Online Banking and Maslow's Hierarchy of Needs

Internet banking is going through a transformation.

According to a study by Javelin Strategy & Research, eight out of ten US households now bank online, with 60 per cent using such services weekly and seven in ten utilizing them to pay their bills on a monthly basis. For banks, the opportunity is huge. Online banking customers are more profitable, carry more balances and have a lower probability to move to a competitor bank.

That said, banks need to do more. The banking customer has long evolved from the basic needs (Phase 1 and 2 below) in terms of ability to bank and pay bills anywhere, anytime via a secure and reliable network.

Firms like Zopa, Smartypig, Mint and Wesabe are pushing the envelope of what a traditional bank can or is expected to do.

To draw a parallel, I have adapted Maslow's hierarchy of needs to the banking model. I have divided the hierarchy model into 6 phases

- Phase 1: Physiological: the bank is available 24 X 7 X 365 and transactions are handled efficiently and effectively.

- Phase 2: Security: banking is simple and easy, secure and always on. The fee charges are clear, simple and fair.

- Phase 3: Psychological: develop a sense of belonging towards the bank. Am inspired by other people who have successfully managed their financials.

- Phase 4: Individualization: the bank provides me personal support and attention. I receive relevant and customized offers.

- Phase 5: Self Esteem: the bank helps me in achieving personal goals and alerts me on financial risks.

- Phase 6: Self Actualization: the bank supports me in my strive to improve the world.

Over the next 4 posts, I will cover Phases 3-6 at length and offer some thoughts on what banks can do to increase the lifetime value of a customer.

I would be interested in your thoughts and comments.