The future of retail banking

Citation

Eriksson, K. (2008), "The future of retail banking", International Journal of Bank Marketing, Vol. 26 No. 1. https://doi.org/10.1108/ijbm.2008.03226aaa.001

The future of retail banking

Dr Kent ErikssonProfessor of Retail Banking at the Centre for Banking and Finance (CeFin) at the Royal Institute of Technology (KTH) in Stockholm, Sweden. He is Vice Director and Head of Research at Cefin. His research covers retail banking and firm growth. He is particularly interested in how banks and customers behave when they interact, how they perceive their exchange, and how they create value. Dr Eriksson has published in the International Journal of Bank Marketing and Journal of International Business Studies, and has also published in such scholarly journals as the Strategic Management Journal, Journal of International Business Studies, Journal of Business Research, International Business Review, Management International Review, etc. Kent Eriksson can be contacted at: kent.eriksson@infra.kth.se

The future of retail banking

Ever since Henry Ford’s methods of mass-producing standardized products were replaced by more differentiated product ranges, firms have increasingly tried to customise their offering to customers. The benefits can be huge, as has been shown by the Dell’s build-to-order system, which makes production more efficient and the product more customized. However, as The Economist (2001) points out, mass market customization typically fails because of differences in managing and organizing production so that the customer meets one firm interface. For example, only one third of customer relationship management processes are successful. The reasons for these problems are very evident in the banking industry. Banks have a long history of conservatism in their business practices, where a large range of more or less standard services have been offered through branches. However, for the past decade, changes in technology, regulation and general economic conditions have transformed the industry. Today, banks attempt to be their clients’ partner in solving their financial needs. Even though customers still need to save, borrow, and make transactions, they do it through multiple channels, and with many different combinations of products.

The major determinant for the future of banking is the customer. Customers’ preferences, and in particular the composition of the customer base, their acceptance of the new technology, and new actors will greatly influence the outcome. The article in this Special Issue by Lindbergh, Nahum and Sandgren shows the drastic effect of demographic changes in banks’ customer markets. While it is difficult to predict the outcome on customer markets, it is very likely that changes will be considerable, and that future bank customer behaviour and attitudes are important for the future of retail banking. Research on customer behavior has shown that there is considerable inertia to how much and how quickly customers are willing and able to learn, yet little is known about how this learning works. The article by Raich in this Special Issue shows a structured method for exploring customer attitudes and behaviour. It is one example of the way marketers can work to find a steady course in the future of retail banking.

Another approach to the future of retail banking is to ask what business banks currently miss. This is especially relevant with regard to small and medium-sized enterprises (SMEs). Numerous good government investigations have pointed out that banks’ SME customers do not utilize financial services as efficiently as they could, and that the reason for this to a large extent is the exchange in the bank-SME relationship (Binks et al., 2006; European Commission, 1996; 2003; UK Competition Commission, 2003). Jonsson’s article in this Special Issue studies a case where a small start-up firm chose alternative funding, despite the fact in order to offer value to each other, the bank and the SME should be aware of each other’s unique resources. The bank’s resources are its service offer and its ability to meet individual customer needs through customized services. In meeting these needs, the bank engages its employees, who apply their problem-solving expertise from a vast array of sources inside and outside the firm. Understanding the bank’s service offer thus often involves understanding the organization, and sometimes also their suppliers and partners. Adding value to the bank could therefore be done by using more of the expertise in the organization, thereby helping it to combine its vast array of sources into one service offering. The SME’s resources can thus be understood in terms of its customer relationships and supplier relationships.

Customers have to be the central focus of attention because their way of living determines the needs that banks have to match. As a consequence, future research areas should focus on new ways of exchanging with customers, such as exchange in communities. The article in this Special Issue by Rader Olsson suggests that there are no major hindrances for banks to take a more active part in the development of local networks supporting small firm development. In fact, all other actors, including auditors, local government, external board members and in particular small firms themselves, encourage banks to take greater initiative locally. It is seen as important that banks emerge from their shells and take part in emerging networks. Banks have always been great observers on the local scene, but rarely tend to use that position for the benefit of their customers. Together with other important actors banks can create a supporting network that promotes local growth in a community.

The future of retail banking is promising, but there is a need to develop knowledge, methods and applicable frameworks to better seize the opportunities that lie ahead. Retail banking can transform societies if it works well, so much so that the 2006 Nobel peace price was awarded to Dr Mohammad Yunus for his work with Grameen Bank.

AcknowledgementsThe author thanks Swedbank and the Swedish Savings Banks Academy for financial support.

Kent ErikssonGuest Editor