Defining And Executing On Your Bank’s Customer Service Promise

Improving Bank Customer Service

Almost all community bankers believe that they compete on the level of service that they provide to their customers – and this much is true.  However, many community bankers believe that they provide an above average level of service – and that is mathematically impossible since some banks must be average and some below average.  If you believe that your bank differentiates itself on the level of service that employees offer customers, then you must understand which customers your bank wants to target, what service these customers value and how to develop, measure and incent superior service.  The former, and venerable, CEO of General Electric, Jack Welch, stated that the three most important measures of organizational health are cash flow, customer satisfaction, and employee engagement.  Banks have rigorous methods, systems and committees to measure cash flow, but customer satisfaction is usually not well understood or measured.

Better Understanding The Service Equation In Banking

Competition creates customer expectations and today’s banking business is competitive.  Customers that have experienced superior service from other banks or other businesses expect to receive the same level of service from your bank.  There is a very high correlation between customer satisfaction and business success.  However, just saying that your bank provides a superior level of service does not make it so.  Superior service takes thoughtful analysis, substantial resources and an analytical process that is iterative (always improving).

The steps to implementing superior service at your bank are outlined below:

Customer Service Matrix 

Desired Results

To provide superior service a community bank must decide why superior service is important for that bank.  Can higher service translate to more market share or higher profit?  These last two goals can be very different and opposed.  The desired results will dictate where resources will be allocated and how that service is to be delivered.  However, providing superior service for its own intrinsic value, while noble, often leads bank down a rabbit hole which is hard to escape.  Management will spend substantial time and resources to provide a level of service that may or may not be important. Customers, for example, always want closer branches but that is rarely feasible. Bank managers need to identify their desired results and attempt to optimize and align service to help achieve these results.

Segment Customers

The next step in providing superior service at community banks is to segment customers to understand current profitability, capital costs, growth potential, and the bank’s product capabilities.  For example, if a community bank’s goal is to provide a higher level of service to grow market share, and the bank already commands 90% of a specific market share, then the cost to provide higher service in that specific market has a very low return on investment.  

Further, if the bank’s goal is to increase profitability, and the bank directs service resources at unprofitable products, then services resources are being squandered.  A community bank may segment its business based on products, location, delivery channel, demographics, industry, size of customer, pricing structure, margin, or credit quality.

After the segmentation is complete, the bank needs to consider the potential of the customer segments for profitability, growth, and costs.  Each segment also has its unique capital, liquidity, and processing costs.  If a bank has identified shareholder value as the desired results, then focusing additional service on a profitable and large product segment with substantial room for growth makes much sense.


Customer surveys serve an important part of the service alignment.  Service provides customer satisfaction, and we need to understand what creates customer satisfaction.  Service will be defined differently for different client segments.  Surveys are used to identify factors that drive customer satisfaction and determine customers’ priorities.  The survey is a crucial step that is often overlooked by banks in determining where to allocate limited service resources.  

The survey hierarchy is outlined in the chart above from most expensive (face to face interview) to the cheapest (emails and comment cards).  Banks cannot survey their entire customer base, so sampling is mandatory.  However, when customers are segmented, and sample groups are small, biases are often introduced.  The bank may only survey one or a few customers in a particular segment, therefore, not obtaining a fair view – what is important for one customer may not be important for others. 

There are a few typical pitfalls in surveys that community banks must avoid.  First, frontline employee interviews demonstrate a substantial amount of bias. Employees may assume incorrectly that customers value certain attributes simply because those attributes have been emphasized by the bank in the past, or because employees find it easy to deliver those attributes.  We have all seen tellers spend an inordinate amount of time talking to retail customers whose small deposit balances are a drain on the bank’s ROE – friendly yes, but this is service that does not achieve a bank’s desired results.

Other pitfalls with surveys are that many banks concentrate on current customers equally.  However, depending on the bank’s desired results, the bank may want to focus on the most profitable, highest growth potential, or market niche customers.  Finally, many banks overlook past, potential, or competitors’ customers and these customers may be where a bank should focus superior service to achieve its goals.

Client Expectations

Banks then need to understand customers’ wants, needs, expectations, and preferences.  This is not as easy as it sounds.  If you ask customers if they want their bank’s branches to stay open on Saturdays, almost 75% of customers will say yes.  However, when you ask them if they will use branch services on Saturday, most will not. 

The following lists show what community banks must consider when capturing customer expectations:

Improving Customer Service

The reality of community banking is that you cannot be all things to all customers because of limited size, time and resources.  Therefore, community banks must focus their service on the customer segment that allows the bank to achieve its stated goal.  For example, if the bank wants to increase profit, and a specific commercial product is unprofitable, management will not want to allocate superior service to this particular segment.

Customers and prospects have service expectations from the bank.  The bank cannot meet all expectations for all customers in all segments.  By understanding the intersection between customers’ expectation and a bank’s limited amount of service resources, a bank can properly ration services to better achieve its desired results.

Identify Service Attributes

After a bank identifies its desired results, segments its customer base, performs surveys to identify client expectation, should a bank then deliver the service to meet client expectations?  The answer is absolutely not.  This is probably the most common mistake made by some banks.  Some service attributes are important to customers, and a community bank can deliver on these attributes.  However, other attributes may not be a good fit for a community bank.  A bank must consider the value equation between services it can offer and the cost and effort in providing superior service for different attributes.  The simple equation that banks need to consider is shown below:

Value = Service / Cost of delivery

A community bank wants to find the right service attributes, for the right customers at the right cost.  Therefore, the bank must direct service at attributes that customers find important and not waste resources on services that customers find unimportant.

Further, the value attributed to the customer must exceed the cost of delivery.  For example, highly intensive capital businesses would seek credit approval without sufficient collateral or sponsorship, but that service is a negative return for the bank (cost to the bank outweighs the service attribute to the client).  Each community bank must identify which services it offers well that is also valued by customers and prospects, and emphasize that service. 


Superior customer service can help community banks win more business and achieve their desired results.  But like any other bank goals, superior customer service is a long-term and analytical process that needs resources, management’s attention and time.  If service is critical to your business model, it might make sense to place some rigor around how that service is defined and delivered.