Purpose-Driven Banking Explained

Explorating the meaning and practice of purpose-driven banking begins with how most customers regard banks. Put simply, many customers are wary of banks, feeling that their banks don’t operate with their interests at heart. Purpose-driven banking describes a way of operating which attempts to change this perception. It describes a business model which prioritises helping customers to manage their finances in a way which may not drive revenue to the bank itself.   

Advantages of purpose-driven banking

For the customer, the advantages of purpose-driven banking are clear – their finances are handled in a trustworthy and transparent manner. For the bank, they can enjoy improved customer retention and with it, better business growth.   

Delivering purpose-driven banking

The main priority of purpose-driven banking is to put customers’ requirements front and centre, irrespective of whether this is advantageous to the bank itself. The traditional model of banking is that customers trust their bank to handle their transactions and deal with their data. However, problems can arise when customers mis-handle their finances, dropping into an unplanned overdraft for example. In some cases, customers with difficulty managing their finances feel that banks penalise them, rather than helping them with their problems.  

What is driving the need for purpose-driven banking?

The post-pandemic economic landscape is one where many small to medium-sized businesses (SMEs) struggle to adapt to shifts in customer demand, spending patterns and sources of income. However, a collapse in business activity can have a hugely negative impact on the whole economy. Traditional banking structures mean that struggling SMEs often find it difficult to source lines of credit to help them survive difficult periods.

A similar problem is faced by charities, social enterprises and other not-for-profit organisations. An economic downturn creates conditions where such bodies may see restricted funding from government and donors.

If these funding restrictions lead to organisations having to either close entirely or severely curtail their operations, it could have a significant negative impact on the wider community, and in particular the more vulnerable parts of that community.

Purpose-driven banking means that financial institutions realise their role: to bolster the wider community and help customers such as SMEs and charities when times are hard.   

Breaking down purpose-driven banking 

In order to deliver purpose-driven banking, financial institutions need to do the following:

Change their business models

The business models which banks operate need to deliver better customer experiences more efficiently. The long-term driver of this transformation is access to a growing share of the market.

Shift the strategy

The strategy of the purpose-driven bank must be based upon expanding their services to customer-friendly offerings such as tailored financial advice. 

Work from the bottom up

Purpose-driven banking should exist throughout a financial institution from the bottom up. This means encouraging employees to help change the culture, making the shift to purpose driven-banking genuine and effective.  

Be authentic

Every financial institution must find a way of delivering purpose-driven banking which reflects the way they do business and the core competencies they offer. They need to think about what they offer and how to make it more customer-facing. 

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