How banks in Asia will deliver on customer needs and .../media/Accenture/...How banks in Asia will...
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Customer 2012: The New Promise How banks in Asia will deliver on customer needs and expectations
Transcript of How banks in Asia will deliver on customer needs and .../media/Accenture/...How banks in Asia will...
Customer 2012: The New PromiseHow banks in Asia will deliver on customer needs and expectations
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Contents
Introduction........................................................................................4
The.rise.of.the.self-directed.customer..............................................6The importance of customer relationships
Serving the self-directed customer
Performing.in.the.new.environment.................................................12The race to rebuild profit
Levers for growth
How.banks.are.mobilizing..................................................................18Embracing the customer-centric agenda
Delivering transformative efficiency
Change in the value chain and business model
Adopting.a.new.perspective..............................................................22
Conclusion...........................................................................................24
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Introduction In 2008 and early 2009, attention throughout the business world was focused on shocks to the traditional banking system, and the efforts of governments to stabilize them. Arguably, the banking crisis was the first sectoral failure in modern times to be driven by lack of adherence to the principles of sustainability. As more orderly trading positions were restored during the second half of 2009 and early 2010, it soon became apparent that banks were operating in a new environment. The economic fundamentals had changed, and even more significantly, so had the customer. Accenture set out to answer the three questions this raised:
• What is the new economic equilibrium for banks?
• What does the post-crisis customer want from banks?
• What will differentiate winning banks in this new environment?
In 2009, Accenture published “Banking 2012: A Time for Bold Moves”, an analysis of the decline of banking return on equity (ROE), and potential drivers for the return of ROE to a market-competitive 15 percent (Figure 1). While for developed markets 15 percent ROE is a realistic goal by 2012 based on five key actions, banks in developing markets should exceed this goal (for example, Asian banks are expected to reach up to 27 percent ROE if they adopt a combination of strategic options which range from cost reduction to inorganic growth).
One of the most significant ways to rebuild ROE will be more active customer management, including better pricing for risk and more effective (and cost-efficient) distribution. This was often discussed by banks in the past, but rarely acted on in more elastic pre-crisis conditions.
In this report, Accenture reflects on this situation with an analysis of post-crisis customers in Asia and the promises banks need to make to stabilize their position. We also consider how banks need to differentiate themselves to meet customer expectations, profitably and sustainably.
Our views are based on three major inputs: 1) an extensive study involving more than 600 Mass Affluent and Small-Medium Enterprise (SME) customers across the Advanced, Maturing and Emerging Asian markets; 2) a global survey of close to 50 senior retail banking executives at major banks; and 3) an extensive analysis of current global retail banking customer data, both proprietary to Accenture and from the public domain.
Developed market banks in crisis Developing market banks in more resilient economies
1Source: Accenture Research, 2010
Profitability of “good banks” will be rebuilt through a set of focused business model and operating model actions, in order to achieve a market-leading ROE by 2012
26%1 -2%
-5%
-6%
-6%
-2%
-3%
-1%-1%
-1%-2%
3%
2%1%
1+%1—5%
19%
4%
5%
3%1%
1%+1—5% 15+%
27+%
High Performer ROE2000—2007
Higher capital ratio
Smaller balance sheet
Higher cost of funding
Reduced fee income
NPL provision increase
Post-crisis base case
Strategic cost reduction
Robust customer manage-ment
Pricing optimiza-tion
Effective risk manage-ment
Divestures/ inorganic growth
Post-crisis strategic options case
Figure 1: Return on equity evolution (retail and commercial banks, Asia)
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The rise of the self-directed customerOverall, the global financial crisis had only a moderate impact in Asia, but the economic situation has not been perceived equally by customers across the region.
Over 40 percent of Mass Affluent customers surveyed saw the value of their assets decline by more than a fifth during the crisis, with those in Advanced Asia most adversely affected. The period was also difficult for SMEs, with more than 60 percent of those surveyed suffering a 20 percent or larger revenue decline (Figure 2).
As a result, in the post-crisis economic climate banking customers across the globe are much more willing to buy products from multiple providers. This volatility is a key factor in customer behavior post-crisis. For example, 46 percent of customers globally are more open to independently sourcing products from different suppliers as a result of the current economic environment.
Customers had the tools to shop around before the crisis—in fact banks had put them into their hands via direct channels, and aggregators and informal blogs simplified the comparison process further—but it has accelerated their willingness to use them. This key trend was identified by senior retail banking executives Accenture interviewed and has also been confirmed by recent market research among banking customers.
Customers.demand.greater.controlIn Asia, banking customers are demanding greater control over their financial destiny. This shift can be explained by a generally strong level of customer self-direction, particularly in Emerging Asia (Figure 3). Level of self-direction is influenced by customers’ preferences toward independent or external influence in the decision-making process.
Figure 3: Asian perspective—level of self-direction
Figure 2: Asian perspective—customer impact of the global financial crisis
31% 56%
17% 46% 37%
Significant Impact (over 51%) Moderate Impact (20%—50%) Low Impact (under 20%)
Small—Medium Enterprise Segment
Mass Affluent Segment
13%
How much has the financial crisis affected you financially?
Source: Accenture Asian Banking Customer Survey, 2009
Total Asia
Emerging Asia
Maturing Asia
Advanced Asia
11%
26%
64%
2%
58%
40%
22%
11%
67%
9%
66%
26%
Source: Accenture Asian Banking Customer Survey, 2009
Low Moderate High
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Figure 4: Asian perspective—factors in determining the selection of a financial service provider
Trustworthy
High-quality customer service
High-quality products/services
Easy to do business with
Competitive pricing
Good value for money
67%
60%
53%
49%
45%
49%
40%
46%
38%
45%
45%
39%
Small—Medium Enterprise segment Mass Affluent segment
Source: Accenture Asian Banking Customer Survey, 2009
On a scale of 1 to 4, where 4 is very important and 1 is not at all important, how important are each of the following attributes when deciding on what financial service provider to use? (Chart shows percentage of responses scoring 4.)
For example, while customers in Maturing Asia tend to rely on external advice, their counterparts in the rest of Asia prefer to conduct self-guided, independent research before making financial decisions.
The self-directed customer in Asia places great emphasis on the “human touch” when seeking financial advice, with the most used sources being friends and family and relationship managers. This is closely associated with the need for trust among Asian customers. Banking customers across Asia value the trustworthiness of their financial service providers first and foremost (Figure 4), a trend that is particularly evident within the Mass Affluent segment in Emerging Asia, and within the SME segment in Advanced Asia.
Service.and.quality.are.keyWhile Asian customers demand trustworthiness, they also expect banks to deliver high-quality customer service and high- quality products and services.
Globally, they have become more willing to punish and reward their financial services providers, particularly on basic service fulfilment. Service expectations globally are accelerating, with Accenture’s 2009 Customer Service Survey indicating that they have risen faster across service sectors in the last 18 months than in the previous five years, and that two in three consumers globally switched service providers in some sector during the last year.
In retail banking and financial services, we also see increased volatility, with 9 percent of consumers having switched providers in the past 6–12 months, and a further 13 percent indicating they intend to switch in the next 6–12 months. A further 26 percent indicated they had partially switched, staying with the same provider but moving some of their business or adding new providers, while a further 11 percent intend to adopt new providers.
Global retail banking senior executives surveyed confirm this shift, identifying service quality and the ease of doing business with banks as two of the most significant factors in a customer's increased willingness to consider shopping around.
The.importance.of.customer.relationshipsIn the developed world, and increasingly in emerging economies, an individual requires a bank account to be a full participant in the economy. In turn, financial services products have arguably always been something of a “grudge purchase”, like toothpaste in the supermarket. So why worry about customer service?
Firstly, there is a direct impact on profitability, leading to price commoditization, unbundling of higher margin products to provide transparency to picky consumers, and potentially higher cost to serve as banks seek to fix their basic service provision. In a world where almost half of retail banking senior executives interviewed have already seen
1..Security.A secure banking environment is a major demand especially by Mass Affluent customers.
2..Ease.of.accessMass Affluent Customers demand banking omnipresence in a quest for greater convenience.
3..Value.for.money.All customers expect competitive offers and value-for-money products and services from their banks.
4..Ease.of.interactionSME customers measure convenience by the ease of interaction with their banks.
5..Control.Staying in control of the transaction process is the main demand of SME customers in Asia.
6..Risk.protectionReducing risk exposure is an underlying theme, with high importance especially for SME customers.
7..TrustAll customers demand trustworthiness from their banks.
Branch.needs
1..Security
6..Risk.protection
7..Trust
2..Ease.of.access
3..Value.for.money4..Ease.of.interaction
5..Control
Root.needs
Mass Affluent (MA) Small—Medium Enterprise (SME)
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customer profitability drop between 5 percent and 15 percent, and where another 11 percent have experienced declines in profitability of more than 15 percent, this type of customer behavior is significant.
Secondly, it indicates a fundamental shift in power between banks and customers. The customer is already calling the tune, and his or her power to do so is likely to increase with greater consumer protection and a richer choice of products, services and channels as a consequence of new technologies and new entrants. Banks could ultimately lose their ownership of the gateway relationship with the customer of financial services products to other players.
Thirdly, the empowered customer is here to stay and the trend is global. Sixty-eight percent of retail banking senior executives interviewed believe that the changes in customer behavior will last for more than the next three years. While emerging market banks suffered less from lack of trust, the same self-defining patterns of behavior are apparent there.
The opportunity for banks is to recognize the new nature of this self-directed customer early, to acknowledge the transformational nature of the change in the customer and for a bank’s business model, and to mobilize to deliver on the customer promise.
Serving.the.self-directed.customerAs markets mature, fundamental customer expectations will continue to evolve and become more complex in response to changing needs. Across Asian markets, customers will expect not only trust and risk protection, but also greater security, control, value for money and convenience (ease of access and ease of interaction) (Figure 5).
Trust: Customers will continue to demand trustworthiness from their banks across all geographies and segments in Asia. The expectation is that banks will provide greater integrity, transparency, unbiased advice and a strong reputation, combined with a greater emotional connection.
Risk.Protection: Banking customers are expected to focus on reduction of risk exposure as a consequence of the impact of the global financial crisis across Asia. There is a strong correlation between the percentage of customers who suffered losses in a specific segment and the importance of risk awareness for the segment. Risk reduction is expected to particularly dominate the SME segment across all markets and it will also surface in Emerging Asia for the Mass Affluent segment.
Security.and.Control: Uncertain economic conditions accentuate the need for greater security and control by largely self-directed banking customers in Asia. The Mass Affluent segment that demands high security today will increasingly emphasize control in line with the SME segment, especially in Maturing and Advanced Asia. This shift can be explained by a generally strong level of self-direction exhibited by banking customers, particularly in Emerging Asia. However, the importance of security is expected to decrease in the future, indicating
Figure 5: The hierarchy of customer needs in Asia
Source: Accenture Asian Banking Customer Survey, 2009
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Figure 6: How customers have responded to the financial crisis—future use of branches and direct banking methods in Asia
Switch completely to more direct banking methods
Shift to more direct banking methods, however still want to use bank branches
Still depend onbank branches
17%
21%
60%
58%
25%
19%
Small—Medium Enterprise segment Mass Affluent segment
Source: Accenture Asian Banking Customer Survey, 2009
that customers will begin to view a secure banking environment as a prerequisite for all banks. On the other hand, one of the main concerns of SME customers in Emerging and Advanced Asia is to control how they are approached – and by whom.
Value.for.Money:.Customers care about value for money. They prefer simple unbundled products that are transparent and easy to compare. A senior executive at a European bank interviewed by Accenture told us that “product is dead”. While he was talking about Mass Affluent customers, this is likely to be even more relevant for mass market customers. Inevitably, this challenges the existing banking model of driving margin through complex product bundling. Although customer cost-consciousness is expected to decrease across Asia, banks will need to be ready to provide value-for-money offerings, as well as basic products, at competitive prices.
Ease.of.Access:.Customers tell us they want multiple access points, and they want connectivity between them. They show no desire to cease using branches, but at the same time they show increased usage of direct channels (Figure 6). They adopt new technologies quickly, and the growth in use of mobile banking applications barely lags behind the growth in smartphone usage. People who buy iPhones use them to bank, and in emerging economies mobile banking has leapfrogged traditional banking infrastructures. To win the self-directed customer, multi-channel is a hygiene factor for growth, and in many customers’ views, already includes mobile.
Ease.of.Interaction:.Customers identify service and experience as dominant factors in their relationship with banks. Retail bank senior executives see service provision as a winning factor, but find it difficult to define what those service propositions might be. For some customers, it is flawless fulfilment of transactions, such as: “My pin number will arrive the same day as my credit card". For others, it is the bank’s single view of customer data, which allows them to organize complex transactions virtually: “I can sell my employee share options on
Nasdaq via a Swiss Bank, have them converted into Sterling and deposited in savings account Number 2". For some customers, it is arranging credit or investment products in a fast, direct way: “We think you need a loan, fill in this form and get immediate online approval and loan transfer within hours". For some, it is high-touch relationship management: “I am thinking about the government’s new tax-free scheme for small savers, and I want to talk to a person”, or “I have lost my cash card and I want to talk to a person”.
Many customers have a combination of these needs. Self-directed customers are not satisfied by a “one size fits all” approach. They expect and reward suppliers that are highly responsive to their particular service needs. Meeting these customer-specific needs challenges the quality and dynamism of analytics currently available in banks, as well as the segmentations that have been built to fit appropriately against the banks’ preferred product sets and distribution
mechanisms, rather than against customer-driven service propositions.
In summary, increasingly self-directed and assertive customers in Asia expect to work with a trustworthy, secure and protective bank that lets them control interactions while offering convenience and value-for-money products and services. Trust and risk protection represent the basic or root needs of Asian customers: that banks will need to address better than their competitors. Security, control, convenience and value for money are more complex needs banks will have to address selectively in order to differentiate from competitors.
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What trust means for banks in Asia
Integrity• Products and services as originally promised when sold
• Warning/advice before potential issues/concerns arise
Transparency• Clear explanation of all product risks in all sales processes
• Clear explanation of all costs when taking up banking products/services
• Full disclosure of product and transaction handling processes
• Advance updates on changes (e.g. processes, pricing)
• Proactive regular communications
Advice• Advice/offers according to needs
• Unbiased advice on banking products/services and SME business banking products/services
Emotional.connection• Served consistently by the same contact person over time and for SMEs by the same relationship manager
• Supported and served by a real person
Reputation• A bank that is environmentally conscious
• A bank that is socially responsible and cares for the community
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Performing in the new environmentBanks that can mobilize to respond to changed customer needs have a real opportunity to increase share of wallet. Pre-crisis cross-selling rates were and continue to be very low. Typical relationship manager productivity remains stuck worldwide at one product sold per day.
Winning banks will not only increase their share of the existing wallet for financial services products, they will grow the wallet. They will need to break through the narrowly defined grudge-purchase mentality of many customers and utilize the richer ecosystem in which they now compete. This includes telecoms, retailers, first-generation internet businesses and new “i” and “e” business models.
As winning banks move from dependence on short-term arbitrage of high-risk segments to maximizing the value of long-term relationships with high-quality customers, they will need to make their fundamental business models attractive and ethically acceptable to those customers over longer timeframes. Trust and risk protection will underpin the new promise to the customer, which ultimately will provide the main pathway to sustainability.
The financial opportunity in the short and long term for retail banking is real, despite the shocks of recent years. The challenge is in how to take it.
The.race.to.rebuild.profitIt is clear from our research the banks that will win the race to rebuild profitability will be those that recognize the relationship with their customer has changed, and respond effectively to that change.
In this section, we consider what an effective response might comprise. What should the banks do to win? We describe a new economic equilibrium where the competition is for a greater share of a larger wallet of higher
quality customers over a much longer timeframe. Clearly, to achieve this, the relationship between the customer and the bank must be deeper and closer.
However, our research shows that customers are not moving in this direction. They are fundamentally more volatile, confident in their ability to make financial decisions for themselves, lacking trust in the authority of banking brands, price conscious and ready to punish poor service.
They want their diversity recognized by their banks—as they expect it to be recognized by providers of other services—and are not satisfied by a one-size-fits-all approach to their needs. They want their financial services provider to live in the world in which they live: one of rapidly evolving service propositions through multiple innovative channels and provider partnerships. This is a customer who increasingly has a smartphone in their pocket.
At the same time, they are living in a world of complexity and facing many choices. There is a real opportunity for the financial services provider to reposition itself as an advisor amid this complexity and as a source of appropriate options.
The.new.economic.equilibrium.As mentioned, 46 percent of retail banking executives interviewed globally cited a loss of customer profitability of between 5 percent and 15 percent. A further 11 percent experienced a drop of more than 15 percent. Had we not become recently accustomed to extreme changes in the industry, and to the very large numbers associated with losses, we would find this loss of profitability very disturbing.
Accenture has conducted preliminary modeling of the financial components of the profitability decline. While the analysis will vary by a bank’s business mix, key factors driving the decline seem to be reduction in assets under management, decreased spread and reduction in fee income. This in turn provides indicators of the financial outcomes that will help rebuild profitability.
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Our analysis of a peer set of Advanced Asia retail banks (Figure 7) shows that a significant amount of customer profit is at risk in today’s business conditions. On average, a 10 percent decrease in customers’ assets under management (AUM) would impact customer revenues by US$83, while a 10 percent reduction in interest margin or the average fee income generated from assets would see revenue fall on average by US$123 and US$39, respectively.
Across the customer base, a 10 percent increase in attrition rates would lead to a fall in average customer revenue of US$10. With these factors in place, the average bank in the peer set would see profit per customer fall from US$570 before the financial crisis to just US$254, or an operating margin reduction from 35 percent to just 16 percent.
Options.to.improve.performanceBanks have a range of options to improve their performance. Certainly in a number of countries we are seeing improvements in operating conditions impacting asset quality, funding costs and business volumes. We looked at the impact of increasing cross-selling rates by 10 percent, restoring customer AUM by 10 percent, and improving pricing across interest margin and fee income by 10 percent. Overall, this could enable a bank to find an additional US$407 in revenue per customer.
Further, by addressing the high cost base with a 10 percent reduction in operational costs, banks could in theory increase average customer profitability to US$739, or an operating margin of 42 percent. There may also be additional revenue opportunities for some banks to grow market share or attract new customer segments, increase their product range, or look to non-financial product sales.
It remains difficult to translate model answers to an environment where markets remain volatile and many regulators are poised to impose stricter rules on consumer financial products. However, to achieve the improvements required, banks cannot operate as they have done in the past. They must adapt their business to the new kinds of service and distribution model customers demand; deepen relationships through better customer understanding and address fundamental cost-to-serve issues, rather than just strip out cost.
Of course, this financial analysis does not explain why customer profitability has been so deeply affected by the financial crisis. Clearly, immediate economic conditions that have put a strain on funding and margins, declining asset quality and volatile business volumes are major factors that should normalize as the economy recovers. Regardless, we observe the three underlying customer drivers on the next page; the first two of which are permanent changes to which banks must respond.
Figure 7: Asian retail banking revenue sensitivity analysis (illustrative only)
Op Margin35.3%
Cost Ratio(CI+LLP)64.7%
Op Margin41.8%
Cost Ratio(CI+LLP)58.2%
Assumptions +10%Churn
-10%AuM fee
-10%NIM
-10%NII
+10%No. Products
+10%AuM fee
+10%NII/NIM
1616
570
1046
10 83 123
39
1361
83
1029
162
739
162
1768
Source: Accenture Research (based on six Asian retail banks in Advanced Asia)
Base average customer revenue
Increased attrition
Decreased share of wallet
Decreased spread
Reducing fee income
End average customer revenue
Increased cross- selling
Increased share of wallet
Pricing optimisation
Rebuilt average customer revenue
Pre-crisis/crisis impacts and post-crisis rebuild (USD)
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The three performance drivers
Driver.1:.Impact.of.new.customer.behaviors.These will have a deepening effect on margin and on investment costs as banks build new analytical and channel capabilities to meet the changed needs of customers. The majority of the senior bank executives Accenture interviewed consider these changes to be permanent.
Driver.2:.Long-term.structural.change.in.segment.profitability.in.retail.banking.The sub-prime segments that drove very high margins prior to the financial crisis have effectively disappeared. They are too expensive for many banks to serve now that their risk profile has been fully recognized and priced in. This shrinkage means that market share as the prime target, and short-term arbitrage of higher risk customers, will be increasingly replaced by wallet share of higher quality customers, and the management of value over a very long-term customer relationship.
Driver.3:.Shorter-term.customer.conservatism.Many customers de-leveraged and decreased consumption as their economic confidence declined. Even in the worst hit developed economies, we expect this to be a three- to five-year phenomenon that banks will need to manage through, rather than a permanent change.
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Levers.for.growthAccenture sees significant potential for institutions that can offer a more attractive proposition to volatile and discontented post financial-crisis customers and to have a better chance of winning increased market share through higher quality clients.
We believe there are six levers banks can use to strengthen their ability to gain a disproportionate share of the wallet of today’s more volatile, assertive and self-directed customers.
1..Transformed.understanding.of.different.customer.behaviors.and.needs.–.and the analytics and marketing underpinning that to identify more attractive customer propositions. Segment marketing and redefined distribution via mobile, internet and the 21st century branch will become dominant.
2..Greater.personalization.at.radically.lower.cost.to.bank.and.customer.–.permitting banks to offer advisory guidance, and the diversity of tailored offers customers increasingly demand. This must occur without escalating overheads, by instead exploiting technology.
3..Humanization.of.the.digital.–.so the bank can use IT to create greater customer-specific propositions and intimacy, with the increasing challenge of cost efficiency.
4..“Retailization”.– creates quality experiences, which breaks the trend towards commoditization and grudge purchasing and instead builds the kind of experience-based loyalty that the providers of other products, such as food, have achieved.
5..Transformative.efficiency.–.utilizes legacy infrastructure in ways that include, but go beyond, applying the traditional lessons of high-performance banking. The aim is to reduce the unit cost of servicing customers, to include exploitation of opportunities, and to use the cost base as part of a wider ecosystem of partners and suppliers.
6..Radical.evolution.of.business.and.operating.models.–.keep pace with the communities in which their customers increasingly live and transact their service needs. The silos that will need to be broken in order to achieve this will be between the bank and the other providers of services and products to its customers. These new business models will align banks more closely with their customers’ values and increase the sustainability of the primary relationship between the banks and their customers.
Applied together, these levers can create a quantum leap in a bank’s ability to serve customers and create new value in the retail banking market. At their operational core is a “Customer Pull” model (Figure 8). This provides a road map of the adjustments required to the banking model to create the deeper relationships necessary to capture growth. How banks are mobilizing around these goals is outlined in the next section.
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Figure 8: Golden rules for a successful “Customer Pull” model
A new customer orientation is required to capture growth and deepen relationships. The “Customer Pull” model is based on four pillars and 17 “golden rules”.
Source: Accenture Analysis
StrongBrand
Easy Access andFrequent Interactions
Simple and Easy toUnderstand Offerings
Enabling Infrastructure
Marketing
HR
IT/OPS
Strong.Brand• Stimulating emotional bond with customers, inspiring trust
Easy.Access.and.Frequent.Interactions• Consistent experience across all channels, “conversation” with customers
• Branch model optimizing costs (e.g. zero paper), maximizing customer-facing time, enabling cost-effective access to best experts (Remote Assistant)
• Internet banking, selling simple products in a simple way, enabling access to virtual advisors
• Mobile banking driving personalized conversations, capturing leading-edge devices
Simple.and.Easy.to.Understand.Offerings• Product range organized by needs, transparent and simple to choose (”choose your product with 3 clicks”)
• Selective needs-based bundles, with transparent pricing, to strengthen relationship
• “The more you buy, the less you pay”
• Customer education program (important to regain trust)
Enabling.InfrastructureMarketing• Customer segmentation focused on needs, reflecting emerging trends and clusters
• Rule-based conversation, built on a Dialogue Management Engine
• Customer choice of when/how to be approached by bank (built-in intelligence)
HR• Incentives for long-term relationships
• Customer-oriented culture dissemination
IT/OPS• Multichannel architecture
• Customer dialogue management infrastructure
• Service-oriented back office (e.g. Lean Six Sigma)
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How banks are mobilizingIn describing their strategic investment priorities, global retail banking executives confirmed the importance of some core elements of the transformation agenda: improved customer insight, channel innovation and integration, and front office efficiency were all key priorities (Figure 9).
Embracing.the.customer-centric.agenda.It is not just in their investment strategies that banks are reflecting the Customer Pull agenda outlined above. Accenture sees examples of banks already moving on some of these dimensions. Often, the momentum comes from an existing capability within the bank or institution, as if in answer to the question “How can we better meet the needs of these new customers given where we start from?”
For start-ups and new entrants, there is greater freedom to build a Customer Pull model, focused on a quantum leap in understanding the customer, personalization, and humanizing the digital without the constraint of the cost and limitations of legacy infrastructure. However, well-established banks in Asia such as the following are also leveraging the “golden rules” of the Customer Pull model in order to deliver on their customer “promise”.
Commonwealth.Bank.of.AustraliaAustralia’s largest retail bank, the Commonwealth Bank of Australia (CBA), is following a disciplined customer-centric strategy anchored in building strong satisfaction levels. To deliver on its customer satisfaction promise, CBA has focused on modernizing its core banking platform, which enables real-time banking, customized product offers, standardized processing, and faster speed-to-market.2
In parallel, the bank has added over 1,000 customer-facing staff over four years, and transformed its branch network to more than 1,000 branches across Australia with a continued focus on branch refurbishment.
Finally, by introducing a range of deposit products, as well as a “60 minute” home loan where eligible customers can obtain a home loan within an hour of walking into a branch, CBA has addressed customer needs for risk protection, convenience, and control. The result has been an increase in customer satisfaction in 2010 to 75.6 percent, from 64.9 percent in 2006, and strong growth in products sold per customer.
Standard.CharteredAnother notable example is Standard Chartered, a bank focused on deepening and growing premium customers in the Hong Kong market.3 The bank launched product bundling based on customer value propositions. This has resulted in an improved cross-selling ratio (e.g. an increase of
Figure 9: Retail bank investment strategies
Developing and improving new channels
Integrating multi-channel distribution
Improving customer insight capabilities
Improving physical branch distribution networks
Improving brand and marketing capabilities
Reducing administration and processing costs in the front office
Improving credit risk management
Developing new customer segmentation approaches
Other
Streamlining the branch network
Improving pricing capabilities
Developing new product propositions
Reputation management
Source: Accenture Customer 2012 Executive Survey, 2010
54%
49%
33%
31%
26%
23%
15%
15%
13%
10%
8%
5%
5%
What are your top three strategic investment priorities for customer management and distribution?
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21 percent for new customers in the priority banking segment between December 2008 and June 2009, and 26 percent for existing customers).
Even during the financial crisis, Standard Chartered built a strong foundation by designing new products to target low risk segments, improving the approval rate for credit card and personal loans, and fully leveraging government guarantee schemes for “Good Segments” customers. Finally, to optimize its branch footprint, Standard Chartered in Hong Kong is focusing on key transport hubs for branch expansion that are designed with segment needs and usage patterns in mind.
MaybankAs the leading financial services organization in Malaysia, Maybank has focused on obtaining greater insights into its customers’ behavior to improve five core areas of its customer relationship management strategy (customer acquisition, cultivation, retention, loyalty, and profitability).4 An analytical CRM capability has enabled Maybank to parse customer data across different products, determine each customer’s actual net worth and potential business value to the bank, and to execute targeted campaigns.
Maybank has been able to conduct twice the number of campaigns, including those rolled out by local branches, with a success ratio of over 300 percent. Sales leads are triggered daily, weekly, monthly, or on an ad-hoc basis depending on lead cycles and channel capacity. Leads are then funneled to Maybank’s call center for outbound telemarketing campaigns. Through the execution of well targeted campaigns, Maybank has been able to improve customer engagements, and increase customer profitability.
International.majorsInternational majors are also experimenting in Asia in this space. A major US bank recently piloted a virtual branch in Japan, using touch-screens and avatars to manage transactions and give advice. The focus was on personalization through the inventive use of technology.
When it opened, the pavement outside the branch was filled with day-long queues. Accenture sees other majors experimenting with branch formats that integrate a wide selection of channels.
BanklnterThe major Spanish bank BankInter offers its customers a choice between state-of-the-art channel capabilities. The bank’s high degree of innovation around the internet and mobile technologies allows customers to tailor their interaction with the bank, from web-video discussions with advisors to full-service banking on mobile devices. This innovation is underpinned again by constant evolution of marketing and distribution models based on high-quality data and flexible segmentations that accurately model customer behavior.
Delivering.transformative.efficiencyBanco Santander of Spain has demonstrated that an acquisitive global mass-market major can also be a very lean and efficient machine and still provide a proposition that is attractive to a large segment of the world’s mass-market consumers. In some ways, Santander sets the bar for how much is possible from a standardization standpoint.
This is territory that only a few players will choose or indeed be able to take in the emerging world. However, the efficiency challenge for Customer Pull banks and institutions is intensified by the standard set globally by a bank like Santander, alongside customers’ increased interest in value for money. We are not moving back to a world of traditional high-touch, high-cost service. Innovative operating models will be required to capture efficiencies (Figure 10).
We see some banks mobilizing in this area by exploring adjacencies; that is, use of their banking relationships and infrastructure to sell and deliver related products for example in the area of information. Another area of experimentation is the sharing of infrastructure costs by offering partners the use of that
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infrastructure. Examples could include sharing more of banks’ payments infrastructure or even processing systems and banking platforms.
These explorations require a shift in operating models, as well as in current thinking on the boundaries between banks and other entities providing services and products to their customers.
Change.in.the.value.chain.and.business.modelBanks are changing but arguably not fast enough. The senior executives Accenture interviewed said they believed innovation would come from the margins of the industry, from new entrants and new technologies. However, they also told us that they did not believe this would undermine the dominance of the legacy bank operating model.
We believe the financial crisis, by creating the self-directed customer, has intensified the need for banks to adapt their business models to meet the demands of those customers, and that the business model will be a defining part of a customer’s decision when he or she chooses a provider of financial services.
The environment in which customers choose their products and providers is rapidly becoming more complex (Figure 11). It is not a given from the customer's perspective that the bank will be the best provider of financial services. They might well prefer a more technologically sophisticated, interactive or innovatively cheap provider from another part of the ecosystem. The battleground here is for the primary relationship with the customer, as the gateway to the provision of multiple products and services, not exclusively financial. If banks lose that battle, they could find themselves providers of white label services to providers who have won the customer relationship.
Figure 10: Highlighting efficient distribution best practices
Best practices in distribution across the value chain and operations
Light branch • Average branch counts five resources, at most one teller
• Light headquarter and middle layer functions (regions, zones)
Simplifiedgovernance
• No back office in branches (wide use of workflow, document scanning)
Paperless,digitalization
• Encourage customer use of ATM, direct channels, cashless payments
Customerself-service
• Fewer, standardized products designed around main customer needs
Simplifiedproduct range
Reduced cost-to-serve
Figure 11: Evolving the value chain
Start-ups, new entrants and banks are driving innovation in the digital marketplace. The goal is ubiquity, ease of use and value for money propositions.
Source: Accenture Analysis
Extending accountmanagementcapabilities
Leveraging datafor customer
benefit
Socializing banking and intermediation
Provide complex/advisory products in direct channels
Personalizedexperiences to each
target segment
Intelligent tools to support decision
making
Facilitaing contactless, mobile and
online payments
DigitalMarketplace
Cutting-edgesecurity
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Adopting a new perspectiveIt is clear that banks understand the direction of change and are responding accordingly. It is possible, however, that they underestimate the speed and scale of change required, or that investment decisions being made now will define whether the bank can thrive in a market—and with customers—that in five years will be changed beyond recognition.
Further, the retail bank executives interviewed do not believe their banks are necessarily in a strong position to move in this new direction. Almost half indicated their institution was weakest in the areas of customer insight, channel development and integration, which they believe are critical to future success. This increases the need for early investment decisions to build required capabilities.
It is also easy to bring some legacy misunderstandings into their investment thinking, the most significant examples being that: multi-channel integration is about reducing cost; and that the best customer services is high touch, is delivered by people and should be given to the best customers.
Multi-channel.integration.It is clear from our research that multi-channel is about investment for growth. It is a hygiene factor for self-directed customers, and the banks have to bear the cost. Further, users of direct channels continue to use branches, and the desire of banks to put lower return customers onto lower cost channels while diverting higher return customers to advisers in branches runs exactly counter to customer behavior in many markets.
High-touch.serviceAs underscored by our research, while customers place great importance on service, they have diverse definitions of it – from basic fulfilment to effective advice. Our research with banking customers in Asia indicates that a key driver of growth in the sector is enabling customers to create and nurture their own banking experiences in a trusted and protective environment.
For example, Asian banks need to focus on personalizing interaction by building systems that “know the customer” to deliver on the demands of Mass Affluent customers. These are customers who value personalized, seamless transactions and a consistent experience across channels more than a personal relationship with the bank.
On the other hand, at the heart of an attractive SME customer experience is an empowered relationship manager who is central to all customer interaction and the interface of a personalized banking experience. As such, in Asia customer experience will be defined by the quality of knowledge a bank possesses about specific customer segments, and the tailoring ability in offerings and service design.
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ConclusionAccenture’s research with retail banking senior executives and their customers describes a new world for banking, one in which the customer is center stage. But it has also shown that it is a world where banks have a chance to turn what once looked like a banking collapse into an accelerated opportunity for creating and driving the next generation of financial services.
Despite overcapacity in the industry, there will be winners and losers. This new opportunity will only be seized successfully by those banks that can both recognize the fundamental shift in power to the customer, and articulate and deliver on a new customer promise that addresses their specific needs and expectations.
As banks mobilize to seize the opportunities available, Accenture believes it is imperative for them to tackle the following issues.
Short-.to.medium-term.focus.on.share.of.wallet.revenueThere is a new economic equilibrium and it is both necessary and possible to grow share at the customer level. Some segments have temporarily disappeared as sources of growth and revenue, leaving intensified competition for higher quality customers and lifetime relationships with them. Share of wallet in developed markets is now crucial. Identifying and capturing the highest potential customers is equally critical in emerging markets.
What will distinguish winners from losers in this world where customers are much more ready to punish and reward financial services providers is a precise understanding of customer behaviors, the resulting identification of the type of service they truly value, a transformed approach to segment marketing, and faultless execution. While this is not easy, the option of accepting the recent revenue reduction, at up to a shocking 15 percent, does not exist. Not only must banks compete for capital by raising
their ROE, if they are to win the battle for leadership of next-generation financial services, they must be able to invest. The game is changing.
Customers.are.changingThe financial crisis has accelerated change among customers and banks’ investment choices will now determine their success through the next decade. The last three years have shown how fast consumers can adopt new behaviors when a challenge or an opportunity enters the market. In that period, customers in the developed world have lost trust in their banks and believe they are better equipped to decide for themselves. Banks have offered them the technologies to shop around. Regulation will now transfer more power into their hands. New entrants can and will offer new alternatives.
In the developing world, new generations of customers are leapfrogging traditional banking offers and moving straight to new generation channels, services, and pricing approaches. The big investment choices banks make now as part of their three- to five-year planning cycle for technological and operational capability will need to reflect a customer who is evolving at a rapid rate, and will be so changed in behavior by 2020 as to be unrecognizable.
Ownership.of.the.customer.relationship.Banks risk losing their ownership of customer relationships to other parts of the ecosystem. In turn, they must urgently shape their strategies and expand their operating models to take advantage of the new consumer communities. Indeed, the financial services ecosystem is already being fundamentally transformed. The use of smartphones to provide financial services is growing exponentially. The primary owner of the customer relationship through this channel, the “gateway”, is as likely to be the telecom or the dominant provider of applications as it is to be the bank.
The risk is that banks could become commodity providers of white-label products to higher margin relationship managers. Equally, the role of banks in the community of a consumer could be very powerful and allow synergies with other members of that consumer’s community. Collaborative technologies between providers to the consumer could offer growth potential, as banks work with creators of new hybrid products and services to create white space in the market, as Apple has done.
These collaborations could also offer cost advantages, as the banks’ infrastructure is shared by ecosystem partners. Taking these opportunities will require a fundamental rethink of traditional banking operating models. The silos the banks need to cross are no longer those between its own divisions, but between the bank and its partners in the consumer ecosystem.
Towards.2012It is often said the future is not what it used to be. Now, one year after the financial crisis, it is an appropriate time to consider the effects of its aftershocks on the customer as well as the banking industry. Based on our executive interviews and research with banking customers, Accenture has argued that rebuilding bank profitability will depend more on the ability to deliver on a new customer promise than on a reversion to legacy principles.
The customer in 2012 will be more fickle, flexible and prone to flight. Banks that understand and respond to this new customer-demand-driven dynamic can rebuild sustainable profitability, improve growth trajectory and return to high performance.
About the authors
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Pascal.GautheronManaging Director, Asia Pacific Banking Industry Accenture
Dr..Vedrana.SavicHead of Research, Accenture Management Consulting Innovation Center
The “Customer 2012: The New Promise, How banks in Asia will deliver on customer needs and expectations” Point of View is based on the Accenture global research published in “Customer 2012 – Time for a new contract between banks and their customers”, authored by:
Noel.GordonManaging Director, Banking Industry Accenture
Piercarlo.GeraManaging Director, Financial Services Strategy Accenture
Dorothy.ArmstrongHead of Financial Services Strategy, UK and Ireland Accenture
Anton.PichlerHead of Banking Research Accenture Research
References
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1 Non-cumulative; model based on peer set of large US, European and Emerging Market Banks; profitability rebuild excludes impact of potential NPL recovery
2 Source: Commonwealth Bank Media Presentation, August 2010, http://www.commbank.com.au/about-us/shareholders/pdfs/results/Commonwealth_Bank_2010_full_year_results_media_slide_pack_11_August_2010.pdf
3 Source: “Well Positioned for Asian Recovery”, Analyst Trip, 2009 http://files.shareholder.com/downloads/stanchar/958847465x0x330606/22BE647B-A863-4A57-8F41-242A52A8D605/D2_AN09_WebPRINT_FINAL1.pdf
4 Source: “Maybank wins the best CRM project award 2010”, The Asian Banker, April 2010, http://asianbankerawards.com/ITimplementation/PR/TAB%20Press%20Release%20for%20Maybank%20and%20Teradata.pdf
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About.AccentureAccenture is a global management consulting, technology services and outsourcing company, with approximately 204,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.
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