Context
It’s a known fact, even in regulatory circles, that high operating expenses are a major issue that adversely impacts loan asset pricing. Studies have shown, especially in Ghana, that high base rates are correlated with high operating costs and low non-interest revenue. Although the high operating expenses (expressed as cost/income ratio) are characteristically high in services sectors that are competitive, it bears investigating whether expected customer-related outcomes are realized. In the banking sector, a chunk of operating expenses goes to service personnel, marketing and branding, and deposit liabilities. The goal of every business, obviously, is to earn a fair return on shareholder capital, but more exigently, to execute a unique business model in a manner that creates a competitive edge in various markets. So the question which arises is this: Do service quality levels (or perception of the same) in the financial services sector, correspond with, or remotely justify, the increasing operating expenses incurred to make customers happy? In other words, are financial services firms creating unique consumer experiences with products and services that are differentiated enough to confer a competitive advantage?
Methodology
To help answer the key questions, a survey was designed using an electronic questionnaire to collect data from respondents via seven (7) social media channels. The data collection period lasted for 6 months and 19 days, garnering 738 actual respondents, which represents 74% of the 1,002 persons who were originally contacted with survey questions.
Findings
First, let’s start with channels. The increasing consumer use of banking apps and e-channels such as Internet Banking and ATMs is encouraging. Notwithstanding, a whopping 37% of respondents still prefer to use the banking halls. This poses two important questions for management teams: (1) how can you get more customers to use e-channel services, and (2) how can you sustain the momentum once it’s created? A clear response to these questions is undoubtedly required in order to reorient consumer behavior towards e-channel usage.
When asked what respondents considered before choosing a bank, the majority (49.6%) said “convenience and timeliness of service delivery” is the game-changer for them. Interestingly, Respectful Staff and Building Aesthetics accounted for only 2.4% of the decision-making parameters. I found this quite interesting for two reasons. First, lack of empathy was the third highest contributor to customer dissatisfaction, according to 14.3% of the respondents. The second reason why this insight is very interesting is because of what respondents seem to be saying about the financial industry’s emphasis on expensive office buildings. Only 0.8% of the 738 respondents claimed that they took buildings and aesthetics into consideration before choosing a financial service provider. Why is this significant? Let’s start with rent-to-operating income ratios. In 2016, the average rent-to-operating income ratio for Unibank, The Royal Bank, Sovereign Bank, and Premium Bank was 3.2%. Sovereign Bank with just 71 employees at the time, spent GH¢1,867,000 as lease amortization (GH¢26,295.77 per employee), compared to Standard Chartered Bank, which spent GH¢10,938,000 on the same item. The latter had 974 employees by the close of FY 2016, meaning that its per capita spend on rent/lease amortization was GH¢11,229.98 per employee. The numbers don’t make any sense, especially for less profitable and less efficient banks. So what does this mean? Am I saying that nice banking halls and palatial corporate offices are needless? No! I would rather tell you what the data says. In the scheme of the customers’ value preference scale, aesthetics (or rather excessive aesthetics) is at the bottom of the scale. But thriftiness in branding would also be counter-productive, why? Herzberg’s two-factor theory of motivation provides the answer. Aesthetics is a “Dissatisfier”; its presence doesn’t motivate, but its absence demotivates.
Now let’s address the game changer: responsiveness. Respondents were asked about two things that they are satisfied with concerning their bank. 1,062 responses (free text) were recorded, tallied, and categorized. The majority (29.9%) gave reasons that were classified as responsive (see Question 11). On the flip side (two issues they are dissatisfied with), again, the majority of respondents (38.8%) gave reasons that were summarized under responsiveness. Interpretation: doing what you say you will do (products, pricing, engagement, etc.) with efficiency and precision is at the top of the customers’ value preference scale. Doing it consistently and accurately over time makes you trustworthy, and therefore reliable. It’s also important to mention that service accessibility (24.3%) was ranked very high in terms of satisfiers. After all is said and done, Herzberg’s two-factor theory of motivation seems to be a play.