News & Articles - Institute of Bankers in Malawi

CUSTOMER RELATIONSHIP MANAGEMENT
KEY TO GROWTH FOR BANKS AND THE FINANCIAL INDUSTRY IN GENERAL

The banking industry today is faced with tough competition apparently due to the increased number of financial institutions coming into the market to scramble for the same customers. In some instances customers have maintained relationships with their long time traditional bankers but at the same time gone to open accounts with two or more new banks to sample what the other players are capable of offering. Understandably things should even get tougher as the seemingly smaller new market entrants strive to increase their portion of the market share.

In this article we look at a few ingredients that would make a difference for a bank to keep apace or leap frog in terms of growth. The industry has moved from an era when there were a few banks and it was unnecessary for bankers to go out looking for business to a state of market saturation where it would be suicidal to sit back and expect customers to come with business on their own. During that time it was really unnecessary for banks to have fully fledged marketing departments since customers would nevertheless come as they had very few options.

THE GROWTH INGREDIENT
Growth is about building up from what already exists and this is an important factor which has assisted successful banks. It is about coming to a realization that one should hold fast to what is already in the fold while scouting for more to increase the numbers. This is the concept of customer retention through relationship management often referred to as Customer Relationship Management (CRM). Institution that have achieved unflinching customer loyalty have dwelt a great deal on the area of changing the mindset of their employees to be customer oriented. An institution in the service industry need to ensure that all those employees who get in contact with customers are well trained and equipped with adequate knowledge to ably sale the various products. Remember that in as far as the customer is concerned; the person who they get into contact with is the institution itself. The absence of customer centered mindset will result in a situation where the Management and Marketing Team will be sweating to bring in more customers but the customer base remains stagnant or even continues to dwindle due to loss of customers arising from mediocre service delivery inside the banking hall. A banker who does not strive to meet the needs of the customer will soon experience a shock to see the beloved customer opening an account with a competitor bank next door.

THE CUSTOMER CARE INGREDIENT
Banks have also become more than aware that customers are becoming more educated and knowledgeable which has also pushed up their expectations on what can be obtained from their bankers. It is therefore imperative that the banks must always be ready to modify their lines of service to meet the expectations of individual customers. This brings us to the point of making sure that a banker should learn to treat each customer differently. Each customer is unique and does not fancy being told that everybody takes it that way.

To achieve the above, a banker should think of the customers' life time value as financial assets, i.e. that over a period, the cost of servicing the customer by going all the way to meet the specific needs will be far less compared to the business the bank will get from their relationship. By providing individualized treatment, the banker will demonstrate that he is not focused on a short term kind of relationship. The approach however calls for a critical analysis approach, the more reason why banks have come up with Account Relationship Managers (ARMs). An ARM takes care of a dedicated list of customers to concentrate on and be acquainted with their needs with the view of working out possibilities of ensuring that the customer remains reasonably satisfied at all times. It is interesting to note how some foreign banks have used the account performance of a customer to determine whether a customer needs a banking facility or not. In Netherlands for instance, if the account of a creditworthy customer of ING bank wants to draw money from an ATM and the transaction is rejected for lack of funds, the transaction is recorded and an automatic mail is triggered to the customers mail box soliciting for a credit line. Using this innovation, the bank has a recorded response of positive feedback of more than 50% from the automatic mail credit solicitation. This is one of the many examples of staff initiative and innovativeness. Obviously each market is unique and can not borrow everything on wholesale basis.

In conclusion all we can say is that the onus is on the banks to clearly spell out what they are out to offer if wrong perceptions are to be chased out from the minds of both customers and would be customers. This is the aspect that was tackled by George Akerlof, a Professor at the University of Califonia in 1970, in his research paper on asymmetrical information theory. Akerlof's paper tackles the subject of Quality Uncertainty and Market Mechanism and uses the market for used cars as an example of the problem of quality uncertainty. In the used cars market there are both good cars and bad ones which he terms as 'lemons'. He therefore goes on to show that the buyer of a used car does not know on the onset whether what he is buying is a good car or a lemon (Manyumwa). This uncertainty therefore makes the buyer be careful when negotiating the price and tries as much as possible to drive the price to somewhere near an average price. The result is that owners of good cars loose out on this market because they can only get the lower end of the market price for their product.