A new report on financial services from Cap Gemini Ernst & Young Canada says that new competitors are making life interesting for financial services customers. The report warns that banks and insurance companies that don’t fully understand their customers’ needs do so at their peril.

The report, entitled Paths to Differentiation, surveyed 250 senior executives from over 100 financial services organizations in 13 countries, including 50 executives from 20 of Canada’s leading banks and insurance companies. Surveys were conducted from April to June 2001.

“What we’re seeing in Canadian financial services is a reconfiguring of the industry,” said David Bolton, vice president and team leader, Financial Services Sector.

“Customers no longer feel that they are tied to one institution for life. They can do business wherever, and with whomever they please, including aggregators and newcomers alike. Traditional financial services organizations are responding to these new options and over the next 3 years will invest substantially in the IT support they need to develop long-term partnerships, rather than purely transactional or product-based relationships, with their customers.”

Globally, the report points to common themes, such as: growing acceptance of open finance; renaissance of the branch channel; realization of e-commerce as a complementary channel, not a substitute for, face-to-face service; and lack of return on investment models for Customer Relationship Management investments.

Relative to their global counterparts, Canadian financial service providers are more accepting of “open finance”. However, 69% are still more comfortable with complementary products, reflecting a “products and services”, rather than a true customer-focused, mindset.

E-commerce is no longer seen as a cost reduction strategy, but as a way of retaining customers through improved service levels. According to the report, CRM tools were seen as a means of connecting to the customer.

“All Canadian financial institutions surveyed emphasized their desire to be partners with their clients, instead of advisors on specific products or services, with 71% citing CRM as a key tool in helping them to reach this goal,” said Gregory Smith, consulting manager.

Asked what lies ahead for the financial services industry, Bolton points to further restructuring in the sector. “There’s no doubt about it, we’ll see more financial institutions lobbying to gain critical mass, mainly through acquisitions. We’ll also see a shift away from the current product-focused environment to a customer-centric mentality. Further down the road, we anticipate the development of mega firms, of ‘best of breed’ product providers, and of companies that specialize in orchestrating customer experience. These will be three separate and distinct financial services entities in the global financial services sector of the next five years.”