Relationship Banking During Economic Uncertainty

Economic indicators are increasingly pointing toward recession. But whether one materializes — and whether it is a soft landing or a bumpy ride, one thing is clear: The financial climate has made banking customers increasingly anxious about their personal and business finances. A focus on relationship banking is more important than ever.

Many forces are combining here to drive uncertainty and make both bankers and their customers jumpier:

• High inflation continues to be a major stressor for the average consumer — financially and emotionally — with delinquencies on the rise and credit card debt at record highs of +18.6% over 2022.
• Savings accounts are already lower year over year in 2023 vs. 2022, as 88% of consumers have less than $1000 in the bank and no cushion against hard times.
• Continued layoffs and a softening jobs market are also threatening people’s solvency.
• And, of course, low housing inventory and high-interest rates have prevented or discouraged many people from taking loans.   

None of this is unexpected. Clouds have been gathering over the economy for more than a year now, as it has struggled to find its footing after the disruption of the pandemic. Our ENGAGE 2023: Customer Engagement in Banking Annual Trends Report found that 91% of banking professionals and 84% of consumers (surveyed in August 2022) thought the US economy was either currently in a recession or would be in one soon.

In fact, 57% of financial institutions and 46% of consumers in that survey said they believed the country was already in recession (when surveyed in August 2022). Almost 9 in 10 respondents in both groups were worried about a recession’s impact.

Confidence in banking itself has been affected, growing increasingly shaky in the wake of March’s bank runs and a so-called “slow bleed” moving into April 2023 and beyond. This is primarily true for business banks and regional banks — but there is a knock-on effect across the industry that has eroded consumer confidence and increased anxiety over where customers take their money.  In our August 2022 survey, 75% of banking consumers told us that they intended to scale back their planned financial activities. 

The benefits of relationship banking in times of economic uncertainty

Relationship banking during a recession or time of uncertainty is critical for both customer retention and new customer growth.

What is relationship banking?

Relationship banking is the practice of building and maintaining long-term relationships with clients by providing personalized customer service and solutions that meet their specific needs. Where customer service is lacking, faith in the banking system is further eroded. But where people feel connected to their financial advisors and bankers, it helps to promote stability and quell erratic behavior.

Relationship banking makes business customers more resilient and able to maintain higher levels of investment and employment. Research has also shown good relationship banking practices can lead to fewer defaults for business and consumer customers — as banks and credit unions that rely on relationship banking tend to see lower rates of default and foreclosure.

Having strong relationships with customers can also decrease churn. According to JD Power’s 2022 U.S. Retail Banking Study, customers value and are more loyal to banks that deliver a meaningful customer experience and make the effort to support them in challenging economic times. In that report, 63% of customers said that if this kind of support is delivered by their financial institution, they “definitely will not switch banks, and 78% say they definitely will reuse their bank.”

How can banks and credit unions create more recession-proof customer relationships?

In times of economic uncertainty, customers will be leaning on their primary financial institution for extra assistance and guidance. Our ENGAGE 2023: Customer Engagement in Banking Annual Trends Report showed that, should a recession occur, consumers will be looking for additional support beyond the obvious products and services offered.

Consumers indicated they’d be looking to banks and credit unions for:

• Lower fees
• Better or more competitive rates 
• Late payment forgiveness 
• Recession strategy planning   
• 1-to-1 financial planning   

4 ways relationship banking helps FIs increase resilience in times of crisis

Whether a recession materializes or not — one thing is clear. Customers are looking to their bank or credit union for reassurance and programs that will increase their stability, trust and peace of mind.

Here are four ways leaning into relationship banking will help to increase your own resilience and that of your customers:

• Creating and maintaining open lines of communication through both human and digital channels will make customers feel confident and well-served by their bank when they are anxious. Our 2022 research showed that customers who use human-assisted channels in addition to their web or app channels are much more likely (63% vs. 38%) to agree that their bank or credit union tries to engage with them to better understand and meet individual needs. Moreover, customers who use human-assisted channels were also much more likely to agree (56% vs. 21%) that there is someone at their bank or credit union that they always go to whenever they need advice or answers to financial questions.
• Making more financial guidance available for customers will help banks create more financial stability as the markets shift and help them to prioritize the economic well-being of their consumers. Increases in staffing and training to provide consistent and higher-quality guidance. Providing and promoting additional resources and assistance across all your channels also can help customers make better decisions and maintain confidence.
• Offering 1-1 appointments with customers to engage with them directly and discuss their financial options proactively. Inviting customers into the branch and driving more 1:1 personal relationships with customers will require support behind the scenes — including training and development, close planning of staffing levels, and introducing multiple ways to support customers through an optimal digital experience. FI’s who want to invest in building relationships will expand to offer more of these services, such as:
  • A ‘digital relationship center’ for education  
  • Self-service online appointment booking 
  • Virtual banking and real-time video banking
  • Increased consumer education around products (like CDs) that are more resilient in a down-turn
• Providing AI-powered conversational chatbots so customers can ask and get answers to their questions. Chatbots serve up relevant resources from the bank or credit union’s central knowledge base and can offer customers appointments for more complex transactions or transfer customers to live assistance.

Relationship banking is instrumental in helping consumers, businesses, and financial institutions navigate economic uncertainty. They deepen trust and provide better stability, access to credit, communication, tailored solutions, and increased loyalty.

Does your team have the infrastructure, technology, and support to double down on relationship banking and thrive in the face of economic uncertainty? Contact us for a tour of the Engageware platform.