In the last few years’ turbulence, two critical issues have come together for financial services companies – risk and customer management.
It’ is not because regulators are pushing companies towards knowing their customers better, or towards improving risk management relating to capital and liquidity.
It is because some failures or near-defaults were attributable to imprudent acquisition of many customers (corporate or retail), whose risk profiles were poorly investigated or understood, encouraged by market share strategies.
Many financial services companies have not got the measure of the interdependence between customers and risk. This can be seen when banks slam on the brakes by imposing of creditworthiness filters or deposit requirements that deter many customers who on any normal measure would be good long term prospects. It can also be seen in the imposition of tough security measures for accessing Internet banking accounts, causing customers to access accounts less often, so that many went into unintended overdraft because they had not checked their balances. It can even be seen in the design of products which carry excellent margins, protecting their provider against any likely financial risk, while requiring strong, even unethical sales pressure to achieve targets – payment protection insurance is the best example of this.
There is no pre-packaged solution to this problem. However, the start point must be to develop a clearer view of
-
How you balance risk and customer – how your performance indicators for the two relate to each other
-
What processes you use to do this – across risk management, operations and customer management
-
Whether your processes help you achieve the right balance of risk containment and customer value.
When we assess financial services companies for the quality of their customer management,we usually find that those responsible for risk management, whether overall or for individual products, are completely disconnected from those responsible for customer management, so it’s no wonder there’s a problem. That problem can be solved by some organisational and process redesign, but it must be driven by the board. It’s not something that can be left to a grass roots revolution or to customer pressure. And in the UK, financial regulation, despite their correct diagnosis that many problems start upstream, at the point of product design or earlier, don’t make it easy for companies to solve the problem, focusing instead on downstream marketing and sales issues.
