Amid industry disruption, reputational issues and changing customer expectations, Australia’s major banks must refocus on the needs of the customer if they wish to maintain their dominant position in the financial services landscape.
The business of banking is founded on trust between banks and their customers – and with almost all Australians having some form of relationship with the big 4 banks, there is a significant risk that this relationship may be severely damaged if the trust is broken. Since deregulation in the mid-1980s, the customers’ perceptions of banks have shifted from banks being a trusted partner helping with all the major financial decisions in peoples’ lives, to focusing on their own growth, profits and shareholders.
“It has taken 20 to 30 years, but government, regulators and consumers are now increasingly critical of the banks,” says Michael Rowland, Partner, KPMG.
Like all organisations in today’s disruptive markets, banks must understand and respond to customers’ needs and perceptions if they want to maintain and hopefully grow their customer numbers. Now more than ever, customers have options and are finding it easier to switch financial service providers. According to Bain Research, around 29 percent of consumers globally said they would switch their primary bank if it were easier to do so. This is much higher than has ever been the case.
“Australian banks need to find ways to reward the loyalty of their customers. Put simply, if they don’t they will lose them. Until existing customers perceive that they are treated in all things as well as new-to-bank customers, banks won’t be able to demonstrate that they are truly ‘customer-centric’,” Rowland says.
However, shifting the focus to people will take more than clever marketing rhetoric, and will require banks to rethink their every move, putting the customer at the core.
The Australian major banks have historically enjoyed the advantages of their large branch networks, countless ATMs, and their ability to pay for costly technology systems that were out of reach of smaller financial service providers.
However, customers now want to manage their accounts online and via mobile devices; cash transactions as a method of payment are shrinking at an increasing rate; and fintechs and non-bank financial service providers are finding it easier to attract capital and take market share from the incumbent players explains Geoff Rush, Partner, KPMG.
“The increasing importance of digital channels and the ability to draw rich insights from vast amounts of customer data quickly and inexpensively has (to a certain extent) levelled the competitive playing field. As a result, smaller financial institutions are now able to provide attractive, highly personalised offers to their target segments,” he says.
Globally, the trend away from traditional banks is clear. Online shopping, social media and technology platforms are also turning to payments and banking services – such as Amazon, Facebook Messenger, Google Wallet, Apple Pay, WeChat and Weibo.
Rowland says: “It’s only a matter of time until new players provide banking services at scale in a way that customers, particularly Millennials, want. If traditional banks don’t demonstrate that they value and possibly reward loyalty it will be very easy for these new entrants to grow.”
While banks are aware of the importance of the customer to their strategy, they have largely focused on customer acquisition, not retention.
“Customers can generally get a better deal by shopping around – which underlines to customers that perhaps their bank doesn’t value them sufficiently,” Rowland says.
In fact, mortgage brokers are often seen as best able to secure a better deal – often by switching banks, driving the continued growth of these services and the percentage of new home loans originated through broker channels.
Banks realise, Rowland says, that their existing customers make up the bulk of their profits year in and year out. On average it takes 2 to 3 years for a bank to generate a sufficient return on a new-to-bank customer.
“Unless banks can convince existing customers of the value of retaining their business, they risk a major reduction in growth. Each of the major banks has had unwelcomed adverse publicity in recent years which is having an effect on loyalty. Customers are asking more and more whether they need to shop around.”
Customers are now much more demanding of service and reward. Rush explains that Millennials are at the forefront of this.
“In the next 5 years Millennials will be 50 percent of the working population and the target customer base for the banks. The expectations and comparisons they’re making are not bank to bank, but across industries. If they can make a seamless payment using Uber, they ask, ‘why can’t I do that with my bank?’”
Rush adds that younger generations are not beholden to loyalty if they are not rewarded. They will simply go to an aggregator site, compare deals and move.
“Then they share it on social media,” he says.
Satisfying customers will mean not just delivering to customer needs, but pre-empting them with sophisticated customer personalisation techniques.
“The buzzword is personalisation, and there’s big investment in data and analytics capability, and banks are looking at how they can provide a more tailored experience. It’s not, ‘do you want a credit card’, but what can we tailor for you,” Rush says.
No single approach works for a customer over their lifetime, so the banks need to have an array of loyalty approaches. Rush explains that the key is to earn respect with every single interaction.
“If banks show that they have the customers’ best interests at heart consistently over time, that’s the foundation of winning trust back. But that’s very difficult to do, and not just through technology and with people, but by really understanding the needs of the customer,” Rush says.
It is clear that those banks that are able to refocus on the customer (both new and existing), and build back loyalty one transaction at a time, will have a brighter future than those that do not.
Rowland sums it up: “It’s hugely important for the banks to be investing into making sure they are getting this right. I believe the next 5 years will determine the winners and the losers. The winners will be those who make it simple and easy for customers.”
One way organisations are communicating with customers is through social media, but social offers even more potential to help them meet expectations. Find out more in Social media in a customer-led world.