Banking in risky times
The old culture of customer-centric banking needs to be revived.
KARACHI:
Since the inception of the global financial crisis, triggered by reckless gambling in the real-estate market, we live in a world where people, more than ever before, seek relationships based on openness, integrity and trust. Reputations now depend on the values we hold, and on which we can build relationships that are consistent, valuable, integral, compatible and profitable.
Today, the biggest challenge to managers and organisations is reputational risk, not operational risk.
A retailer requires an impeccable reputation for his brand to be accepted widely, even if it is branded or manufactured creatively. Brand positioning is impacted by the retailer’s reputation; it gets him a good price for his brand, without which the cost of business would be highly corrosive. Similarly, financial institutions need to rely on sound reputation, impeccable credentials and a highly competitive product line at the right costs to customers, if they are to successfully manage business revenue and sales.
With an average savings-to-GDP ratio of 13% – compared to at least 25% elsewhere in similar markets – Pakistan is slowly developing into a very troubled financial market. Capital flight is on the rise; maybe not overseas, but certainly out of banks.
Taking shortcuts to achieve business targets exposes companies to risk, and may limit their ability to operate in a country, region or market. The reputation of a company, and its dedication to customer services, ensures that positive recommendations spread to potential clients through word-of-mouth. Banks these days rely on customer loyalty, in return for which they are supposed to provide accurate and focused business solutions to ensure client satisfaction. But despite reaping huge profits from margins over client deposits, banks do not deliver the best rates to their customers. The modern customer is smart. He or she evaluates other investment options before putting their money into an account. They understand when they are being taken advantage of.
Customers should feel safe with the person or entity they entrust their money with. Confidentiality laws exist everywhere, but in Pakistan, we lack severely in implementing ethical business practices within our companies. The presence of a weak compliance management framework only dissuades customers as they may feel threatened with their financial information in unsafe hands.
Some organisations today also suffer from chronic nepotism – which installs weak leadership which ultimately marginalises customer interest for personal gain.
It should be kept in mind that some of the biggest banking corporations in the world have been brought to their knees because of a lack of a solid compliance structure. They compromised consumer interest and business ethics for revenue generation, which reaped them short-term gains, but crippled them in the long term.
Providing inaccurate or misleading information to customers just to increase deposits is a sure-shot way of destroying a bank’s future. Customers should be informed of the complexities and associated risks of a product with clarity and honesty.
Lastly, resolution of customer complaints really sets apart successful banks from the less prudent ones. Follow-ups should reflect courtesy, care and empathy for the customer’s problems. The old adage that ‘the customer is always right’ is a good place to begin reforming banks’ compliance structure. In times of increasing risk and a growing risk-averse class of investors, a customer-centric approach can revive an industry plagued by the fallout of the global financial crisis. The financial services industry must learn to not repeat past mistakes.
THE WRITER IS A BANKER AND BROADCASTER FOR FM91
Published in The Express Tribune, October 1st, 2012.
Since the inception of the global financial crisis, triggered by reckless gambling in the real-estate market, we live in a world where people, more than ever before, seek relationships based on openness, integrity and trust. Reputations now depend on the values we hold, and on which we can build relationships that are consistent, valuable, integral, compatible and profitable.
Today, the biggest challenge to managers and organisations is reputational risk, not operational risk.
A retailer requires an impeccable reputation for his brand to be accepted widely, even if it is branded or manufactured creatively. Brand positioning is impacted by the retailer’s reputation; it gets him a good price for his brand, without which the cost of business would be highly corrosive. Similarly, financial institutions need to rely on sound reputation, impeccable credentials and a highly competitive product line at the right costs to customers, if they are to successfully manage business revenue and sales.
With an average savings-to-GDP ratio of 13% – compared to at least 25% elsewhere in similar markets – Pakistan is slowly developing into a very troubled financial market. Capital flight is on the rise; maybe not overseas, but certainly out of banks.
Taking shortcuts to achieve business targets exposes companies to risk, and may limit their ability to operate in a country, region or market. The reputation of a company, and its dedication to customer services, ensures that positive recommendations spread to potential clients through word-of-mouth. Banks these days rely on customer loyalty, in return for which they are supposed to provide accurate and focused business solutions to ensure client satisfaction. But despite reaping huge profits from margins over client deposits, banks do not deliver the best rates to their customers. The modern customer is smart. He or she evaluates other investment options before putting their money into an account. They understand when they are being taken advantage of.
Customers should feel safe with the person or entity they entrust their money with. Confidentiality laws exist everywhere, but in Pakistan, we lack severely in implementing ethical business practices within our companies. The presence of a weak compliance management framework only dissuades customers as they may feel threatened with their financial information in unsafe hands.
Some organisations today also suffer from chronic nepotism – which installs weak leadership which ultimately marginalises customer interest for personal gain.
It should be kept in mind that some of the biggest banking corporations in the world have been brought to their knees because of a lack of a solid compliance structure. They compromised consumer interest and business ethics for revenue generation, which reaped them short-term gains, but crippled them in the long term.
Providing inaccurate or misleading information to customers just to increase deposits is a sure-shot way of destroying a bank’s future. Customers should be informed of the complexities and associated risks of a product with clarity and honesty.
Lastly, resolution of customer complaints really sets apart successful banks from the less prudent ones. Follow-ups should reflect courtesy, care and empathy for the customer’s problems. The old adage that ‘the customer is always right’ is a good place to begin reforming banks’ compliance structure. In times of increasing risk and a growing risk-averse class of investors, a customer-centric approach can revive an industry plagued by the fallout of the global financial crisis. The financial services industry must learn to not repeat past mistakes.
THE WRITER IS A BANKER AND BROADCASTER FOR FM91
Published in The Express Tribune, October 1st, 2012.