THE INFLUENCE OF DISRUPTIVE TRENDS ON BANKS’
CUSTOMER RELATIONSHIP MANAGEMENT:
An explorative study in the Dutch banking sector
Master Thesis, MSc Business Administration – Change Management University of Groningen, Faculty of Business and Economics
July, 2016
THOMAS VAN DEN BERG Student number: 2022109
Grachtstraat 56 9717 HL Groningen t.j.van.den.berg@student.rug.nl
Word count: 15.647 (excl. tables & figures:13.972) Supervisor / University of Groningen (RUG)
M.A.G. van Offenbeek
Co-assessor / University of Groningen (RUG) B. Mueller
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Abstract
The banking sector has been in tremendous motion since the subprime-mortgage crisis. It’s seen increased legislation, economical changes, sociodemographic trends, new entrants and technological innovations. One of the consequences is decreasing customer retention which has a negative effect on profitability. Banks are therefore trying to find a fitting answer to this problem. Customer relationship management (CRM) is important for customer retention. Therefore, the goal of this study was to determine how the current developments in the Dutch banking sector influence banks’ CRM. To find an answer, two research cycles were used. The first cycle was a PEST analysis of the sector using secondary data (rapports, news articles and annual reports) to determine all current trends. Subsequently, disruptive theory was used to distinguish the most important, disruptive trends: peer-to-peer lending and customer intelligence. Three experts validated these findings. The second cycle was a case study of the Dutch banking sector. Four higher level managers within this sector were interviewed about the consequences of the disruptive trends on banks’ CRM. The findings of this study suggest that banks, in order to stay competitive, must 1) intensify the relationship with their customers using both relational and transactional governance, and 2) be more proactive in the relationship and actively approach their customers using multiple channels to retain them. Suggestions for future research include statistically testing these findings and research banking sectors in different countries to explore possible national influences (e.g. legislation and culture).
Key terms: Customer relationship management, contract management, relational governance,
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Table of Contents
1. Introduction ... 5 2. Theory...8 2.1. Disruptive Theory ...8 2.2. Customer Relations ... 102.2.1. Customer relationship management ... 11
2.2.2. Contract Management ... 11 2.2.3. Synthesis ... 12 3. Methodology ... 13 3.1. Action research... 13 3.2. Research Cycles ... 14 3.2.1. Cycle I ... 14 3.2.2. Cycle II ... 16
4. Results - Cycle I: Disruptive trends ... 20
4.1. The Dutch banking environment ... 20
4.2. PEST analysis ... 21
4.3. Classification of trends/Disruptive trends ... 28
5. RESULTS – Cycle II: Influence on CRM ... 32
5.1. Current situation ... 32
5.2. (Expected) changes in the bank-customer relationship ... 34
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8. Acknowledgement ... 45
References ... 46
Appendix A – Net profit of Dutch banks ... 53
Appendix B – Interviewees ... 54
Appendix C - Interview protocol for research Cycle II... 55
Appendix D – Codebook ... 57
Appendix E –Interview Cycle II data ... 59
Appendix F – Validation Cycle I scores ... 65
Appendix G - Possible scenarios ... 66
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1. Introduction
The banking industry is in tremendous motion. In the subprime-mortgage crisis of 2007-2008 not only 45% of the world’s wealth evaporated (Pirson & Turnbull, 2015) but the public trust in banks also eroded (Hurley, Gong & Waqar, 2014). This is problematic for a sector where customer engagement is highly dependent on trust (Kuneva, 2009). Since 2012 the public trust appears to be cautiously recovering (Hurley, Gong & Waqar, 2014). Nevertheless, the global level of trust is still lower than before the crisis (Edelman, 2016). In the Netherlands public trust in banks also deteriorated (Centraal Bureau voor de Statistiek, 2015) and is still declining1. To
restrict excessive risk-taking regulatory pressure has increased (Kirkpatrick, 2009), which could help regain the public trust, and led to the introduction of new legislation and internal controls worldwide (Adamson, 2012; Stiglbauer, Fischer & Velte, 2012). Also in the Netherlands, new regulations (from Dutch national and European Union legislature) have been introduced2. These
regulations are for example included in the yearly revision of the ‘Wet op financieel toezicht’. Furthermore, specific regulations to help restore trust and to guarantee focus on customers were introduced (e.g. the ‘banking oath’ for all banking employees which is in effect from 1 April 2016). The recent crises3 and its direct and indirect consequences (e.g. additional compliance
costs45) have, among other factors, been shrinking the net profits of the three big banks of the
Netherlands by almost 30% (see Appendix A)6. Experts, therefore, describe the current situation,
decreasing profits in combination with historically low interest rates, as a bank crisis7.
There may be other factors causing the shrinking profits of banks: lower customer loyalty that makes customers increasingly switch banks (Kaur, Sharma & Mahajan, 2014), new entrants to the market (e.g. Bunq), expensive technological innovations for banks to adapt to (e.g. mobile banking applications), and new ways of financing companies or products such as crowd-funding and peer-to-peer-lending. In this study the main trends in the banking sector will be identified
1 Centraal Bureau voor de Statistiek:
http://statline.cbs.nl/Statweb/publication/?DM=SLNL&PA=82378ned&D1=8&D2=0-2,13-17&D3=a&HDR=T&STB=G1,G2&CHARTTYPE=1&VW=T
2 Segenhout, J. (2015, October 20). Overregulering moet stoppen. Het Financieele Dagblad. Retrieved from: http://fd.nl/economie-politiek/1123665/overregulering-voor-banken-moet-worden-gestopt
3 Global (subprime-mortgage) crisis (2007-2008); Icelandic financial crisis (2008-2011); European sovereign debt crisis (2010)
4 Bökkerink, I. (2016a, May 10). ING is dit jaar ruim €100 mln meer kwijt aan toezicht. Het Financieele
Dagblad. Retrieved from http://fd.nl/ondernemen/1151050/ing-dit-jaar-
ruim-100-mln-meer-kwijt-aan-toezichtkosten
5 Keuning, W. (2016, May 11). Hogere toezichtkosten drukken winst ABN Amro in eerste kwartaal. Het Financieele Dagblad. Retrieved from http://fd.nl/ondernemen/1151271/hogere-toezichtkosten-drukken-winst-abn-amro-in-eerste-kwartaal
6 These three banks represent over 90% of the assets in the Dutch banking sector: http://www.banken.nl/bankensector/bankensector-nederland
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and their consequences will be classified as either disruptive or not disruptive. Disruptive trends can turn an industry on its head and bankrupt incumbent companies (Bower & Christensen, 1995). In other words, disruptive trends are most relevant for the financial institutions since they will significantly influence their profitability and the viability of their business models. Therefore, in this research the focus will be on the disruptive trends.
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performed within the framework of contract management on an individual level. The relationship between banks and large corporates (e.g. multinationals) is not included in this research. Those relations have a different dynamic, in terms of collaboration and products than the aforementioned relationships (e.g. Deutsche Bank underestimated this and lost €1.3 billion in the Netherlands as a result8). Moreover, only two aspects of contract management for banks in
the client segment of SME’s have been covered by other scholars: relational trust (Saparito, Chen & Sapienza, 2004) and exchange performance (Ferguson, Paulin & Bergeron, 2005). No other research could be discovered in this area. This study will therefore add to the scope of contract management in subject field as well as in actor level.
Taking into consideration not only the turbulent banking environment and its disruptive trends but also the probable impact of those trends on CRM, the main research question of this study is: How is the customer relationship management of banks affected by disruptive trends in the financial services industry?
In order to answer this main question, two sub questions need to be answered: 1. What are the current disruptive trends in the Dutch banking sector?
2. How may these disruptive trends influence the customer relationship management of banks?
The next theoretical chapter elaborates on disruptive theory and contract management. The third chapter explains the design of this study. The fourth chapter presents the results. The following discussion chapter reviews the theoretical and managerial implications of the findings. Finally, in the concluding chapter, I will reflect on limitations and offer suggestions for further research.
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2. Theory
2.1. Disruptive Theory
Since its genesis, disruptive theory has been commonly used. However, “the theory’s core concepts have been widely misunderstood and its basic tenets frequently misapplied” (Christensen, Raynor & McDonald, 2015, p. 48). Hence, I deem it necessary to present a clear and refined definition of disruptiveness before applying the concept to the presented trends. The term ‘disruptive’ was originally introduced by Bower and Christensen (1995) in relation to new technologies. Bower and Christensen (1995) differentiate between two types of technological innovation: sustaining and disruptive. Sustaining technologies are incremental improvements of proven concepts, which are valued by customers. In contrast to these sustaining technologies, disruptive technologies introduce new concepts with different attributes than the ones who are valued by mainstream customers. Moreover, the new technology performs far worse on one or two of the main aspects valued by the mainstream customers. When the new technology starts to displace the current technology in the mainstream market, even when the new technology is still inferior valued at the main aspects, this is labeled as disruption (Adner, 2002).
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high end market segment of early adopters in which the innovation can initially be offered at a higher price than existing products.
Another refinement of disruptive theory was made by Christensen (2006). He states that ‘disruptiveness is not an absolute phenomenon but can only be measured relative to the business model of another firm’ (p. 48). This is also the definitively parting with technology as the only disruption origin. Disruption is, therefore, a business model problem and not a technology problem, which means that “a disruptive innovation is financially unattractive for the leading incumbent to pursue, relative to its profit model and relative to other investments that are competing for the organization’s resources” (Christensen, 2006, p. 49). While disruptive innovations generate substantial new revenues in the markets they enter (Christensen, Craig & Hart, 2001), incumbent firms can still go bankrupt by being unable to adjust their business model.
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regulatory forces which disturbs the law of supply and demand. Due to regulation, Dutch banks cannot simply use a new technology or innovation and they are actively controlled by De Nederlandsche Bank (DNB) and the Autoriteit Financiële Markten (AFM). This influences the market but politics and regulation are not the only two factors that can potentially disrupt the banking industry (e.g. sociocultural changes such as lost public trust). Therefore, I propose that disruption is taken broader than only technology or innovation in general and to speak about disruptive trends instead of disruptive technologies or innovations.
The criteria put forward, innovative, financially unattractive for incumbent firms and market creation, still apply. Although, using disruptive theory for trends, an extension of the definition of the criteria is needed. This is especially true in the light of the potentially disruptive nature of a trend because it is a prognosis, not retrospection as in the other studies. Therefore, in case of the innovative and market creation criteria, classification is based on the stimulating nature of a trend, i.e. does new legislation stimulate innovation? For the financial criterion, the trends’ nature is also leading: what are the possible financial consequences (e.g. does new legislation increase or decrease profit?).
Concluding, a trend is first of all disruptive when it has an innovative nature: it contains new attributes or stimulates innovation. This means that it is either radically new or significantly cheaper than comparable trends (even with less functionality) or stimulates that development. Secondly, it needs to create a new market, high end or low-end in which the trend is unique. Thirdly, the trend is financially unattractive for incumbent firms. This summary is presented in table 2 (p. 29), where each of the identified trends is rated.
2.2. Customer Relations
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2.2.1. Customer relationship management
CRM is an integral part of every organization which takes its customer seriously. CRM is a very broad concept and comprises different aspects of an organization. Payne and Frow (2005), define CRM in the most complete sense of its meaning based on a synthesis of definitions provided by earlier studies and validated by practicing managers (p. 168):
“CRM is a strategic approach that is concerned with creating improved shareholder value through the development of appropriate relationships with key customers and customer segments. CRM unites the potential of relationship marketing strategies and IT to create profitable, long-term relationships with customers and other key stakeholders. CRM provides enhanced opportunities to use data and information to both understand customers and cocreate value with them. This requires a cross-functional integration of processes, people, operations, and marketing capabilities that is enabled through information, technology, and applications.”
In order to create a more practicable overview,Buttle (2004) divides the focus of CRM in three levels: strategic, operational and analytical. The strategic level refers in this matter to ‘focus on development of customer-centric business culture and involves executive management’ (Rootman, Tait & Bosch, 2008, p. 53). The operational level refers to ‘focus on the automation of the customer-facing activities of a firm and involves middle-level management’ (p. 53). The analysis is ‘concerned with exploiting and understanding customer data with the application of data mining tools’ (p. 53). This distinction provides guidance to prioritize in which area and which organizational entity should take responsibility.
2.2.2. Contract Management9
In contract management (CM) two main types of governance are identified: transactional and relational (Griffith & Myers, 2005). Transactional governance refers to the extent to which an arrangement ‘is governed by a formal and written contract which explicitly stipulates the responsibilities and obligations of each party’ (Cao & Lumineau, 2015, p. 17). It has three main functions, which are:
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1. Safeguarding; reducing or eliminating opportunistic behavior (Williamson, 1985) and minimizing exchange hazards such as shirking, cheating and holdups (Schepker, Oh, Martynov & Poppo, 2014);
2. Coordination; which goals to achieve and how (Klein Woolthuis, Hillebrand & Nooteboom, 2005);
3. Adaptation; ‘anticipating and making provisions for problems that may occur during execution of a project’ (Argyres & Mayer, 2007, p. 1069).
Relational governance refers to the extent to which an arrangement ‘is governed by social relations and shared norms (Cao & Lumineau, 2015, p. 17). Relational governance consists out of four main constructs of which the first three have been identified by Uzzi (1997) and a fourth is identified by other scholars (Cannon, Achrol & Gundlach, 2000; Heide & John, 1992):
1. Trust; here defined as the confidence in a (risky) relationship that the partner is benevolent, credible and has integrity (Das & Teng, 1998; Zaheer, McEvily & Perrone, 1998);
2. Information exchange; 3. Joint problem solving;
4. Relational norms; ‘shared expectations about the behavior of each party’ (Cao & Lumineau, p.17).
It may seem that transactional and relational governance are substitutes but in fact they are complementing each other. Empirical evidence shows that the most successful organizations focus on both types of governance instead of one (Goo, Kishore, Rao & Nam, 2009).
2.2.3. Synthesis
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3. Methodology
The goal of this study was to answer the question ‘How is customer relationship management in banking affected by disruptive trends in the financial services industry?’. Two sub questions are needed to answer this main question:
1. What are the current disruptive trends in the Dutch banking sector?
2. How may these disruptive trends influence the customer relationship management of banks?
The first sub question was answered by using a PEST analysis, validated by field experts. The second sub question was answered by conducting a case study. The choice for these research methods will be explained in this chapter. To ensure coherency an overarching study design was used to combine these two research methods. Action research appeared to be the best option for this research, as will also be explained in this chapter.
3.1. Action research
Action research is an inquiry that focuses on a field problem with theoretical relevance. Furthermore, action research is a relevant method of research when you ‘intend to change or improve a situation’ (Hennink, Hutter & Bailey, 2012, p. 51). This study primarily aims to assist banks by improving the understanding of the possible influences and implications of disruptive trends for the banks’ customer relationship management. Therefore, action research is suited for this study.
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3.2. Research Cycles
This study is divided into two research cycles: the first cycle answers the first sub question and the second cycle answer the second sub question. A graphical overview of this design is based on a model provided by Ramondt (1996, p. 38) and presented here below.
Figure 1 Research cycles
Dutch banking sector
Cycle I: Disruptive trends
Disruptive trends
Disruptive theory
PEST analysis Trend selection & valdiation Research on influence on CRM Bank operations Influence on CRM Contract management Cycle II: CRM implications Case study CRM implications Recommendations 3.2.1. Cycle I
To answer the research question, first of all sub question 1 needs to be answered: What are the current disruptive trends in the Dutch banking sector? To get started an expert, affiliated with the University of Groningen and a management consultant in the financial sector, were interviewed to get a broad impression of the banking sector. These interviews were informal in nature and very useful in getting to know the sector, indicating areas of interest and focus for the research. Using this information, an explorative study of the banking sector was conducted. Three kinds of secondary data sources were used:
- News articles: renowned (inter)national newspapers were used to get an understanding of the current events and their effects on banks
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- Annual reports: the annual issued reports10 of four Dutch banks were used to get some
insight in their strategies, ways of operating and to measure their size in sense of revenue and assets
To better grasp the trends and (technological) I tried some products (e.g. BUX) and I made an investor account at a peer-to-peer lending platform for Dutch SME owners (Funding Circle) and had therefore a more active interaction with the research field (Hennink, Hutter & Baily, 2012). The next step was to create a logical and consistent overview of the gathered, qualitative secondary data. Determining the external environment and the developments therein helps to develop an understanding of the strategic choices banks are currently faced with. Therefore, a search for a framework which provides structure and helps to outline a complete overview of the environment was undertaken. A framework that sprung immediately to mind is the five forces model of Porter (1979). Through its five forces (threat of new entrants, bargaining power of suppliers, bargaining power of customers, threat of substitutes and internal competition), it gives handles to map the environment and can be used to deduct strategic implications. However, other factors than these five forces are overlooked such as complementing companies (Brandenburger & Nalebuff, 1995). Porter has countered that other factors such as innovation and government are no forces but only influence the earlier presented five forces (Porter, 2008). In my view however, the five forces model, by not giving innovation and government a primary role, lacks some clarifying power in the current Dutch banking sector. Also, a descriptive model, as opposed to the theoretical five forces model, suffices since it was primarily used to identify and not explain external developments. Therefore, I selected a more comprehensive and fitting framework, which does include the relevant technological and legislative elements: PEST. This widely used framework is an abbreviation of Political, Economic, Sociocultural and Technological external factors as presented in Cawsey, Deszca and Ingols (2016). This framework provides a wide array of options such as (technological) innovation, new legislation and demographic changes, to comprehensively identify all important factors in the current external environment of banks in the Netherlands. I used the more focused PEST framework instead of the more elaborate PESTEL that adds Environment and Legal (Burnes, 2014). Environment is irrelevant for this study and Legal trends can also be placed under the Political denominator since legislation and politics are heavily intertwined in the banking sector.
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Using the PEST framework, the analysis resulted in a list of trends that was presented separately to three consultants at Magnitude Consulting with relevant experience to verify whether the list of trends was exhaustive. After the completeness of the list was established, a table was designed to help classify the trends as either disruptive or not disruptive. This empty table has been presented to three experts in the banking sector to validate my own classification: two consultants of Magnitude Consulting who are deployed with a bank, and a widely respected journalist/consultant who was described as a ‘remarkable trendwatcher’ by his peers. A summation of the trends and the definition of disruptiveness are included in this paper. The definition of disruptiveness derived from an academic literature study of which the result was presented in the preceding Theory chapter. A literature study was conducted because this method aids to “discover important variables” and “understand the structure of the subject” (Randolph, 2009, p. 2).
An interview with each expert was conducted to give them a chance for elaboration on their classification. Each expert was expected to be equally competent; therefore, each opinion was weighted equally. A positive checkmark on one of the three criteria of disruptiveness for a trend, was only granted when three out of the four respondents agreed on the (potential) effect of the trend. For example, if only two respondents indicated cryptocurrencies as innovative, it was not classified as innovative. The answers were combined and are presented in table 2 (p. 29).
3.2.2. Cycle II
There is a limited amount of knowledge about which constructive (strategic) choices related to customer relationship management (CRM) can be made based on the identified disruptive trends. Therefore, the following sub question was answered in this cycle: How may these disruptive trends influence the customer relationship management of banks? To answer this question a case study is well suited.
A case study has three strengths (Voss, Frohlich & Tsikriktis, 2002):
- It allows to study a phenomenon in its natural setting and create meaningful, relevant theory;
- The questions of ‘Why?’, ‘What?’ and ‘How?’ can be answered “with a relatively full understanding of the nature and complexity of the complete phenomenon” (p. 164); - It can be used for an exploratory inquiry to research a phenomenon which is not yet
understood and the relevant variables are also not yet known.
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field of subject (Eisenhardt, 1989). Since it is the goal of this research cycle to provide clarity about possible relations between disruptive trends and CRM, especially how they are related in the specific context of the banking sector, a case study is the best method of inquiry.
Case description
A case is the subject of the research and is an example of the phenomenon it exists in (Thomas, 2011). For this research the choice was made to treat the Dutch banking sector as one case. Differences in legislation set the Dutch banking sector apart from banking sectors in other countries. So do the different dominating economic models such as the Anglo-Saxon and the Rhineland models (Jackson & Deeg, 2008).
Treating the Dutch banking sector as one case, enlarged the possibility for deeper observations (Voss, Frohlich & Tsikriktis, 2002). With the Dutch banking sector defined as the case in this study, the actors in this sector became the units of analysis. Therefore, banks and other related financial institutions were researched.
Subcase selection
In order to outline the Dutch banking industry four organizations in this sector were selected. Following the suggestion of Miles and Huberman (1994), three different kinds of organizations were chosen. The scholars state that these three kinds of instances tremendously benefit a case study: the representative case, the disconfirming case and the exceptional case. For the representative case two of the three big banks in the Netherlands were selected. These three banks represent 90%11 of the Dutch banking sector. At both banks a respondent at managerial
level was found with direct responsibility for innovation at their respective bank. The managerial level ensured a larger overview of business, which matches the detail level of our research question. The managers’ innovation responsibilities provided the necessary knowledge about the ongoing trends. The disconfirming case was covered by a smaller bank which positions itself as the bank that ‘functions differently in regard to other banks’. Therefore, the bank was assumed to make different strategic choices. That makes it potentially disconfirming in regard to the representative cases. A senior analyst who could use his years of relevant experience was interviewed. For the exceptional case not a bank but a strategic partner, although being currently owned by one of the three big banks, was selected. The organization is exceptional since it is not a traditional bank and it has therefore most likely another view of the world than those banks.
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The CEO of the company had years of relevant experience in the Dutch banking sector and was through his position very well aware of the trends in the banking sector.
To reach these respondents the formal as well as the informal network of (the consultants of) Magnitude Consulting were exploited, as both are effective strategies for respondent recruitment (Hennink, Hutter & Bailey, 2012). A mail was sent, describing the research and possible respondents, to every consultant within Magnitude Consulting. A request to look in their networks for potential respondents was attached. A selection of the proposed respondents resulted in three viable candidates, all willing to participate. The fourth respondent was referred to by a contact of a contact.
Data collection
The collected data exists of face-to-face interviews. The interviews were semi-structured to provide an overarching framework that enabled the comparison of the interviews and also be able to adapt the answers of the interviewees. The interview protocol can be found in Appendix B. The topics in the interview protocol are directly related to the research question and consist of: bank, customer, peer-to-peer-lending and customer intelligence. Although using the interview protocol as a starting point other questions were also asked if the situation permitted it. In this respect the interviews had an open character. The interviews were conducted by me and a consultant of Magnitude Consulting to ensure reliability. Also, the interviews were recorded and transcribed fully so that data reliability could be ensured. The recordings were complemented with notes taken during the interviews.
Data analysis
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4. Results - Cycle I: Disruptive trends
4.1. The Dutch banking environment
To correctly analyze the banking environment it is first of all necessary to determine what constitutes a bank. A bank is in this research defined as a financial institution which mainly earns its profits by lending money against an interest rate. There are other (profitable) activities such as insurances and asset advice & management, but the main profit comes from the interest on outstanding loans12. Furthermore, in the Netherlands four types of banks can be
distinguished (Interviewee 7):
- First of all, the consumer banks which focus on services to individuals through enabling payments, saving and lending.
- The second type, business banks (or investment banks) provide credit for companies, place shares on the stock market and help merge or divide businesses. Next to these activities these banks trade in stocks to gain profits.
- The third type is the general bank, which combines the activities of the consumer and business bank in one organization.
- The fourth type is the central bank of which there is only one per country. The main tasks of this institution consist of oversight on financial institutions, controlling inflation and bringing banknotes in circulation.
In this overview there is no distinction based on customer segment. For example, ‘private banks’ offer services to wealthy individuals13 but operate similarly to a consumer bank (Interviewees 7,
8). Furthermore, no distinction is made between publicly and privately owned banks nor between national and international banks as was indicated by interviewee 7. While these differences can influence a bank, these differences do not influence the basic provided services on which the above distinction is made.
Furthermore, in the Netherlands a bank cannot operate as such without a license of the central bank, De Nederlandsche Bank (DNB). DNB is supported in its oversight duties by the Autoriteit Financiële Markten (AFM). The main tasks of the AFM are to monitor the obeying of the law by financial institutions (i.e. banks) and to warn or fine offending institutions. Therefore, I define a bank as a financial institution that provides money and other financial services to customers and falls under the oversight of the DNB and AFM.
12 Keuning, W., & Couwenbergh, P. (2016a, February 18). Winst Rabobank moet omhoog, maar lage rente maakt dat lastiger. Het Financieele Dagblad. Retrieved from http://fd.nl/ondernemen/1140217/winst-rabobank-moet-omhoog-maar-lage-rente-maakt-dat-lastiger
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4.2. PEST analysis
Political; There are three main political trends in the banking sector. The first one is the introduction of new legislation. Since the crisis of 2007-2008 there has been an increase in new legislation while simultaneously the time between introductions of legislation has decreased (B. Müller, personal communication, February 25, 2016). A comprehensive overview and interpretation of the new legislation on financial institutions from the European Union, which have a profound effect in the Netherlands, is provided by Lannoo (2015). Measures such as ‘Basel III’ result in higher liquidity demands for banks and also require loans with a lower chance to default. That make banks more risk averse and makes lending money more difficult. The second trend is the nationalization of banks. In the aftermath of the aforementioned crisis, the ABN Amro bank was nationalized, as was the SNS Bank later on14. Also, the ING bank received
governmental financial aid but remained a privately owned company15. This means that the
Dutch government, and through supranational legislation to a certain extent the European Union too, were to obtain a large, direct influence in the financial sector of the Netherlands. Dutch banks had, therefore, less autonomy and could be forced to take or undergo decisions made by the national government. This quasi-nationalization is a sound crisis response mechanism to restore financial stability, but fails at promoting lending, for example due to restricted credit conditions for SME’s(Henderson, 2015). To counter that, the European Central Bank (ECB) has been systematically lowering interest rates to a current ultimate low of 0% to boost the European economy16, which is the third trend. Lowering interest rates is politically
used to make borrowing money cheap for banks, and thus for their customers, in order to spend that money and boost the economy. However, as mentioned, banks need to limit their risks and therefore lend less money, but the money that they lend is cheap, due to the low interest rates. Résumé, it is becoming more onerous for customers to borrow money from banks and the ECB tries to mitigate that development.
Economical; On the one hand, the ECB thus tries to stimulate lending, and on the other hand, it discourages lending. To be specific, the first economical trend is directly related to the first political trend of increasing legislation: banks are forced to be more solvent which means that ceteris paribus they can lend less money than they do now. Furthermore, Dutch banks have an
14 Rijksoverheid: https://www.rijksoverheid.nl/onderwerpen/kredietcrisis/inhoud/aanpak-kredietcrisis-nederland-financiele-sector/nationalisering-fortis-abn-amro-en-sns-reaal
15 Rijksoverheid: https://www.rijksoverheid.nl/onderwerpen/kredietcrisis/inhoud/aanpak-kredietcrisis-nederland-financiele-sector
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obligation to deposit their excess liquidity at the DNB17. The current deposit rate is -0.4%18,
meaning that the banks need to pay interest over the obligated reserves deposited at the DNB19.
This does not only cost money and make banks less inclined to receive customers’ savings20, it
results as well as the higher solvency obligation in opportunity costs. The second economical trend is the threat of new entrants in the banking sector. In 2012 and 2015, two new banks entered the market21 and in the coming years another bank could enter the market22, fighting for
a share of the profit. Also, investment companies are broadening their portfolio and try to take a share of the moneylending market23. This means that the competition for incumbent banks
becomes more intense and their profit margins will most likely shrink as a result. The third trend is the new ways of financing that have gained traction since the start of this century. To finance a company (start-up) or even personal debts, banks are more and more bypassed. Bank loans can be too expensive for the customers (e.g. relative high interest rates for unproven start-ups) or traditional banks simply cannot offer a cost-efficient solution due to the relative small loan request. Other reasons are listed in the socio-cultural section. The three main ways to bypass banks are by a) peer-to-peer lending, b) crowdfunding and c) microfinancing. These will be described below.
Peer-to-peer lending encompasses a platform that brings borrowers and investors together where borrowers propose a plan and investors choose the plans they want to invest in (Liu, Brass, Lu & Chen, 2015). It differs from traditional banks in the sense that the P2P platform does not provide funds of their own, but merely functions as a matchmaker between borrowers and investors (PricewaterhouseCoopers, 2015). Crowdfunding, which is sometimes used as the overarching concept, is defined in this paper as an activity where investors “fund a campaign because they obtain a product, or because they support its cause, or a combination of the two” (Belleflamme, Omrani & Peitz, 2015). Microfinancing uses an intermediary organisation which lends money that is provided by investors, beneficiaries and funding bodies or is the result of earlier profits (Hannam & Cheng, 2012). This intermediary organisation functions thus like a traditional bank by lending its own assets but in smaller quantities than traditional banks are
17 KNAB: https://www.knab.nl/live/blog/2016/april/waarom-willen-banken-geen-spaargeld 18 DNB: http://www.dnb.nl/rente-en-inflatie/ecb-rentetarieven/
19 Keuning, W., & Couwenbergh, P. (2016b, February 22). Kritiek van banken op buitenwereld legt eigen zwakte bloot.
Het Financieele Dagblad. Retrieved from
http://fd.nl/ondernemen/1140507/kritiek-van-banken-op-buitenwereld-legt-eigen-zwakte-bloot
20 KNAB: https://www.knab.nl/live/blog/2016/april/waarom-willen-banken-geen-spaargeld
21 Betlem, R., & Bökkerink, I. (2015, September 30). Voor het eerst in tien jaar een nieuwe bank. Het Financieele
Dagblad. Retrieved from http://fd.nl/ondernemen/1120675/voor-het-eerst-in-tien-jaar-een-nieuwe-bank
22 Nederland krijgt er twee nieuwe banken bij. (2014, June 19). Nu.nl. Retrieved from
http://www.nu.nl/ondernemen/3806634/nederland-krijgt-er-twee-nieuwe-banken-bij.html
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able to do. These loans are provided in the home country of the lending institution and is therefore not to be confused with charity work for the poor in undeveloped countries. What all these three new ways of financing have in common is that they bypass the traditional banks, which in turn loose revenue.
In sum, banks have to fulfil more legislative obligations, which may decrease risks but also profitability chances, while the incumbent banks need to share the market with more players. In addition, there are new ways of financing that circumvent financing by banks altogether. These trends are suspected to have a large impact on the number of jobs in the banking sector. In the Netherlands, the number of jobs already decreased with 19% over the period 2008-2014, and this is expected to continue (Citi GPS, 2016).
Sociocultural; One of the reasons for the new ways of financing might be the increased negative public view on bankers. In recent years the historically high prestige position of bankers (Kimbrough, 1958) has depreciated from trusted custodian to greedy moneygrubber24. Public
trust in the banking sector has evaporated (Nederlandse Vereniging van Banken, 2015). As a consequence customers might want to do less and less business with the incumbent banks. The second trend is an aging population in the Netherlands25. As a result the Dutch population starts
to spend their money differently, which has consequences for the banks’ marketing, human resources and strategy (Chand & Tung, 2014). Aging may also result in the need for production of new products or services, which may call upon different expertise within banks than currently used. At the same time, the higher profitably of the elderly population does probably smooth the decrease in profits due to a shrinking customer base (Berlemann, Oestmann & Thum, 2014). Another consequence of this trend is the aging workforce of the banks themselves (Centraal Bureau voor de Statistiek, 2016). Circa 50% of the employees of the three big banks are 50 years or older26, which is seen as an ageing group in this sector. This group may be less flexible than
younger people and it is often harder for these older employees to learn new things (Kanfer & Ackerman, 2004), which is problematic in a quickly changing environment26. Furthermore,
urbanization, the third sociocultural trend, means that people are moving away from rural areas into the city2728. This is important because this means that it becomes harder and harder for
banks to maintain cost-efficient, local offices out of the city. When those offices disappear, the
24 Groot, J. (2015, December 24). Ook de bank ontsnapt niet aan de tijdgeest. Het Financieele Dagblad. Retrieved from http://fd.nl/beurs/1132367/ook-de-bank-ontsnapt-niet-aan-de-tijdgeest
25 PwC: http://www.pwc.nl/nl/megatrends/demografie.html
26 Leupen, J. (2016, 30 March). Banken worstelen met ouderen die niet bijleren. Het Financieele Dagblad. Retrieved from http://fd.nl/ondernemen/1145283/banken-worstelen-met-vergrijzing
27 PwC: http://www.pwc.nl/nl/megatrends/demografie.html
24
personal touch between bank and client might also be lost. Rabobank faces this problem of diminishing its local offices and tries to adapt by sending all their employees on social media courses29 (Smit, 2016). The idea is that (personal) contact happens a lot online nowadays, so
Rabobank tries to adapt to that shift in contact. The fourth sociocultural trend is that of the public wish for a utility bank in state hands30. This is about a bank with low risks and low costs
due to only offering simple products such as current accounts31. The reasoning behind this
aspiration is that one, all the deposited money would be safe, also above the €100.000 currently guaranteed by the ‘depositogarantiestelsel’. And two, it would cost less due to the limited activities of the bank and the limited, or even full exemption of, accountability to other banks currently agreed on in the ‘depositogarantiestelsel’. This may sound like a cry for a bank that already exists, but since the abrogation of the Postbank it does not in the Netherlands. So this is as much a trend that can lead to the evasion of the incumbent banks as the aforementioned new ways of finance are. The last trend is that of deconcentrating products by customers. This means that customers divide their banking products over different banks (B. Müller, personal communication, February 25, 2016). Thus for example, a savings account at bank A and a current account at bank B. This deconcentrating leads to less customer loyalty.
In summary, the reputation of banks is damaged and customer loyalty is decreasing as a result. Furthermore, contact between customers and their banks moves more and more online, while an (profitable) ageing population is a complicating factor in the adaption of (new) technology, by both banks’ employees as well as their customers.
Technological; One of the main technological trends of this moment is the blockchain technology. It works as an IT network where all the data is redundantly stored at all the computers in the network, which exists out of 1000’s of pc’s. Instead of one institute that checks all transfers, it is checked by all pc’s automatically in real-time, which makes it almost 100% safe. This technique makes, for example, transferring money much quicker because the check is performed directly instead of via a network of banks that all have to check it. In other words, it cuts out the (trusted) middleman when transferring information which can have also tremendous effects in the notary sector for example. It is not within the scope of this paper to discuss this technology and its possible effects more broadly but there are some other good papers which can help improve understanding of the blockchain technology (Tsukerman, 2015; Zohar, 2015). This potential efficiency increase makes it hard for banks to ignore, because
29 Smit, K. (2016, March 22). 50.000 Rabobank-medewerkers op sociale-mediales. Het Financieele Dagblad. Retrieved from: http://fd.nl/ondernemen/1144274/50-000-rabobank-medewerkers-op-sociale-mediales 30 http://www.burgerinitiatiefonsgeld.nu/
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multiple companies use it already for transferring money32 and as a response a growing group of
banks have gathered together to develop their own blockchain network33. Tests by this group of
42 banks were recently finished but results have not been published34. Moreover, blockchain is
also the underlying technology for the second trend: cryptocurrencies. These currencies function just as normal currencies; people attach worth to it, but have in principle no banking and/or government oversight. There are many different cryptocurrencies but the most notorious one is Bitcoin. For banks, these cryptocurrencies could become a problem because the cryptocurrencies show a financial system that could work without financial institutions such as banks. However, the cryptocurrency market needs to mature before it poses a real threat. Nevertheless, the Dutch central bank (DNB) has set as a goal for 2016 to develop a specific prototype DNBcoin based on blockchain technology to improve sustainability of payment traffic (De Nederlandsche Bank, 2016). This is however an internal experiment of the DNB to familiarize with cryptocoins. The third trend is internet banking. It could be argued that this is already happening since the introduction of iDeal35 in 2005 and the rapid growth of mobile banking apps since 201136.
However, just making apps is not sufficient for banks. The user experience becomes more and more important and ease of use is the new key performance indicator (interviewee 1). Possibly the greatest threat concerning this development for banks at this moment are companies who offer one slick interface for multiple bank accounts such as Fidor37. In such interfaces the
connection between the bank and the customer is almost completely lost and these intermediary companies have much more information than just one bank has: all financial transactions of a customer. That brings us to the fourth technological trend, the use of customer intelligence. This phenomenon is better understood when described as Facebook or Google data practices: collect data of users and make profiles based on your customer data. While accepted from those commercial companies, who now may buy information of banks38, a test in 2014 of ING showed
that banks’ use of this data is not appreciated by customers3940. Nowadays it is only accepted to
32 E.g. Ripple (http://www.wired.com/2016/01/project-aims-to-unite-bitcoin-with-other-online-currencies/) 33 Kelly, J. (2015, December 16). R3 blockchain group adds five banks, brings in technology heavyweights. Reuters.
Retrieved from http://www.reuters.com/article/us-global-banks-blockchain-idUSKBN0TZ1MF20151216 34 Soeteman, K. (2016, March 3). R3 en bankenconsortium ronden blockchain-test af. Tweakers. Retrieved from:
http://tweakers.net/nieuws/108925/r3-en-bankenconsortium-ronden-blockchain-test-af.html 35 https://www.ideal.nl/
36 Veel meer gebruikers banken-app. (2013, January 4). NOS. Retrieved from: http://nos.nl/artikel/458087-veel-meer-gebruikers-banken-app.html
37 https://www.fidor.com/innovation/fidor-financebay
38 Bökkerink, I., & Lalkens, P. (2015, January 21). Banken in geweer tegen delen betaalgegevens met Google en Apple.
Het Financieele Dagblad. Retrieved from
http://fd.nl/frontpage/ondernemen/1089344/banken-in-geweer-tegen-delen-betaalgegevens-met-google-en-apple
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prevent fraud by most customers, but appropriate use of customer intelligence could become a new way for banks to generate revenue. This leads however to the fifth trend, the rise of cybercrime. By depending more and more on the electronic data and transactions cybercrime has become the second biggest risk for banks (Centre for the Study of Financial Innovation, 2015). Cybercrime and protection of client data are on the top 10 risk factors of the AFM (Autoriteit Financiële Markten, 2016). Global cybersecurity expenses are rising to an expected $76,9 billion in 2015 (Bank of America Merill Lynch, 2015) as response to the increase of cybercrime. This translates directly to extra costs for banks to remain safe in the online era. The sixth technological trend is cost sharing. By using platforms such as Wiebetaaltwat.nl, sharing costs in a group has become relatively easy. With the introduction of Bunq, Netherlands’ newest bank, this concept is revolutionized. Instead of just calculating what every member needs to pay it offers, due to its banking license, the possibility to directly settle the financial situation, completely bypassing traditional banks. This has the potential to take a lot of (small) transactions of incumbent banks and bind customers to them. To prevent this traditional banks have recently launched similar products41 (e.g. GRPPY42 & Twyp43). The seventh and final
technological trend is robo-advice. Robo-advice is in essence the replacement of experts, who give face-to-face advice, by algorithms that ‘calculate’ the best option for you. This is for example used in determining credit worthiness of persons. It is expected that, with a probability 98% or more, jobs like loan officers, brokerage clerks and insurance appraisers will be automated in the foreseeable future (Frey & Osborne, 2013). However, other researchers argue that jobs are more than just (simple) tasks whereby seperate tasks are automatable but complete jobs are a lot harder to automate. Therefore, these scholars claim that this percentage will be much lower and that mostly people with low education and relative simple jobs will be affected (Arntz, Gregory & Zierahn, 2016). In the Netherlands, the latter scholars calculated, on average 9% of the jobs has a high risk to be automated.
For banks this trend will probably result in an efficiency increase by decreasing processing time and making certain employees redundant. Cost savings are therefore likely.
In summary, new technology can make banks redundant both for currencies and for transactions, while in the meantime internet banking is becoming more prevalent with companies playing well into that. Incumbent banks cannot yet use the customer intelligence they have in a profitable way and need to wait or find a way around negative public opinion. The
40 Munsterman, R. (2014, March 17). ING stopt big data-plan terug in de kooi. Follow The Money. Retrieved from https://www.ftm.nl/artikelen/ing-trekt-big-data-plan-terug
41 Stravens, M. (2016, January 12). ING lanceert Twyp-app ook in Nederland. Het Financieel Dagblad. Retrieved from: http://fd.nl/ondernemen/1134822/ing-lanceert-twyp-app-nu-ook-in-nederland
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public demands nonetheless that in the meantime bank safely guard their data. Furthermore new companies with specific financial products are enabled through technological developments. Altogether, this puts banks in a tough spot.
Table 1 - Overview current trends
Trend Description
Political New (EU)
legislation
Increased legislation to control and regulate bank operations
Nationalization of banks
Governmental acquisition of banks and significant financial aid
ECB interest policies
Very low (or negative) interest rates to stimulate lending and boost the economy
Economical Solvency demands ECB
Higher demands for solvency of banks to reduce risks Threat of new
entrants
New banks and other lending organizations who enter the credit market
New ways of financing
Other ways to borrow money besides traditional borrowing from banks (crowdfunding, P2P lending & microfinancing)
Sociocultural
Worsening reputation of
bank(er)s
Deteriorating public trust in bank(er)s
Ageing population Older customers as well as older employees Urbanization People move from rural areas to the city The ‘utility
bank’-demand
The wish for a bank, in hands of the state, which only offers ‘simple’ financial products and is considered safe Deconcentrating by
customers
Customers spread their financial products over multiple banks instead of all products with one bank
Technological Blockchain Data infrastructure which uses data duplication to remove the need for the trusted middleman
Cryptocurrencies Digital currencies (currently) without oversight from a central bank
Consolidation of internet banking
Bringing multiple banking products/services together in one third client service
Customer intelligence
Creating customer profiles based on user data
Cybercrime Criminal acts performed mainly via internet or at least technology related
Cost sharing software
Sharing costs with friends in real-time using a payment service
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4.3. Classification of trends/Disruptive trends
Each of the trends was evaluated according to the aforementioned prerequisites for disruptiveness derived from the disruptive theory. A total of 3 experts validated this evaluation. An overview of the outcomes of this analysis is presented in table 2. The individual scores of the experts can be found in Appendix E.
As can be concluded from table 2 there are two potentially disruptive trends: new ways of financing and customer intelligence. These were already briefly mentioned, but a more complete understanding of these trends is necessary in order to answer the next research question. Therefore, a more comprehensive elaboration of these trends and their coherence with other trends is presented here.
As stated before there are three new main ways of financing: P2P lending, microfinancing and crowdfunding. In this study the focus is specifically on P2P lending because of its most undermining nature of traditional banking relative to the other two new ways of financing: P2P lending does not involve a financial institution (microfinancing does) and competes directly with banks for providing loans (as opposed to crowd funding). Furthermore, it has enormous growth potential as the year-on-year doubling of the US and UK markets show (Kirby & Worner, 2014) which makes the disruptive nature more conceivable. In the US alone the peer-to-peer lending is estimated to have a size of between $150 billion and $1 trillion in 2025, compared to $5.5 billion in 2014 (PricewaterhouseCoopers, 2015). The main borrowers on P2P lending platforms are non-financial private companies and households. The current lending market in this segment is around €750 billion44 which shows the huge potential P2P lending taps into. Different
definitions make it difficult to give precise numbers about the Dutch market. However, estimates of peer-to-peer funded loans range from €90 million (Crowdfundmarkt, 2015) to €128 million (De Boer, 2016) in 2015. While this is only a marginal fraction of the total lending market, the loan amount has grown explosively since 2011, when only €2,5 million was invested via P2P lending in the Netherlands (Douw&Koren, 2015). Household loans were with less than €1 million in 2014 almost negligible in regard to a total of €63 million of issued P2P loans45. Thus,
the current Dutch P2P lending market is small but explosively growing and consists mainly of SME-loans. Furthermore P2P platforms often use new technologies such customer intelligence as input for robo-advice to quickly determining creditworthiness of customers. As a result a loan proposal can be processed with less man hours and much quicker than at traditional banks and
44http://www.dnb.nl/statistiek/statistieken-dnb/financiele-instellingen/banken/binnenlands-bankbedrijf-monetair/ 45 Spelier, P. (2015, January 29). Lendex, een nieuwe speler in een fors groeiende Nederlandse crowdfundingmarkt.
[finno]. Retrieved from http://finno.nl/2015/01/29/lendex-een-
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therefore it often results in lower interest rates for the borrowers. And whilst P2P usually use banks to transfer money between lenders and borrowers, it is not unthinkable that blockchain technologies, whether or not in combination with cryptocurrencies, will be used to further increase the process efficiency in the (near) future.
Table 2 – Disruptive trend classification
Criteria for disruption
Trend Innovative Financially unattractive for incumbents New market High end Low-end
Political New (EU)
legislation
Nationalization of
banks
ECB interest
policies
Economical Solvency demands
ECB Threat of new entrants New ways of financing Sociocultural Worsening reputation of bank(er)s Ageing population Urbanization
The ‘utility
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Customer intelligence is a very sensitive issue. This became apparent when ING4046 and Equens47
(which handles pin transactions for the banks in the Netherlands) published their plans for using customer data. Both caused commotion and the plans were quickly abandoned. However, customer intelligence seems like a logically consequence of the increasing use of internet banking39. Internet banking provides banks with lots of data of their customers payment
behaviour which is scarcely (commercially) used at the moment. One exception for which the data is used nowadays is fraud detection. Using data for fraud detection is (socially) accepted since 80% of the customers consent with this practice (Maatschappelijk Overleg Betalingsverkeer, 2015). This study also shows that the public does not accept personalized commercial offers from third parties, communicated by the bank. Also, providing payment details to third parties while the data remains at the bank is not tolerated. Selling of payment details of customers by banks to third parties is the least accepted way of using customer intelligence. Respectively 11%, 7% and 3% of the Dutch population found these three practices acceptable. Even offering specific banking products based on payment details, which is within the banks its legal rights48, is unaccepted with a 12% approval rate (Maatschappelijk Overleg
Betalingsverkeer, 2015). The difference between banking products with (third party) promotional items and ‘pure’ third party offers can be vague, as is illustrated by the case presented below49:
46 ING houdt privacygevoelige proef met klantgegevens. (2014, March 25). Retrieved from
http://www.nu.nl/economie/3722010/ing-houdt-privacygevoelige-proef-met-klantgegevens.html 47 De Haes, A. U. (2013, May 24). Equens wil pingedrag Nederlanders verkopen. Webwereld. Retrieved from
http://webwereld.nl/security/77855-equens-wil-pingedrag-nederlanders-verkopen
48 Boex, H. (2014, March 11). Wat mag ING met onze betaalgegevens doen? Zes vragen over het omstreden plan. Het
Parool. Retrieved from http://www.nrc.nl/next/2014/03/11/we-doen-dit-voor-de-klant-heus-1353871
49 Martijn, M. & Van Raalte, J. (2014, June 20). Hoe ABN Amro weet dat jij een buggy nodig hebt. De
Correspondent. Retrieved from
https://decorrespondent.nl/1314/Hoe-ABN-Amro-weet-dat-jij-een-buggy-nodig-hebt/54349265916-f7f236f5
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It is quite common to offer vouchers or other goodies in combination with banking products. However, in this case the offer was based on personal, not consciously shared information which upset the father. Compare this example with a case two or three decades ago and the similarities are evident50:
A couple received an offer for children’s saving account. Just having had their third child this was not odd but never had they shared this information with their bank. A bank employee had however heard of this birth through some social feelers in the local community. As response he In this case the parents reacted positively on the proactivity of the bank employee, even though the same information (birth of a new child) was again not consciously provided. The main difference is the social versus technology aspect. This may be influenced by national culture, since Bank of America in the US conducts targeted advertising since 201248 and also the Bank of
the West conducts similar practices without much fuss51.
50 Spelier, P. (2014, July 17). Mag een bank (online) wel persoonlijk zijn? [finno]. Retrieved from http://finno.nl/2014/07/17/mag-een-bank-online-wel-persoonlijk-zijn/
51 Wisniewski, M. (2014, June 20). Target Marketing: Banks pitch products through smartphones. American Banker. Retrieved from http://www.americanbanker.com/issues/179_119/target-marketing-banks-pitch-products-through-smartphones-1068223-1.html?pg=2
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5. RESULTS – Cycle II: Influence on CRM
This chapter will provide an answer to the question ‘How will customer intelligence and peer-to-peer lending influence the relationship(management) between bank and customer?’. To answer this question first of all the current relationship between the bank and a customer is described. Secondly, ongoing and expected changes in this relationship are pointed out. To conclude this chapter an analysis was performed on the differences between the current and expected relationship which enables answering the aforementioned question.
5.1. Current situation
The relationship between banks and customers is nowadays mostly transactional. This holds for individual customers as well as SME’s. The transactional nature of the relationship shows, for example, in the issues and contact moments between customers and banks. Contact between customers and their bank is mostly initiated by the customer. Interviewee 5 indicates that most of these contact moments, mostly calls, are about relative simple issues such as blocking a bank card. These kinds of issues can also be resolved in the mobile apps of banks but customers currently still prefer calling the bank. ‘To move people to the internet (..), that is really [difficult]. A lot of contact happens per phone, especially when it is initiated by the customer. They will still call.’ Phone contact is therefore one of the largest direct communication channels between banks and customers which forces banks to maintain service centres to provide the expected services. The provided service is almost purely transactional, because the subjects of the conversations are formal and functional, not at all intended to build or maintain social relationship. At best you could argue that there is some form of joint problem solving (Uzzi, 1997) because the bank offers a solution for the problem of the customer but this is farfetched in my view.
Besides these administrative issues customers also contact banks for credit, individuals (e.g. mortgage) as well as SME’s (e.g. loan for expansion). These kinds of contacts use more face-to-face communication with for example a mortgage advisor or an account manager. Interviewee 5 indicates that while these conversations keep their face-to-face nature they are moved in to a digital environment, for example using a webcam52. This removes the need for the two parties to
be in the same physical location which makes human resource planning a lot easier: ‘It doesn’t
33
matter where the advisor is located, he can be located in Friesland and help someone in Rotterdam so to speak’. Interviewee 7 even suggests that for SME’s no face-to-face contact is necessary: based on an automatic analysis of the financial situation of an SME a personalized proposition can be presented without human interaction. While interviewees 5, 6 and 8 indicate that trust is needed in a financial relationship, the core of these conversations and deals is lending money from the bank. To illustrate a small, general example given by one interviewee 5 about an entrepreneur in need of financing. ‘If you want to build an enduring relationship, especially in the business sector, it could prove beneficially to have a good account manager who understands you and your company. However, in the end he, [the entrepreneur], wants credit. He wants it quick, attractively priced and after that [he embraces the mentality of] leave me alone, I’m busy running my business’. This indicates that the relational part is subservient to transactional part of the relationship. Interviewee 7 supports this view.
Thus, in terms of contract management both transactional and relational governance have a clear role in the relation between bank and customer. For transactional governance in particular the functions safeguarding and adaptation are important. Legal binding contracts need to be signed and complied to, to safeguard primarily the banks in this relationship. When borrowers don’t pay their agreed payments the banks go bankrupt. The subprime mortgage crisis made that very clear. Related to that is the adaptation function which is also very important in this case. For banks adaptation basically boils down to risk calculation, something they excel in. Interviewee 6 revealed that banks use models that they started to develop in the 60’s and 70’s and that have been continuously improved ever since.
34
are accused by SME’s of putting their self-interest before the interest of the companies or other involved parties53.
Resumé, in my view the results show that the current relationship between banks and customers is mostly transactional. There is not a whole lot of affection between banks and customers and the transactions are based on cold numbers and facts, not on intangible things. This limits the relation between customers and banks to mainly transactions without a (personal) relationship between persons. When there is, the relationship is subservient to the transaction. As interviewee 5 put it: “We [the bank] are nothing but a store, a restaurant: people want good service”
5.2. (Expected) changes in the bank-customer relationship
Interviewees described (potential) developments for banks and customers that could change the relationship. The peer-to-peer developments will be discussed first, followed by the customer intelligence related developments and their effects on the bank-customer relationship.
5.2.1. Peer-to-peer lending
Peer-to-peer (P2P) lending will change the role of some customers and therefore change the relationship between banks and customers. As was indicated in the first cycle and confirmed by the interviewees, the banks have higher capital demands due to for example Basel III. This basically means that banks cannot lend as much as before the subprime-mortgage crisis, ceteris paribus. Therefore, banks try to find ways to provide loans that are less capital intensive without losing (too much) market share of customers. A good example is the hybrid SME loan of Rabobank where the bank finances half of the loan and other organizations finance the other half.54 These hybrid solutions could become a commodity or at least a standard product in the
bank’s product portfolios. That means that a new kind of partnership role as co-financer comes into existence. When these are customers of the banks this will add a whole new dimension to that relationship. It is however difficult to say in which governance area the changes will be most profound since there can be complicated legal work involved (transactional) or an opportunity to help a borrower from different fields of experience (relational).
Another option is that if the banks wish to directly compete with P2P lenders, who provide cheaper loans and process a credit request in minutes instead of weeks like at traditional banks,
53 https://www.ftm.nl/dossier/bijzonder-beheer
