7 minute read 10 Dec 2021
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How banks’ long-term value strategies can enhance customer value

Authors
Aaron Byrne

EY-Parthenon Financial Services Leader

Focused on advancing the client's capital strategies and future vision. Adept in building enterprise strategy determining strategic options and establishing inorganic strategy approaches.

Henry A. Lacey

EY-Parthenon Principal, Financial Services, Ernst & Young LLP

Experienced strategy and management consultant to leading financial services providers. Adept in building enterprise strategy, strategic options and establishing inorganic strategy approaches.

Josephine Noah

Senior Director, Strategy & Transactions, Financial Services, EY-Parthenon, Ernst & Young LLP

Enhancing long-term value for financial institutions. Reducing the execution timeline and cost to implement.

7 minute read 10 Dec 2021

Prioritizing sustainability and stakeholder interests can enhance trust and drive financial results.

In brief
  • Leading banking and capital markets firms have begun to embrace long-term value creation as a pathway to sustainable growth and profitability.
  • Banks can pursue growth and improve competitive advantage by focusing on four long-term value pillars: customer, financial, people and society.
  • Enhancing customer trust through financial access and inclusion, personalized experiences and small business support can be critical to creating long-term value.

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Many bankers view generating superior financial results and doing what is best for customers, people and society as mutually exclusive propositions. But long-term value strategies that incorporate the needs of all stakeholders can expand trust with customers and other stakeholders, improve financial returns and create more sustainable business models.

Banks play a critical role in the economic and social lives of customers and the nation — a position that has never felt more meaningful or more challenged than it does today. An institution’s success lies in its ability to create a sense of purpose rooted in all stakeholders' interests and sustainability over time. For example, programs that improve financial access and literacy in low-income communities can create opportunities for individual customers and communities while also opening new markets for growth.

As competition and stakeholder expectations increase, finding the intersection of doing well and doing good can help banks remain relevant. Banks can reframe their strategies around four long-term value pillars: customer, people, society and financial. This article focuses on the pillar that lies at the core of bank strategies: customer.

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Chapter #1

Long-term value: how can banks do well and do good?

Lowering carbon footprints or committing to community engagement can boost firms’ financial results.

Long-term value is closely aligned with the environmental, social and governance (ESG) movement, but also acknowledges that companies need to earn profits. Focusing on the well-being of customers, workers and the community can help foster a healthier, more confident socioeconomic landscape and higher levels of stakeholder trust — both important drivers of sustainable growth.

While many banks think of support for social priorities in philanthropic terms, leading institutions make it core to their business models and day-to-day operations by building the cultures, mechanisms and products to help stakeholders achieve success.

Long-term value can include:

  • Incorporating the effects of climate change into loan underwriting decisions.
  • Adopting flexible workplace policies.
  • Boosting transparency around topics that are priorities for stakeholders or leveraging data analytics to create more personalized and relevant customer experiences.

Once, these were viewed as admirable actions for companies to take. Today, long-term value is a matter of long-term survival.

Investors are among the primary advocates and beneficiaries: A growing body of evidence shows that taking proactive steps, such as lowering a company’s carbon footprint or committing to greater workplace diversity, community engagement and better-governance practices, can enhance a firm’s financial results.¹ European studies have found similar results specific to banks.²

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Chapter #2

Banks that are leading in long-term value today

Long-term value approaches have gained momentum in Europe but less so in the US.

Banks that make stakeholder needs and ESG principles core to strategy are sending a message to customers and investors about their values and long-term priorities. These banks are creating new markets and behaviors by modifying their business models and incentives, fostering alignment around a shared purpose, and enhancing their brands.

Long-term value approaches have gained momentum in Europe, where regulatory frameworks emphasize climate change and other ESG priorities. In the US, only a handful of large banks differentiate themselves by making long-term value core to strategy.

For example, Citigroup’s 2025 Sustainable Progress Strategy commits $1 trillion to investments in environmental, affordable housing and diversity efforts, while also changing governance, employment policies and products to support ESG goals.³ Those efforts have helped Citi earn an “A” ESG rating from MSCI, a ratings agency.⁴

The rest of the industry is scattered along a broad continuum. A few have integrated long-term value into their core business strategies to help create purpose and deliver value to all stakeholders but have yet to make a full commitment.

Others have embraced ESG and customer-centric principles at the business-line level but are leaving many benefits on the table by not making it central to enterprise strategy. Most banks are putting themselves at a disadvantage by treating ESG as a check-the-box compliance exercise or waiting to see how things evolve with bigger institutions.

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Chapter #3

How to increase customer value through a long-term value lens

To differentiate themselves and grow, it’s critical for banks to bolster customer relationships.

While all the long-term value pillars are important, bolstering relationships with customers is critical for banks that hope to differentiate themselves and find growth in a competitive marketplace. 

Banks can fortify the customer pillar in three ways:

1. Strengthen trust and loyalty

Banks lost customer trust in the wake of the 2008 financial crisis but saw a rebound during the COVID-19 pandemic. Even so, financial institutions still rank near the bottom compared to other industries, above only social media among 16 industry categories.⁵

That relative lack of trust stands in contrast to nimble FinTech competitors, many of which boast solutions designed to enhance inclusion and access. In the EY 2021 NextWave Consumer Financial Services research, more consumers named a FinTech firm as their most-trusted financial brand than a bank.

Enhancing transparency around the bank’s approach to climate and social challenges and using data analytics to proactively identify and meet customer expectations can help enhance trust. For example, Citizens Financial’s Green Deposits program allows corporate clients to direct their cash reserves to companies and projects that create positive environmental impacts.⁶ Supporting customers’ values and helping them achieve sustainability goals can strengthen loyalty.

2. Improve financial inclusion and access

According to the Federal Deposit Insurance Corporation,⁷ the percentage of unbanked households stood at 5.4% in 2019. The number reflects a steady decline over the last decade but also illustrates the potential opportunities for banks that can find a way to bring those customers into the system. About 42 million Americans were classified as “financially vulnerable,” struggling to manage their financial lives.⁸

Promoting greater inclusion lies at the heart of banks’ efforts to address social inequities and build trust. Finding better ways to serve those customers also can improve the health of the economy and create more growth opportunities.

The key is giving those efforts teeth. For example, a large multinational bank has announced plans to invest $10 billion over the next decade to address gender and racial biases experienced by Black women.⁹ Investing to improve access to health care, housing opportunities, jobs and other social goods can strengthen the brand and create a healthier customer base.

3. Better serve small- and medium-sized enterprises (SMEs)

Supporting small, local businesses is viewed now, more than ever, as supporting sustainability and the community. Many active lenders under the Paycheck Protection Program saw big increases in SME loans — a new business leveraged into long-term relationships.

Banks can offer more capital, advice and resources to the segment to better serve SMEs. For example, Comerica has committed $5 billion to small-business lending and its bankers provide technical expertise and financial advice to SMEs through virtual and in-person “bootcamps.”¹⁰

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Chapter #4

How banks can strengthen their customer value pillars

To grow in a competitive environment, banks can improve trust, access and capabilities.

Many banks believe their business models are already customer-centric, but the battle to grow in a competitive environment can require them to improve trust, access and capabilities to strengthen customer relationships. Key considerations when building a value-driven approach include:

a. Reframe strategy around customers

Leveraging data-driven insights to better understand customer wants and needs and making ESG principles core to strategy can help banks enhance their value propositions. A baseline assessment of an institution’s long-term value positioning relative to competitors can help leadership prioritize the products and actions required to differentiate the brand in customers’ eyes.

b. Partner to access capabilities customers want

Giving customers access to tools to help meet their financial and sustainability goals is one way to differentiate the bank’s brand and make the relationship stickier. Features valued by customers, from homeowner loan programs¹¹ for SMEs that install solar panels to tools that can calculate personal carbon usage,¹² are often best leveraged through partnerships with innovators, not developed in-house.

c. Enhance measurement

Embracing appropriate metrics to understand and track the market impact of long-term value initiatives, such as lowering carbon emissions, on customer trust and engagement can guide the transformation. Using the data to build a cohesive ESG narrative for stakeholders is another way to differentiate an institution’s brand and build customer trust.

d. Motivate the workforce

Gaining customer buy-in around a bank’s ESG priorities requires employees' commitment to the strategy, which can build trust. Increased scheduling and location flexibility can help attract and retain those workers, while targeted incentives can encourage sales of socially conscious products, such as green mortgages, to grow wallet share.¹³

Summary

Banks have been slow to respond to changing definitions of success. Pursuing a long-term value strategy that prioritizes the interests of customers and other stakeholders can be critical to building the trust, agility and resilience needed to compete in an uncertain future.

About this article

Authors
Aaron Byrne

EY-Parthenon Financial Services Leader

Focused on advancing the client's capital strategies and future vision. Adept in building enterprise strategy determining strategic options and establishing inorganic strategy approaches.

Henry A. Lacey

EY-Parthenon Principal, Financial Services, Ernst & Young LLP

Experienced strategy and management consultant to leading financial services providers. Adept in building enterprise strategy, strategic options and establishing inorganic strategy approaches.

Josephine Noah

Senior Director, Strategy & Transactions, Financial Services, EY-Parthenon, Ernst & Young LLP

Enhancing long-term value for financial institutions. Reducing the execution timeline and cost to implement.