The Ways in Which Customers’ Attitudes towards and Expectations of the Financial Services Sector Have Changed in Recent Years and the Ways in Which Organizations within the Sector Have Responded
Since the beginning of the 80s of 20th century, trade in services has become the most rapidly growing area of world trade. Moreover, technological progress, the emergence of new financial instruments and the liberalization of trade in financial services set the stage for further growth of the sector at both the national and international levels. Since the 90s of 20th century, more than 25% of the global service sector belongs to the financial sector. It is of vital importance to society and the economy, even short-term disruptions in the global financial system always lead to the considerable dismay. The exclusion of most of these systems can even act as an instrument of pressure on the state. A living example is about voiced from time to time offers and threats to switch off any country from SWIFT, the international interbank transfer system of information and payments (Madura, 2012).
As any business sector financial services sector was affected by factors of political, economic, social and technological nature. Of course, it is sometimes difficult to overestimate the impact of political factors on modern financial markets, because very often in the developed countries, the government is engaged in the settlement of crises that occurred in the financial markets. First of all, the political situation affects the economic aspects of the lives of citizens, which include mass hysteria, mistrust, frustration, which in turn leads to negative economic consequences, such as currency devaluation, capital flight, inflation, etc. (Das, 2009).
Among the major factors driving the growth of international trade in financial services, the following should be defined, both of economic and technological contents:
Globalization and liberalization of the financial services market. Financial services, under the influence of this factor, have undergone significant technological and structural changes. The globalization of financial services market has led to increased financial integration, an increase in the number of mergers and acquisitions of financial institutions, lowering national barriers. Liberalization of trade in financial services leads to increased competition from their suppliers, contributes to the development of financial services, enlarges their variety of goods, reduces the cost of these services, and enhances economic growth and prosperity in the long term. However, globalization and liberalization have led to increased financial risks in the global financial market; periodic global financial crisis, leading to instability of the global financial market and affecting all of its members; and the rapid movement of huge masses of speculative capital between countries that can dramatically worsen the condition of national economies – the unequal distribution of positive results of financial globalization between industrialized and emerging states, leading to a widening gap between rich and poor countries (rich and poor people within countries), as well to the greater dependence of poor countries on the rich (Falconer, 2014).
Integration of information technology and financial services. The growth of significant transformational impact of scientific and technological progress, especially information and communication technologies on the process of providing financial services has led to a comprehensive modernization and radical changes in the traditional characteristics of this sector as a whole. Information technologies have become a factor of accelerated development of the global financial services market, the emergence of new business models in the financial sector, the modification of its infrastructure. Nevertheless, information technologies have increased risks related to data security, financial frauds, spread of economic terrorism designed to declines in regional stock markets, the depreciation of the shares of different companies, depreciation of the collective currency (e.g. Euro) and the like (Das, 2009).
Increased competitiveness of financial service providers in the context of globalization. Financial services market has become more competitive both by new entrants as well as by the fact that the existing financial and credit institutions began to function more efficiently. Companies gain economies of scale through the acquisition of the possibility to operate in many markets and comparative advantages in relation to local competitors. This strategy includes the establishment of an international network of branches and offices (Falconer, 2014).
Development of transnational companies (TNCs). These companies place their units of the design, engineering, production, distribution and processing of data in different countries. This information and technological support of the whole process is concentrated in the home country and creates a global system of information transmission. Intercompany transfer of information, technology, and finance takes the form of inter-State sales services (Madura, 2012).
Influence of the Social Environment
Even when consumers tend to be more active in making decisions about the purchase of financial services, information collection and analysis are some difficult for them. Many financial services are focused on the individual circumstances (health status, age, marital status, etc.), so the decision to purchase them based on the experience of others is not quite correct. The criterion of confidence in many financial services also makes it difficult to estimate. Services include elements of counseling or requiring management in their implementation (e.g., financial planning, tax advice, investment programs and trust services to commercial banks); it is difficult to assess services, even after their purchase (Das, 2009). Consumers are more inclined to assess the organization itself, which provides services, rather than just financial services, and to rely on the reputation and reliability of the organization. However, it should be noted that where the buyer and seller have established good relationship of trust, there can be significant benefits for both sides. Establishing trust causes certain inertia in the relationship between the consumer and the financial institution. As for finding the information needed to assess the benefits of a single financial institution, it takes a lot of time and effort, the customer prefers to remain with the financial institution that will serve him/her earlier rather than expend efforts to evaluate alternative organizations – suppliers of financial services. Thus, the customer has significant difficulties in the choice of the financial services and financial institution to provide it (Falconer, 2014).
Evolution of Financial Services in Hong Kong and Formation of Customers’ Attitude
Hong Kong is one of the key global financial centers. The financial market of Hong Kong has a high degree of liquidity, operating within the framework of an effective and transparent regulatory system in line with international standards. Hong Kong has formed highly developed and active foreign exchange market, contributed by the liberalization of foreign exchange regulations (in particular, the absence of foreign exchange controls), as well as its prime location (time zone), which enables to make foreign exchange transactions 24/7 around the world due to the presence of relationships with other international financial centers. Thus, in the postwar period, the rapid industrial development in Hong Kong, coupled with a significant increase in trade and intermediary operations led to a significant increase in demand for financial services and thus stimulated the prompt expansion of the financial services segment. In 1954, for example, Hong Kong had 94 banks with a license, including 19 foreign banks (International Monetary Fund: Monetary and Capital Markets Department, 2014). At the beginning of 2016, their number was more than 260, including more than 60 offices of international banks (HKMA Register of Authorized Institutions and Local Representative Offices, 2016).
Hong Kong’s economy is basically a laissez fare economy and is based on British law, free flow of information, a wide range of anti-corruption measures and has a long-established legal field. In addition, Hong Kong has its own freely convertible currency, which in the framework of a currency board pegged to the US dollar and is controlled by the operation of the financial markets in Hong Kong (HKMA) – the financial body that is independent of the central government in Beijing (International Monetary Fund: Monetary and Capital Markets Department, 2014).
It is known that almost four million-strong army of labor in Hong Kong lacks the highly educated employees. Local and international companies complain about the lack of creativity and high labor costs. The main problem for Hong Kong is in low unemployment and low population growth at the same time, so the lack of qualified staff is natural. Hong Kong also faces the challenge of an aging population, which cannot be completely solved by migration. Partially open border between Hong Kong and China makes it possible mainly low-skilled citizens of China to migrate, but it is not the flow of the labor force that is needed to Hong Kong. Therefore, the provision of financial services of high quality is limited to available labor force (International Monetary Fund: Monetary and Capital Markets Department, 2014).
All mentioned factors of political, economic, social and technological nature greatly influence customers’ attitudes. A significant role in the success is played by a particular mentality of the population. Hong Kong citizens since childhood are instilled with hard work and uncompromising desire for success; they are characterized by discipline, thrift, pragmatism, democracy. Customers need clearance in conducting transactions (Madura, 2012).
Changes of Customers within Financial Services Sector
Significant uncertainty and higher market volatility, tighter government regulation and supervision of financial transactions, were the result of global problems in the world economy, and this new reality – a colossal challenge for financial institutions and their customers. The customer has become much more educated about investing, cautious and suspicious of recommendations. Clients often note that proposed to them products should be simpler, more transparent and bring certain benefits to them and clear positive result. They expect from the services of bankers and investment managers significantly more both in terms of profitability of their operations and the quality of service (Hollensen, 2014).
Here are the most acute problems in the field of quality companies faced, namely the lack of consistency in the processes and procedures; low levels of customer satisfaction (a separate study of American banks has shown that among retail customers level of satisfaction dropped to 70% - it is lower than in supermarkets and petrol stations), institutional barriers to quality improvement and the growing gap between marketing and operations (today, consumer demands are reduced to a low cost, high quality financial services and more personalized accounts, while most of the companies wasted ringing about the importance of quality, in fact they do not follow their mission and are very far from what customers expected of them) (Madura, 2012).
Effective risk management is a key detail of the financial institution’s reputation. Changes in the legislation of many countries introduced to respond to the global financial crisis and to tighten State control over the activities of persons providing financial services demonstrate the weakness of the business models of these organizations. The further improvement of risk management procedures and their adaptation to the requirements of regulators are of particular importance. At the same time, customers in general continue to be concerned by the fact of the increase in operating costs due to stricter regulatory environment (Falconer, 2014).
Responds of Organizations within the Sector
Currently, many banks and other organizations, which provide with financial services, study the level of satisfaction of their customers through the different aspects of cooperation. The main reason is in the direct relation between customer satisfaction and customer loyalty to financial institution. The more the customer of financial services is satisfied, the more loyal he/she is to the financial institution (Hollensen, 2014).
Recent innovations in the field of communication and information technology have improved the work with foreign companies. Network technologies and web-sites of banking institutions improved the quality of cooperation between the company and the client on the long distance. Consumers are so used to perform financial transactions without boundaries, and companies that do not provide such opportunities simply lose their positions. Another advantage for financial companies is geographic diversification, which led to the creation of corporate strategies, strategic alliances and outsourcing. These strategies can improve the efficiency of the whole industry. Merging strategies enable companies to focus on reducing the price of production. Companies often publicly declare their desire to motivate profit growth, an increase in the production of goods and the value of the shares. Information on the advantages and disadvantages of the main strategies is used as a tool for geographic expansion. The main problem is a balancing act that will make a maximum total profit (Falconer, 2014).
In order to occupy leading positions in this segment, the organization must take a course for significant changes in the field of operating and technology-oriented modern customer and allows quickly reacting to market changes. Those, who succeed in this, will be able to adapt to modern realities and will be able to take advantage of new features.
References
Das, S. (2009). Perspectives on Financial Services. New Delhi: Allied Publishers.
Falconer, S. (2014). Financial Services Management: A Qualitative Approach. London: Routledge.
HKMA Register of Authorized Institutions and Local Representative Offices (2016). List of Hong Kong banks. [online] Available 12 January 2016 at: <http://vpr.hkma.gov.hk/cgi-bin/vpr/index.pl> [Accessed: 19 January 2016]
Hollensen, S. (2014). Marketing Management: A Relationship Approach, 3rd ed. New York: Pearson.
International Monetary Fund: Monetary and Capital Markets Department (2014). People’s Republic of China-Hong Kong Special Administrative Region: Financial Sector Assessment Program-Basel Core Principles for Effective Banking Supervision-Detailed Assessment of Observance. International Monetary Fund.
Madura, J. (2012). International Financial Management, 11th ed. Mason, OH: South-Western/Cengage Learning.
