The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has exposed significant failures in culture and processes. Now is the time for a pivot to a customer centric culture, backed by compliance by design to improve customer outcomes and prevent bad behaviour. It’s no longer sufficient for firms to just talk about compliance – they need to actively diagnose, improve and manage compliance for better customer outcomes.

The financial services industry is currently facing a customer crisis on two fronts. The Sedgwick review into retail banking remuneration, coupled with the Hayne Royal Commission, has created a sizable trust deficit.

A recent Salesforce commissioned Deloitte Digital report found only 34% of customers trust the financial services industry. Banks were the least trusted, with 29% of respondents claiming they were extremely or quite untrustworthy, followed by insurers at 23%. Restoring this trust is the most urgent challenge facing financial services companies today.

On the other front, traditional financial services firms are under pressure from fintechs and global digital powerhouses like Amazon that are redefining customer experience. This all comes at a time when open banking is set to amplify the impact of digital finance, as the once closely guarded customer data assets are made available to third parties upon customer consent.
 

Current roadblocks to change

Amidst this swell of disruption, financial services must evolve to survive. But there’s a three-fold challenge obscuring the path of change.

Firstly, the industry has a deep-seeded sales culture that needs to be carefully monitored as firms make the necessary pivot towards a more balanced view of success. A customer culture needs to be engineered where customer outcomes are the number one priority.

Secondly, the industry has mastered perfect records of transactions and balances. What is required in an age where customer expectations have changed is the mastery of records of customer interactions within an environment where multiple channels exist.

"The Hayne Royal Commission, coupled with the Sedgwick remuneration review, has created a sizable trust deficit."

Thirdly, in maintaining the robustness of critical financial infrastructure, institutions have evolved around a risk-averse approach to change. But, in order to meet the accelerating evolution of the market, the industry needs to establish more agile modes of innovation.
 

The need for compliance by design

The Sedgwick Review has called for a more holistic approach to rewards and remuneration, supporting culture, systems and procedures and executive accountability.

Although the royal commission is still underway, it’s likely to recommend the enforcement of Sedgwick’s findings as a result of worrying outcomes from the sales cultures within the financial services industry. These findings relate to governance, performance management and culture within the industry. Public instances of fraud, breaches of responsible lending obligations and a widespread failure to comply with the best interests of customers has surfaced urgent need for change.

The Hayne Royal Commission may recommend structural changes away from vertical integration, which creates conflict between shareholder demands and customer outcomes.

It has also uncovered complacency around compliance, with significant deficiencies in managing complaints, issues and delays in informing the executive team and regulators and in remediating customers. Firms will be forced to change, aligning with a client’s best interests. They will also be required to provide detailed customer interaction histories to support decisions and justify product recommendations.

This is a very difficult ask for an institution with fractured technology systems and a fractured view of the client.
 

The impact of open banking

If the Hayne Royal Commision is the elephant in the room, open banking is the tiger. In a phased approach from July 2019, banking data must be made available to third parties when customers express consent.  

This paves the way for a spike in competition from third party fintech players that are entering the market without the organisational inertia of traditional firms. On top of that, they’re laser-focussed on delivering exceptional customer experiences and outcomes, with innovation in their DNA. They’re leveraging cloud, social and analytics technologies to deliver rapid services and evolve with enviable speed. Moneytree and Valiant Finance are two great examples of this.
 

"If the financial services royal commision is the elephant in the room, open banking is the tiger."

So, the industry is on notice in more ways than one. Traditional firms need to be prepared for a balanced response to regulation, as well as the innovation needed to create exceptional customer experiences in a new world of open banking.

Building a financial services firm of the future

Ultimately, many financial services companies need to rethink their business strategy, because the environment that has enabled them to prosper in the past has irrevocably changed. Trust and compliance must take centre stage, especially with 32% of customers saying their trust in the financial services industry has deteriorated over the past 12 months. Capabilities required include;

• A single view of the customer – where a full customer history, across all channels, is recorded and easily accessible by other employees within the organisation. Also critical is the ability to solicit, capture and deliver against customer needs, with process visibility across channels and services. 
• Better plans for data usage – this includes checking in periodically with customers to ensure financial products are still available in order to have better customer conversations and achieve better outcomes.
• In-line analytics powered coaching for consistent delivery of services: Guidance to flag during business processes to recommend activities for compliant, consistent and customer service.
• Stakeholder communication management: Auditable journeys to inform, train and certify staff on critical events, changes or incidents.
• Complaints, whistleblower or issue and risk management: Transparent case management, prioritisation, communication and remediation.
• Client offer and interaction management: Utilising analytics to make needs based recommendations, and storing the drivers along with recommendation.
• Wholistic Banker or advisor scorecarding to power incentive compensation: Combining sales and service volume with client outcomes, NPS, as well as tollgate such as Continuing Professional Development (CPD), complaints, and audit scores.
• Staff development and engagement strategy: Deliver and track bespoke training to enable staff on compliance, pivot to customer centricity and ensure role based capabilities are maintained.  
• Transparent staff, partner and customer onboarding: Ensure transparent, compliant and collaborative onboarding is delivered.

The Deloitte Digital report also found key drivers of trust – systems to protect data and privacy, ethics and social responsibility, and the belief that firms are putting customer interests first. This will likely echo the findings of the Royal Commission.

Learn more about building a financial services firm of the future amidst an environment of rising customer expectations, technological advancements and new competition. Download Deloitte Digital’s Market Trends Affecting the Financial Services Industry report.