Banks are fighting to remain relevant

Global banking is facing a perfect storm. In addition to weak economic growth, major regulatory challenges, and historically low interest rates, the industry also faces an intensifying threat stemming from changing consumer perceptions of traditional banks coupled with the emergence of new competitors offering attractive, personalised products. 

Connection to customers is declining, and with that, relevance in financial services: EY 2016 Global Consumer Banking Survey gathers insight from more than 55,000 consumers from 32 countries to formulate a deep and quantitative understanding of customer preferences and behaviours, as well as their attitude toward new competitors that challenge traditional banks. This year's survey included more than 14,000 respondents from eight Asia-Pacific (APAC) countries, namely Australia and New Zealand in Oceania; China and Hong Kong in North Asia; and Indonesia, Malaysia, and Singapore in ASEAN; and India.

As part of the survey, we introduce the Banking Relevance Index (BRI), which measures a range of current and future behaviours and attitudes to build a composite score based on how customers bank now and how they want to bank in the future. From a maximum index value of 100 (where consumers turn exclusively to traditional banks for financial advice, products, and services now and in the foreseeable future), the average bank relevance score today stands at 75.1 globally.

The implication from our findings is clear: while there are material variations in terms of the importance of banks to people’s lives across markets, the relevance of a typical bank is weakening. For instance, while traditional banks remain highly relevant in Oceania with New Zealand scoring the highest regional BRI of 80.6, the emerging APAC countries registered amongst the weakest globally. The value was lowest in Indonesia (66.9) followed by China (69.5) and India (71.1). So for that average bank – what happened to nearly 25% of bank relevance?

Drivers of the relevance threat: Relevance has reduced due to a number of factors, namely:

• A decline in the trust customers have in their banks, particularly in giving unbiased, high-quality advice. Trust appears limited to hygiene factors such as in keeping money safe, but lags behind nontraditional competitors in offering banking services. Banks appear to be lacking in transparency around their fees, in providing unbiased advice, and in recommending products in the best interest of customers, with just 30% globally citing complete trust levels in their primary provider.

• Insufficient understanding of customer preferences and behaviours. Banks traditionally relied on readily available customer data, such as age and wealth, to predict customer preferences, develop propositions, and tailor service models. Such approaches are overly simplistic and could be weak predictors of actual behaviours – resulting in inability to provide customers with the services and experience they actually seek.

Instead, comprehension of behaviours and attitudes based on financial and digital maturity could be more appropriate. For instance, 46% of those who are digitally mature but financially non-savvy in China indicate a disengagement with banks’ digital solutions. These digitally savvy individuals are in need of financial advice, but the lack of compelling offerings from conventional banks makes them ready to migrate to non-banks.

• A mismatch in distribution channels with customer preferences. Digital is undoubtedly on the rise, not to substitute but complement human interaction. While 82% of consumers go online to initiate product research, 59% rather speak to an advisor prior to the purchase; and though 65% highly value a digital presence, an almost comparable 60% prefer banks to retain physical outlets. In fact, 44% of customers globally state that they do not trust a branchless bank, with that percentage being higher in some markets such as Malaysia and Singapore (at 54% and 52% respectively).

• New types of providers offering radically simplified products and superior customer experiences. 4 in 10 consumers have used non-bank providers in the last 12 months and an additional 2 in 10 who haven’t yet, plan to in the near future. Within the APAC region, given the stronghold that local FinTechs have in China, the presence of non-banks is felt most strongly there with only 70% identifying a traditional bank as their primary financial service provider against 85% globally and 95% in New Zealand.

Make customers love their banks again: For banks keen to reverse that declining customer confidence, we highlight these recommendations:

• Make trust as a top priority to illustrate to customers that banks are genuinely interested in providing unbiased, high-quality advice. Amongst others, trust is measured by customers’ perception on the provision of transparent product pricing and features, proactively protecting customers’ data privacy, and preventing cyber threats.

• Personalise customer experiences and tailor propositions for various customer demographics. Non-banks like e-commerce retailers, social media companies, and FinTechs are showing us what great customer experience looks like; customers expect outstanding service, intuitive processes, and personalised products and services. Banks already possess a wealth of customer data for targeted segmentation – this goes beyond traditional classifications and into considerations like their digital and financial savviness, and to generating targeted offerings based on customers’ context, behaviour, lifestyle, interests, and preferences that can ideally serve a ‘customer of one’.

• Rethink distribution engagement, in particular, the role of branches and customer journeys across channels. While some branch networks do need to be decommissioned to address cost challenges, those that remain should be reconfigured into core flagship branches surrounded by self-served, digitalised lite-branches. With data showing the importance of omni-channel experience, banks need to think beyond siloed channels to create a distribution network that enables customers to interact with seamless connectivity and consistency across multi-channels.

• Start innovating not only like FinTechs, but with FinTechs to fend off mounting threats and deliver on customer expectations. This includes radically simplifying product portfolios, features, and pricing; offering more appropriate and intuitive customisations; while also setting up formal FinTech engagement programs to continuously identify potential opportunities to emulate, partner, or acquire the non-banks.

Despite these challenges, the fight for relevance can be won. Traditional banks already have existing advantages from their scale and scope, extensive customer base, brand recognition, and infrastructure. The challenge goes beyond merely reaching customers to resonating with them – and in understanding and addressing their expectations for personalisation, convenience, simplicity, and transparency.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.