In 2019 there are some massive global issues for financial services marketers that will not go away. Every major market, from Europe to the US to Australia, seems to be affected.
Americans watched some of their largest financial institutions in the country fail during the global financial crisis, and while banks have worked hard to regain the public’s goodwill since then, major scandals have once again raised questions about the way the nation’s financial institutions do business, from the $US185 million fine Wells Fargo was slugged with for creating millions of accounts for customers without their knowledge to US Bancorp $613 million settlement for failing to adequately combat money laundering.
Britain’s Financial Conduct Authority recently reviewed overdraft charges and concluded that banks have been charging people extortionate amounts, while at the Royal Bank of Scotland financially distressed borrowers were found to be the victims of widespread “inappropriate treatment” and profit-chasing.
In Australia, the conflict at the heart of the mortgage broker industry — fuelled by commission schemes and trailing bonuses that incentivise brokers to make loans bigger and longer regardless of the ability of the householder to pay them — was laid bare during hearings of the Royal Commission into banking misconduct. Car loans were also scrutinised: stories emerged from people who were signed up to car loans they could not afford, in some cases for dodgy vehicles that didn’t work.
The resulting stress and hardship for individuals can be devastating.
And for financial institutions, the penalties that can arise are significant, running well into hundreds of millions of dollars for individual organisations in some cases.
Banks have changed, and are changing, many of their lending practices, but there are some inescapable conclusions that can be drawn about the future of marketing financial services products:
1. The volume of marketing risk and compliance work will increase
The global banking industry is facing the threat of increasing regulation to cope with these and many other regulatory breaches.
But the failure to comply with existing requirements is perhaps the biggest issue facing banks and the other financial institutions affected. Banking is already highly regulated, but unconscionable behaviour continues to occur in breach of those requirements.
That means all financial institutions will have to improve their game when it comes to ensuring compliance.
2. Banks cannot assume their agents will regulate their own behaviour
Customers have detailed cases in the past year where car dealerships, in concert with the car finance arm of a big bank, offered loans the applicant could not afford, while mortgage brokers were incentivised to offer loans it was obvious householders were unlikely to be able to pay.
Banks are being called to account for those practices, regardless of whether or not they believed the bank or its agent was liable to ensure responsible lending requirements were met.
3. Compliance costs are set to skyrocket
In Australia alone, the Royal Commission into misconduct in the banking industry is expected directly to cost the banking and financial services industry more than $1 billion. And in-house legal and compliance units are expensive, which means the increasing regulatory burden will see legal, compliance and risk management costs skyrocket.
Compliance teams can hardly read every message from a broker to a potential loan customer. But the spot-checks audit teams have made in the past do not appear to have done enough to ensure regulatory compliance. That means the volume of work facing those compliance teams is set to grow.
But marketing teams can’t afford to have every campaign bogged down in compliance for weeks. Marketing cycles are getting shorter, not longer. And the number of different communications channels marketing teams are using is growing.
4. Marketing compliance issues must be managed in real time
Emails from agents such as car finance arms and mortgage brokers offering loans might occur outside the banks’ own in-house compliance frameworks, but thanks to the wonders of modern technology, that does not mean they can’t be monitored or addressed.
And they need to be addressed in real time to prevent those breaches from occurring, rather than months or years down the track.
So what can be done to address these issues? Modern technology — including machine learning for compliance, natural language processing and voice technology — can be employed to ensure marketing compliance issues are managed more effectively.
And central marketing resource management platforms can be deployed to provide up-to-date approved marketing materials both internally within banks and to their agents.
Banks and financial institutions that do not quickly utilise technology to address their marketing risk management and compliance issues will continue to struggle to deal with the fallout from the compliance nightmare facing the financial services industry at large.