Why having a purpose can benefit a bank
As a business, there is perhaps no excuse for not having a purpose. In fact, and this is especially true for banking, the market demands it.
But why, to what end and, perhaps importantly – how do you align purpose and business that does not serve on force over another.
Purpose and banking
Without a purpose that states why a business activity is being done, banks may struggle to deliver results as they pursue the wrong goal and end up serving no one. A purpose can help all banks define who they are and double down on what they want to achieve.
It’s also fair to say that incumbents feel as if their world is in flux. Disruption from challengers, the shift towards Millenial and Gen-Z customers, the closure of branches, and COVID-19’s longstanding impact can make banking’s future feel a little unclear. A purpose can help bring clarity.
Without one, banks might be clouded by indecision, overtaken by nimble challengers, and running the risk of irrelevancy. With it, they can focus, build products that resonate, reach new prospects, differentiate from their peers, and grow long into the future.
The importance of purpose
Whilst it sounds like a nice idea, it is perhaps easy to take the easy road to focus on short term goals. After all, the quarterly earnings call comes around more often than a vague purpose doesn’t it? A bank may (rightly) ask, what point is a purpose if we’ve no customers, or aren’t growing, or struggling to generate revenues?
The answer is to learn how a clear purpose can attract customers, drive growth and generate long term revenues. If a purpose has been communicated with customers, banks have a sense of mission and build and deepen relationships through trust and mutual benefit. In turn, this means they seek the right clients, sell the correct products, and deliver the right services.
Hence, all banks should seek to become purpose-driven and focus on achieving one outcome.
Backed up by the data
A recent Accenture study found how being purpose-driven in financial services pays dividends. Their analysis found positive correlations between purpose-driven strategies and better financial performance.
Take the example of the Commonwealth Bank of Australia for instance which built a team of behavioural economics and social impact experts to focus on the purpose of improving customers’ financial wellbeing. The strategy saw a 1% lift in a customer’s financial wellbeing increasing the bank’s return on investment in that customer up to fivefold. Customer attrition rates also dropped 30%.
These remarkable improvements have only come about as a result of a bank seeking and finding a purpose. By defining their purpose, a bank can learn what they mean to customers, and this can drive customer wellness, satisfaction, retention and long term profitability.
By reading outcomes such as those at CBA, all banks should understand the opportunity they have to shape anew what they are and what they mean to customers. But how do they do it?
Overcoming barriers and finding purpose
Finding a purpose isn’t easy and it doesn’t necessarily feel like a priority. Despite the evidence that purpose-driven organisations achieve superior results, only a few banks have taken radical steps in this direction. That’s because it can feel like there are significant hurdles to overcome.
Right now, some banks may believe the predicted wide-scale disruption of the market is a way off, partly due to the fact that they compare themselves to peers rather than disruptive challengers. But the banking landscape is, without question, changing and the speed of change will only intensify post-COVID. Hence, banks must look outwards to see who is threatening to eat their proverbial lunch and how those challengers are utilising a purpose that is attracting new customers.
A switch to purpose-driven banking may mean exchanging short term ambitions for long term goals. But profiting today can mean falling behind peers and being out of touch with customers. In optimising for the short term banks may be leaving purpose-driven value on the table tomorrow.
Inertia can also creep in if a challenge looks overwhelming, especially during the current situation when strategic programmes of change, such as finding a company-wide purpose, can look even more challenging. But the time to innovate and change is now. By acting, banks can win significant market share as others wait.
All banks can move towards a purpose-led future where challengers and traditional providers fight for market share. Those that don’t act and change risk not even being in the fight.
With this in mind and time being of the essence, a simple way for banks to find a purpose is by embracing data. Because of the nature of financial services and the way that day-to-day business produces a large, ever-increasing amount of data, all banks have a powerful weapon at their disposal that they can use as a rallying point, a purpose, to better serve customers.
When it comes to seeking a purpose, data can be an easy win. No one claims it’s a silver bullet, and it must marry up with a wider business strategy to build value, but it can provide banks and their customers with a clear reason to believe in and align with the bank today and tomorrow.
Empowering your customers to empower themselves with data-driven banking is, in itself purposeful. Layer this to loftier, wider-ranging aims and you can see how purpose can build a positive feedback look for business and customers. Metrics that drive purpose can also lift the bottom line.
As more organisations seek the purpose that will help them retain customers, build great products and grow for the future, it’s time for all banks to act.