a loans and taking the deposits, banks can be differentiate from another financial institutions because they are only institution which can provide transaction accounts. Accounts can be opened for the retail clients, SME clients (small and medium clients) and for the corporate clients or enterprise clients. Deponents deposit their funds in the banks and latter those funds will be used for the dispersion and creation of other loan and financial instruments. Banks are institutions which provide and hold liquidity sustainable flow for all other financial and non financial institutions. Best and easiest way to understand banking system and how is it working through the mere example of taking big funds as deposits from the "big guy" companies, and later on disbursed them to the retail clients into smaller loans and financing instruments. Differences between prices are considered as profit margin to the banks. Banks at the same time represent transitional lawyer for the monetary politics. Main function of the banks is correlation and interrelation between the banks and the Central bank. Through the monitoring and controlling of the banks, central bank can sustain and provide impact on countries financial situations.

The banks are dealing with humans

Main players of the banks are: retail divisions, small and medium companies, big companies, multinational companies, international companies, security and insurance institutions, conglomerate institutions, other banks, non financial institutions and many others. General pillar of all above mentioned institutions is human being – humans (people). Even though the financial activities can be set up for the buying properties and other liquid asset, but still will be linked with the humans, they are those who apply for the loans or letter of grantee. Linkage between the loans, deposits and all other banking products cannot be denied with its usage of clients, humans.

There are different type of customers, behaviors and manners in banking sector

Today banks deal with different personality, different consumer behavior, manners and cultures. Customers can be seen as different generally, because they have different opportunities, financial capabilities, personalities, egos, social characters, different tastes and by any other aspects they are absolute different from one to another. Through the segmentation bank differentiate customers and rank them according to its own interests and needs. Most banks use internal system of ranking and segmentation. According to those rankings banks offer their products and services in different packages.

In banking system like any other, there are different type of cultures and religions

Consumers both view themselves in the context of their culture and react to their environment based upon the culture framework that they bring to that experience. Each individual perceives the world through the own cultural lens. Through the learned believes customers see their interests and needs and those needs and wants will be satisfied according to the offered product and services. Values and believes, cultures and religion’s motives serve as path to certain behavior guides and purchase culture. In the world of globalization and deregulation of banking sector, customer as clients have a freedom to chose which product and services mostly satisfy their needs and wants. Globalization in sense of tight competitions have task to lower down the interest rates and increases profit margin for deposits. Here strong cultures and thought religions have enormous impact and mostly shaped customer’s purchase behavior.

Customers have unlimited wants with very limited resources

How does scarcity influence the choices customers spend money? Since the embryonic stage of first move of economics, resources are scarce, however, they are not scarce in sense of limitation, and they are scarce because of one’s ability and capabilities to earn more money and to afford that specific limitation. Scarcity helps customer to use money more wisely and to sacrifice it on things that they need rather than things that they want. For example, one trade off I had to make was do I want to buy some 1.000 KM Apple iPhone 5 I really wanted or some boots for the winter because it was coming up soon. I chose to purchase the iPhone 5 instead of the boots because everyone had some but when winter came I felt very stupid for doing that because my feet were very cold at the bus stop. Therefore the opportunity cost would be not having the warmth of the boots on my feet for that season. In order to get something (almost) we always have to sacrifice something else. Anyhow, for all customers resources are scare and needs and wants are unlimited. For the sake of balance and minimum satisfaction, customer usually taka a balance between these two, whether they decrease their wants or increase resources in order to get what they want. As a strategy widely used methods are allocation of efficiency and effective production as we can see in picture below.

In the picture above, we can see after creation of idea to buy or get something, simultaneously is born phenomena of limited resources, scarce resources and unlimited wants and needs. Problem can be economized only if we use one of the three possible options: economic growth, efficient use of available resources and reduce our wants. Each of them will result as allocation of efficiency, productive efficiency, increase of equity and impact on employment.

Banks generate profit from customers activities and by offering different services to them

A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank is the connection between customers that have capital deficits and customers with capital surpluses. Due to their influence within a financial system and an economy, banks are generally highly regulated in most countries. Most banks operate under a system known as fractional reserve banking where they hold only a small reserve of the funds deposited and lend out the rest for profit. They are generally subject to minimum capital requirements which are based on an international set of capital standards, known as the Basel.

As it stated above, Banks act as payment agents by conducting checking or current accounts for customers, paying checks drawn by customers on the bank, and collecting checks deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as Automated Clearing House (ACH), Wire transfers or telegraphic transfer, EFTPOS (pos terminal devices), and automated teller machine (ATM). Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending. Bank uses different channels of distribution such as: Automated Teller Machines, a branch is a retail location, Offices (smaller unite that the branch), Call center, Mail, Agents, Sales Forces, Internet banking, Mobile banking, Relationship Managers, Telephone banking, Video banking and others.

Golden rule stated that Customer is a King

There’s a reason why the common saying stated that the customer is always right. Today customers have options they have power to influence. Customers are taking greater control of their banking relationships, and the banks that can provide more choice and flexibility will gain more control over their own destinies.

They are switching banks, changing their behavior and demanding improvements. In response, banks need to reevaluate their assumptions and fundamentally change how they interact with their customers. They need to embrace change by giving their customers greater flexibility, choice and control, and by reconfiguring their business models around customer needs. Giving more power to customers may feel uncomfortable, but in the long run banks that do so will position themselves for success in the future.

Customer satisfaction and its impact of banking globalization, competition and innovation

Customer satisfaction is a very important construct in today's market. An organization cannot survive in the long run if its customers are not satisfied. Customer is a very important person in the market. In fact, he is the king of the market. Therefore, it is the utmost duty of an organization to safeguard his interests and meet his expectations with the products/services offered. When a customer expects a certain level of service and he actually perceives more than what he expected then he will be satisfied and if he perceives less than his expectation then he will be dissatisfied.

Globalization, competition and innovation in banking sector

The banking area, a part of the financial and economic system is under the influence of changes caused by the current economic situation in which it is evolving- the instability of interest rates, the increase of the competition, the concentration of the capital, etc. Initially created as financial institutions with a high degree of specialization, banks try to diversify their activities. Such trend was required by the international competitive environment in which banks evolved and aimed to cover the financing needs in different geographical areas and industries. It materialized itself in the diversification of the services portfolio including more and more complex operations that require very high risk. From this category of operations we can mention derivatives (futures, swaps, options) as well as new types of bonds used for speculative purposes or as hedges of currency risk. At the same time, increased competition has led banks to create complex products in terms of the involved economic sectors. There appeared, in our country as well, a mixture between the banking sector and that of insurance, between commercial banks and investment banking sector, between the banking sector and the real estate and real estate securities markets, using financial and operational leasing operations. Another consequence of globalization due to international trade is represented by the growth of the multinational banking sector, reflected in the opening of branches and subsidiaries in countries other than the country of origin of the bank.

These effects of globalization have generated the need to harmonize banking regulations, to facilitate the extension of regional and global spread of banking services. The starting point in harmonizing banking regulations was at Geneva in 1987, where an agreement was signed and to which countries that joined at that time were the "Group of 10 industrialized countries." The agreement aimed to establish the optimal size of the capital of a bank, the minimum level of the capital that a bank must have take into account the size of the risks associated with its assets and the level of capital adequacy. This agreement is known as the "Basel Convention". Subsequently, concerns about the harmonization continued when in 1988 the Bank for International Settlements proposed a minimum standard for capital adequacy.

The proposed standard aimed to eliminate unfair competition and improved the protection of depositors. As for the Basel Capital Accord, through its content, it meant to ensure the convergence of the prudential regulations concerning the credit risk and the market risk. It sets the international standards of bank capital proportionality establishing a method of linking between bank capital and assets, using a risk assessment system and a minimum capital proportion of 8%. Further developments of banking globalization, the amplification of risks associated with this activity, have shown that the Basel Capital Accord does not allow taking into consideration all the risks associated with the activity of credit institutions. Therefore, in 1996, the Basel Committee proceeded to an evaluation of the market risk, and the Capital Accord was signed in 1988. The provisions of the Accord tried to approach more closely the banks’ capital to the risks. Several reviewed acts followed these provisions that culminated with the adoption of a new Capital Accord called Basel II in June 2004. The provisions of this Accord were included in the European legislation in 2007, as a consequence of the change of some existing EU directives. The accord contains precise criteria for capital adequacy, it proposes a method to prevent the credit risk and it introduces specific approaches about different types of loans, taking into account the typology of risks and the possibilities to prevent them.

In 2010 new Basel III standards were elaborated. They have wider applicability, including both individual bank risk measures and measures concerning the risks of the entire banking system. Through their content, Basel III standards aim at creating a strong banking sector, able to absorb the shocks from the economic and financial sector. They also seek a better risk management and attempt to strengthen the transparency requirements of the banks.

Currently, the evolution of the banking systems is oriented towards the meet of the needs of an environment where the competition is deepening; the exigencies of domestic and international regulatory bodies, given that, both on the national and supranational markets, there appear phenomena the impact of which affects their activity. One of these phenomena is the worldwide recession in the early 2000s and amplified by the U.S. real crisis (2007). Its effects on the banking systems were many, some of which having been already listed. Overall, the entire activity of the banking systems has been focused on maximizing the profit, under the conditions of an increasingly severe competition.

In such an orientation the depersonalization of banking took place, some of the specific bank services (lending, payment transactions, transactions with financial derivatives instruments) being taken over by non-bank financial institutions. Moreover, in order to increase profit by reducing labor costs and other costs there have been relocated some activities or banking units by transferring them to countries where costs wages are low. In recent years, the increasing competition has led the banks to shift to a policy of fusions and acquisitions.

Competition in SEE

Deregulation of banking sector and internationalization brought new challenges in market of bank market. International banks have no border and limits, where multinational banks have even fewer barriers for entry. No doubly, competition in banking sector is very tight and strong. Due to globalization, deregulation of banking regulations, internationalization of financial instruments, parent or home countries have used enormous advantages to enter into foreign market and open new branches and head quarters.

Frankly, too many banks have provided lower rate interest for the population (retail and corporate division) and host countries can benefit in production, development and employment. On the other hand, home countries could be discouraged, now they have fewer customers who can find better solution and cheaper funds for their financing activities. Still there are opponents who confirm that foreign banks are responsible for the domestic crisis and big percentages of the unemployment. Best example we can take from the SEE (South East Europe) countries, after last war during 90’s in this area, countries from the west Europeans part have targeted those countries with the attention to provide financial services and to play an important role in whole financial system. By doing so, nowadays these host countries (banks) have powerful and strong influence to impact financial structure disbursement of funds in these areas. In this or that way, government has to make sure that these financial institutions are stable, profitable, and reliable because more than 89% of all public finance is coming from these host banks. Stability of domestic currency depends of them and they dictate interest rate of loans and profits generated on collected deposits.

Innovations in banking

First, thanks to Global Financial Crisis which started at the beginning of 2008 and lasted till now, banks have been forced to engage into more risky options and offers. Countries of PIIGS members (Portugal, Ireland, Italy, Greece and Spain) push their financial stability to the maximum possible level not to borrow any additional funds from MMF or any central bank. However, that is not only option that can bring prosperity, employment, repayment of loans and financial stability. These countries have issued government bonds and even questionable shares in order to protect and stabilize national financial system. In this time many financial products and services have been introduced, like future options, swamps, new way of issuing letters of guarantee and so on. Banks do involve into new (undiscoverable) product and services just to protect and serve financial national stability.

Second, Internet and Information Technology (IT) have play in last decade an important role in banking sector. Bank in order to satisfy unlimited wants of their customer and target even close competitor’s customer, have introduced new path of easy banking. Introducing on line banking, mobile banking, make traditional transactions more risky due to online fraud, but this is era of IT advantages. On the other hand IT makes banking activities to be done easier and efficient; customer relationship manager software track customers interest, purchase and offers similar product on order to satisfy customer’s taste. Call Center using VOIP system and offer free support to the customer, thanks to internet protocol which allows using free internet to communicate freely with the customers whenever they need it and in any time in any place. Instead of traditional statement, banks now offer for free E-statements (soft copy of statement, mostly in pdf file format), so economy of scale and economy of scope create more profit and increase customer satisfaction.

Financialization and new market instruments

"Financialization means the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies" (Epstein 2006). It also refers to the increase in the size and significance of financial markets and financial institutions in the modern macroeconomic. It is a relatively new concept used to explain the quantitative and qualitative shifts in financial systems associated with financial liberalization and international deregulation. Shortly, banks in case of non sale commercial loans are been forced to involve new products into banking system. All traditional loans which are offered to the clients now become affordable instruments and products. So, turning all collectables into financial instruments make more space for the banks to operate ad earn profit. Since, the banks could not get repayments from the clients; they issued new financial papers which have a right or same like repayment of that loan. Many financial intermediaries have bought these instruments and now they claim the repayment funds from the initial client. In this way banks got fresh funds for new projects and ready to be invested into new activities.

Financial innovation is the catalyst behind the evolving financial services industry. Innovations take the form of new securities and financial markets, new products and services, new organizational forms, and new delivery systems. Banks developed new vehicles to compete with Treasury bills, money market mutual funds, and cash management accounts.

Meaning of customer satisfaction, importance and aim

Customer satisfaction can be seen through the three different mutual interdependent stages:

First, common customer satisfaction,

Second, building loyalty in your customer,

Third stage is most important and deals with the customer retention level.

Customer satisfaction is first stage in building long term relationship with the customer. This is most important stage where companies must invest biggest amount of funds in order to satisfy next more complex and more profitable interests.

Second, more important stage is loyalty stage. In this stage companies tend to make more loyal customer who be willing to bay and follow colitis of the company.

Next, retention program is most important because in its structures are included two previous stages. When company create and achieves this last stage, customers who are in this level are ready to bay almost ant new product and to taste any new services. Only few firms can say that they achieve this very difficult stage.

Meaning of Customer Satisfaction

In the field of business, there are many definitions of customer satisfaction, depends how and what companies want to measure and show during its analysis of customer satisfaction. For some companies and institutions is more important opinions of customer about his company’s image than opinion about product that customer uses. For the other, more important is even expected value than mere opinion about durability of the product and services. So, that is the reason why there are many definitions which shape and define customer satisfaction. Having in mind this, we will explain the essence and the origin of definition of customer satisfaction, but more related to banking and financial institution sector. More complete definition can be summarized in next few definitions:

Meeting basic expectations of the customer...

Measure of how products and services supplied by a company meet or surpass customer expectation…

Customer Satisfaction is a measurement or indicator of the degree to which customers or users of an organization’s products or services are pleased with those products or services.

Customer Satisfaction is a comparison of expectations versus perception of experience.

According to the Balanced Scorecard Institute, Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this (customer satisfaction) perspective is thus a leading indicator of future decline, even though the current financial picture may look good.

Customer Satisfaction vs. Services provided

Service quality as a predictor of customer satisfaction, customers evaluate quality through their expectations. Customers perceive delivered services and according to their expectations reflect their satisfaction level on product and delivered services. Thus, level of provided services will be reflected to level of customer satisfaction. According to Zeithaml et al. (1996), customer intentions favorable for an organization are related to a service provider’s ability to make customer say positive things about the organization (word of mouth), recommend it for other customers, purchase its products and services repetitively and more often. Consequently, besides security of customer repetitive buying behavior that is treated as one of the most important indicators of effectiveness of customer relationship development decisions, other criteria have to be used to define intentions of service customers. Service intangibility, risk faced by a customer in the process of selecting a service provider determine that positive word of-mouth communication expressed as an intention to recommend a provided service or its provider for others has to be considered as another important component of customer behavioral intentions analysis, when the purpose is to study factors determining longevity of customer relationships.

Services delivered dictate level of customer satisfaction together with loyalty program and all of them create unique and stable retention level of customer behavior.

Aim and importance of Customer Satisfaction

Why is Customer Satisfaction so important today? Quite often the difference between those that simply survive in business and those that thrive is keeping abreast of, and adjusting to, the ever changing attitudes and expectations of the market place. One such change has been the significant change in attitudes of customers over the last 10 years. There was a time when customers were less critical and vocal if not totally satisfied when dealing with a business. This is not the case today. Today, customers are becoming increasingly more demanding, less tolerant and very critical when not having their expectations met. There was a time when the choices available on where and who to deal with was limited. The power belonged to the business owner, customers had nowhere else to go and therefore customer satisfaction was not so important.

Today, customers have lots of choice on where and who to deal with. As a result the power has now shifted to the customer. If they feel you can not satisfy their expectations they will simply vote with their feet and deal with someone who will. Most valuable asset in any business and is a key ingredient to ensuring your business success, is your customer, so it is advisable to have the best and most satisfied customer. If company has loyal customers, mostly they will be the main trigger which will reflect if any changes neither are nor welcome in the market. They are the best judges in any company.

Final and most important goal to achieve from all the above mentioned is profit or so called bottom line. Having satisfied customers, loyal to the companies, customers who have retention in their behavior, will for sure result to the bottom line - profit amount. Studies show satisfied clients tend to buy products more often and develop loyalty to a particular brand. They often spread the word by recommending products and services to friends and family as an informal referral process. Customer satisfaction surveys give firms specific information about positive and negative perceptions, which could improve marketing or sales efforts. These perceptions are especially important because of the increased use of social media by people of all ages. One negative comment posted on a social media site could be seen by thousands of potential customers. Angry customers can use unfair criticism and untrue statements to harm a firm's reputation. Repairing the damage or countering false representations could prove costly. A customer satisfaction survey might be worthless unless it creates statistical data that can be scientifically analyzed. The first step to developing an online survey examines intended goals and a process for comparing results. Employees charged with analyzing survey results should have some background in statistics to make the survey meaningful. When drafting survey questions, as much detail as possible should be included in the questionnaire, along with an area for independent customer comments.

If survey results lead to a plan to correct weak areas of operation, a follow-up survey can be used to measure whether changes worked. Information can again be analyzed and compared to earlier feedback. Customer satisfaction surveys also reveal data that can be used to gauge estimated customer satisfaction rates of competitors. In some firms, each unhappy customer is personally contacted in an effort to resolve any problem. Customers who ranked service or goods poorly might be offered discounts in an effort to retain their business. If comments they made on the survey resulted in action to improve customer service, the unhappy client might be informed of changes linked to their responses on the online questionnaire. These personal contacts let customers know their opinions are valuable and taken seriously.

How to achieve Customer Satisfaction

In order to perform changes in organization and achieve customer satisfaction, there are 7 commands that are mandatory and necessary to implement before any further activities:

CEO commitment to change strategy and culture,

Dedication to earning and growing customers’ lifetime loyalty,

Intimate, customer-level insight and understanding,

Customer insight embedded in core processes,

Insight-led collaboration between trading partners,

Relevant, targeted, and brilliant activation,

Continual measurement and improvement.

After implementation of the above listed activities, company is ready to implement and build up strategy for achieving customer satisfaction.

If the organization or companies fight with the unachievable result or bottom line, it is strongly recommended for them to take care of their customer, customer’s satisfaction, employee’s satisfaction, shorten the period of delivering products and services and resolve problems and shortcoming as they appear as soon as possible.

There are four elements which describe characteristics of achieving customer satisfaction:

Perfect product

Delivered by caring people

Delivered on time

Effective problem resolution process

Perfect product - A perfect product is one where all users are a 100% pleased with it. According to Harvard Business School, the perfect product must meet the following requirements:

A product that everybody want,

A product that everybody want but nobody else has,

Priced to sell,

Sold for a profit.

Thus, what we mean by perfect product is one that everybody is willing to buy and use before any monopolistic product, product with unique characteristics and its features, affordable price, with reasonable outcomes and finally product which generate and earn a profit to the company.

Delivered by caring people - Product can be perfect product which consist of all necessary criteria, however, if certain product is not delivered by caring people (friendly and politely employee), people who are best choices for selling such specific product, perfect product will be useless and only will cost a company.

Delivered on time – Perfect product delivered to right customer by caring people in wrong time will also be considered and expressed as negative word of mouth. So, delivering product just in time (in the best possible time) with its two predecessors can result and affect bottom line.

Effective problem resolution process – there is no 100% perfect product, product without any defection. Moreover, mistakes are meant to be corrected, learned and not repeated again. Companies strive to minimize any mistakes related to the product and services, but when the mistakes incur, effective problem solution takes a place and must be solved in, with best possible solution and within shortest time of period. Mistakes and problems are not big issues, although their effective resolution is more crucial than anything else and customer do remind if the company react quickly to resolve any problems related to bought product or services.

What types of tools are appropriate for boost up CS in banking sector?

Most recognized tools which are used for boost up customer satisfaction level can be categorized as: Internal tolls such as: Customer surveys, Call centre, Direct customer feedback, Focus group, Free lunch with the customers, CRM (Customer Relationship Manager), CR (Customer Relationship), Observation (mechanical observation and physiological), Experimentation, Mystery Shopping, Complain Book and etc.

External tools are; Questionnaires, Depth interviews, Face to face interview and many others.

Mostly used tool for measurements level of customer satisfaction in banking sector is Mystery Shopping method analysis (highly trained people who imitate real customers purchase’s behavior) and Questionnaires (list of important questions of delivering banking services) usually asked from the mere end users-clients.

Current trend of customer behavior

How to make your customer to stay with you?

Customers are taking greater control of their banking relationships. They are switching banks, changing their behavior and demanding improvements. In response, banks need to reevaluate their assumptions and fundamentally change how they interact with their customers. They need to embrace change by giving their customers greater flexibility, choice and control, and by reconfiguring their business models around customer needs. Giving more power to customers may feel uncomfortable, but in the long run banks that do so will position themselves for success in the future.

Customers are taking control

Overall customer confidence in banking continues to fall, with 40% of customers losing trust in the industry over the past year and only 22% gaining confidence. Despite improvements in the US, customer trust is falling in many other mature economies. The trend is strongest in the European Union (EU), where more customers have lost confidence in countries like Italy (72% in 2012, from 48% in 2011) and Spain (76% in 2012, from 58% in 2011). It is true that customer confidence remains resolutely high in a number of emerging markets. In India, 72% of customers are feeling more confident. Even so, the overall direction of sentiment is clear. Globally, the extent of falling confidence is leading to some fundamental changes in customer behavior.

Customers are more likely to use other banks

Customers are becoming less loyal and increasing the number of banks they use. The overall proportion of customers planning to change banks has increased from 7% to 12% since 2011. Sensitivity to fees and charges is the leading driver of attrition, cited by 50% of customers. Customers with only one bank have fallen from 41% to 31%, while those with three or more have increased from 21% to 32%.

Customer advocacy is gaining power

Word of mouth is gaining influence. Customers are listening to each other more than their banks or financial advisors. Globally, 71% seek advice on banking products and services from friends, family or colleagues, and 65% use financial comparison sites to find the best deals. The views of online communities and affinity groups are also gaining importance. The use of social media as a source of banking information (by 44% of customers) is amplifying customers’ voices, giving them greater power as advocates or critics.

Customers want to play an active role in tailoring their products and services

Globally, only 44% of customers say their bank adapts the products and services to meet their needs. The survey results show that 70% of customers are willing to provide their banks with more personal information. In return, customers expect to receive tangible improvements in the suitability of products and services they are offered.

Question is? Why (as customer) should I buy a product which is not suitable for me?

Customers want better value and improved service

Not surprisingly, customers want lower costs and better service. Improving fees and charges is the top priority, as cited by 22% of customers. Customers’ second priority is to strengthen online and mobile banking. But customers want much more than just a better deal. They want the flexibility to shape the relationship, contacting their bank whenever and however they choose. Customers prefer online channels for simple transactions, but they also demand high-quality, personal service for more complex transactions and advice.

Banks need to embrace the shifting balance of power

Banks are competing for the business and loyalty of increasingly demanding customers. In response, different models are emerging to serve different customer needs. Some are based on low-cost competition, some on high-touch service and some on accessibility. Large, full-service banks need to defend market share against specialist competitors focusing on particular products or customer segments, as well as new entrants in the payments space. At the same time, full-service banks need to retain the ability to meet a huge range of customer needs.

For large retail banks, choosing where and how to compete is a complex challenge. They need to deliver the level of personalization and flexibility customers want, and develop differentiated products and services — all while lowering costs and generating sustainable profits.

There is no simple solution, but as we look across the industry we see nine key implications:

Give customers more flexibility - Make pricing and service promises transparent

Pricing is critical to customer satisfaction, but most customers have no idea how much they pay each year. Transparency over pricing and service promises is vital if banks are to deliver something customers value. It is also critical for banks to rebalance fee structures to achieve the clarity and sustainability demanded by regulators and investors.

Offer segmented levels of customer service

Customers should have the option to buy into certain products and services, as well as the ability to earn upgrades through loyalty, whether in terms of longevity, share-of-wallet or the value they generate.

Move from multi-channel to Omni-channel distribution

Customers care more about convenience than about channels. Banks need to look beyond multi-channel toward a fully integrated banking experience that combines the advantages of physical branches and in-person interactions with the information-rich digital channels. Omni-channel distribution leverages customer data gathered from branches, website visits, social media and elsewhere. Marketing offers are customer-segment specific, rather than channel specific, and allows customers to purchase a product in one channel that they had researched or seen promoted via another channel.

Help customers to shape their experience - Encourage customer self-service

By regaining influence over customers’ decisions, banks can manage their own revenue more effectively. To do so they need to improve how they provide information and advice. Banks need to target self-directed customers and encourage greater self-service through financial planning tools, demonstrations of "how people like you are investing," or ranges of product and pricing bundles.

Shift marketing from "push" to "pull"

The growing importance of word of mouth and the waning power of direct selling have implications for banks’ marketing strategies, which need to shift from push to pull. Banks should aim to recruit their satisfied customers as advocates. They also could recruit online affinity groups as marketers by letting them select and shape the communications they receive.

Develop flexible loyalty programs

Banks need to capitalize on customers’ growing enrollment in loyalty programs, especially in emerging markets like India (48% in 2012 versus 26% in 2011). Most customers want financial rewards. Although costly, such rewards offer huge potential benefits in loyalty and advocacy. Banks should tailor programs for affinity groups and let customers choose rewards based on their value to the bank.

Shape business models around customer needs

Make low-cost digital channels customers’ preferred choice

Banks should encourage customers to use digital channels whenever possible. Banks should determine which services customers want to handle through branches and encourage - not force other transactions to move to digital channels, using price incentives, if necessary.

Prioritize investment on critical customer interactions

Customers identify a number of bank interactions as particularly important. Banks that focus operational improvements on these areas will optimize the resulting impact on attrition, dormancy and loyalty. They will also achieve a benefit in terms of their costs to serve. Banks recognize the importance of operational investment, but they will need to carefully target their limited capital spending budgets for maximum effect on customer satisfaction.

Use innovative technology to deliver the retail bank of the future

The use of cutting-edge technology is vital to all of the other implications we identify. This includes breaking down silos, creating Omni-channel distribution, developing innovative rewards for loyalty and giving customers the ability to personalize their products and services. Technology can also help to maintain intimacy as customers move towards digital banking and greater self-service. To achieve this, banks will need to partner with technology innovators.

Stimulants and appraisal system

Testing of a performance is an informational system which is the essential core of the performance evaluation process. This has a vital significance for the system of performance evaluation to be effective and efficient. Performance appraisal helps to success of the organization in realizing of strategic purposes and increasing of effective working processes through continuous improvement of individuals' performance and processes along with focusing on weak improvable points.

With due attention to the fact that Performance appraisal is one of the main parts of organizational life and could be consisted of several organizational processes such as measuring of work performance, establishing of purposes and reward management, however many organizations express dissatisfaction about the designs of their performance evaluation. In traditional approach we can talk about appraisal system for the employees such as (additional amount of money on wages), stimulants (promotions), training, seminars and many others. About customer satisfaction we can discuss only if we already completed and achieved employee satisfaction.

However, in modern approach we can talk about three very powerful methods and appraisals systems:

Performance Appraisal

Effective Commitment

Intrinsic Motivation

Performance Appraisal

Performance appraisal is one of the most important theories of human resources management and is one of the subjects which have been studied and investigated in the psychology of work extremely (Kuvaas, 2006; 504). Today Performance appraisal has been transformed to a strategic approach for integrating of human resources activities and business policies. There are set up limits, targets and planned values that have to be met, after they are completed periodically, employees will be rewarded for extra and additional value they have created. Due to the point that organizations try to evaluate employees and growth and improvement of their capabilities, increasing of performance and distribution of reward, Performance appraisal is observed as a subject that covers various activities. This type of appraisal method measure individual or group performances and accordingly rewards key performance indexes (KPI). Performance appraisal is an action for testing, measuring, valuating and justifying about the performance during a certain period of time.

Effective Commitment

Porto et al (1978) have defined organizational commitment as a partial degree of an individual's identification with the organization and his participation and involvement in the organization. Organizational commitment refers to this belief that members are important inside of the organization; working in this environment is valuable in their viewpoint and they have a lot of capability and resistance for performing of affairs in order to encounter with issues before the organization. Baron and Grinberg (1990) state that the most common method for encountering with organizational commitment is a method in which commitment is considered as emotional and psychical dependence upon the organization. According to this, the individual who is strongly committed identifies himself with the organization, participates in the organization, involves in it and enjoys from his membership in the organization. Higher level of accountability, more independent, less iteration and attractiveness of job will increase organizational commitment. Members within the organization perform and score successful results, by doing so they feel themselves as an important part of the organization.

In another definition organizational commitment is individuals' positive or negative attitude towards the whole organization (not only the job) in which they perform an activity, it has a strong faithfulness feeling in individual's commitment with regard to the organization and through that the organization will identify itself. Thus, with strong commitment employees stoned themselves into the organization structure.

Intrinsic Motivation

If we consider performing of an activity by others as a simple definition of management, we will accept that such performing of activity by others has a very close relationship with their motivation. People are motivated and committed to the job according to their internal motivation stimulants. Intrinsic type of motivation took the highest level of motivation in middle level of performance. While it seems what causes individuals' activity is a motivation that has been aroused from their need, so motivation is called individual's driving motor. We can consider motivation in individuals as a mood that attracts them to perform a special behavior and action. Intrinsic motivation is the motivation for performing of an activity for the individual himself.

Specification of purpose and feedback could be considered as the key activities of Performance appraisal in organizations. While, one of the most important purposes of employees' participation in activities related to identification of purpose and feedback is increasing of employees' performance, it is possible to expect that Performance appraisal satisfaction has a positive relation with work performance.

Retention

Retention itself has a task providing value to customer continuously and more effectively than the competition and to retain highly satisfied customers. For the retention to be completed successfully, must be fulfilled three core elements; quality, continuity and quantity of delivered value of product and services. Customer will not stay any longer, unless they have a reason to do so. If the organization (bank) follows their needs and wants, customers will recognize that and appreciate by buying more and new products and services. The final result will be increase in number in data base of banking system which is one of the planned targets in any organization.

Furthermore, it is more expensive to win new customers than to keep existing one. Companies are fully aware of it, so they struggle to keep existing customers, make them satisfied, keep close touch with them, develop new relationship, and through the existing customer make an impact on potential customers and so on.

Studies have shown that small reduction in customer defections produce significant increase in profit. This statement clearly has shown that customers are sensitive when mistakes incurred and company’s task is to resolve them as soon as possible, customers appreciate when gap are resolve in their best interest. Quite numbers of tools are available today in market (as outsource) for reduction of defection in banking sector. Thus, there are tools such as; Customer Relationship Manager, Interactive Voice Response, Call Centers, Help desk, and many more.

Four elements of the Retention

Loyal customers buy more products – this allows company to introduce new product and services, increase market share and achieve targets, operational as well as strategic plan. Second, loyal customer are less price sensitive and pay less attention to the competitor’s product and services. Higher pricing system is not a problem for this type of customers; as long as they are satisfy with the whole organization. They have seen themselves as higher class of customer. Next, servicing existing customer who is familiar with firm's offerings and processes is cheaper-new updates, versions of new products, now become easier to implement and to be sold. Lastly, loyal customers spread positive word-of-mouth and refer other customers. According to the analysis, positive word of mouth will be disbursed among 2-3 new potential customers, on the other hand in case of negative word of mouth; 9 – 12 customers will be informed very quickly.

Customer centric method – future of Banking

Banks must create a positive consumer experience, at the point of sale and post-sale period. Complete bank’s chain from the moment of sale through the moment of post purchase period to the last end moment of repayment (ex. loan), customers must feel confidentiality and reliability.

A customer-centric approach can add value to a company by enabling it to differentiate itself from competitors who do not offer the same experience. Customer must be in the center of any strategy, interest and planned target. They have to be most valuable asset in any company beside the motivated employees.

Banks have to tailor the product and services according to the customer’s needs and wants only, not according to their own opinions.