A lot is written about the pressures on banks created by regulators, financial markets, and the overall health of the economies in which they operate. However the change that is most likely to redefine banking as we know it comes from customers.
Today, customer expectations of banks are similar across Asia-Pacific: based upon a foundation of Trust, of a core set of products offering Value for Money, and a quality multi-channel customer experience. Yet in an Accenture customer survey across China, Indonesia, Malaysia and Singapore, customers indicated that their selection of banking institutions are driven by particular configurations of these three expectations. For example, customers in Singapore attach more value to trust (advice and reputation) and value for money (combining risk protection with competitive offers), while customers in Malaysia attach more value to customer experience (real time assistance and omnipresence).
Digging deeper we realise that, when considering one trust-worthy institution versus another, customers are making their decisions based upon a set of attributes to which they attach an increasingly marginal value; making it harder and harder for banks to differentiate themselves. Banks have recognised that they need to combine these factors to create a compelling reason for customers to choose them over their competitors. In more saturated markets like Singapore, Hong Kong and Australia, they have also recognised that the game is played less on the number of customers, and more on the share of wallet of customers they already have.
So how can banks differentiate themselves in these conditions?
Following the global financial crisis, ‘trust’ has been confirmed as a source of differentiation between banking institutions and non-banking institutions, but not between one national banking institution and another. Many banks are already operating with cost to income ratios in the 40’s, so using ‘value for money’ to differentiate rapidly drives to a destruction of profit levels. We see the consequences of such profit-erosion in Australia with the rising debate over ‘fair and unfair’ banking fees. This leaves most banks with the attributes of ‘customer experience’ as the remaining keys to differentiation. To differentiate themselves, banks need to deliver ease of access, ease of interaction, security, and control. That requires personalisation, fulfilment of interaction, omnipresence, and relationship management.
In mid-2010, customers still see banking as a world apart. Competition is driven by spaghetti-wired online banking presences that hide a ‘five-days a week’ service model; simple product personalisation efforts focused on a ‘next best sale’ approach; clunky fulfilment of interaction – using specialist sales and service workforces to manage manual processes; and a relationship management model which works well for commercial banking but struggles to accommodate the mass market.
But by 2020, not only will customer needs reach another level, so will their choices outside banking:
• Customers will be used to dealing with omnipresent propositions through always-on, Internet-enabled mobile phones which, as will be the case in Indonesia, will have the highest penetration compared to any other service proposition. Telecommunication companies are leading the charge to deliver omnipresence.
• The increase in living standard, the polarisation of their needs and the availability of personalisation technology will drive banks to deal with an increasingly complex array of highly demarcated needs-based customer segments. Specialist content providers, for businesses aligned to industries, for individuals aligned to communities of interest, are leading the charge for personalisation.
• Driven by digitisation, customer’s tolerance for long lead time, manual processes and processing errors will steadily decrease. Digital companies specialising in ‘instant answers in all situations’ such as search engines or process aggregators such as ‘application stores’ are paving the way for ease of interaction.
• Such as in the Chinese customer’s reliance on advice from friends and family, customer’s need for relationship will evolve beyond a relationship with an individual to a relationship with a like-minded group of advisers. Aggregators of information or advice such as virtual communities and advice focused institutions such as independent wealth managers are leading the way towards the future of relationship management.
Customer demands will force banks to question their role in the wider consumer ecosystem -- not just the bank ecosystem. I invite you to think about whether these changes will ultimately be more fundamental to banks than any new regulatory frameworks, financial market constraints or near-term economic shifts.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.
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Pascal Gautheron is the Managing Director for Accenture’s Banking Practice in Asia Pacific.