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Our monthly newsletter, The Edge, (previously known as Enhance) increasingly cited within the financial services industry as the go-to source for what’s happening in client marketing, features news and comment from Roy Stephenson, an expert in financial services marketing.
Written by
Roy Stephenson
COSTING THE EARTH
Are you driving away your best customers?
Sounds crazy, doesn’t it? What bank would deliberately set out to lose profitable business?
But ask yourself this:
• Is your institution pushing hard on internet banking?
• Are you planning to reduce your branch network?
• Do your customers see you as a trustworthy, helpful partner who values their business?
Let’s take the internet banking question first. Around the world, institutions are heavily committed to rolling out online banking. Many are already pioneering mobile account access and experimenting with mobile transaction capability. The reason most often given is that it’s what our customers want. But there’s another reason, much less often mentioned in public: electronic banking sharply reduces the cost to serve customers. No question, branch networks are costly to run. Many bank CEOs would dearly love to slash the number of their retail outlets. In the global clash between clicks and bricks, clicks are winning hands down.
But here’s the question. How far are banks confusing what they want with what their most valuable customers want?
Because there’s evidence that banks are getting the wrong answer:
A recent survey of European customers¹ uncovered some disturbing news:
• 24% of respondents have changed their bank account.
• Among those who have changed, 63% of German respondents (50% in the UK and Italy) had switched main banks in the past two years – pointing to a worrying increase in attrition rates.
• 11% of those interviewed planned to change their main banking provider in the near future – a figure rising to 20% in Spain and 14% in Italy.
• 24% hold between two and four products with a bank other than their main provider.
Summing up, customers are:
• Increasingly willing to change their main bank.
• More and more likely to spread their banking business around.
Against this worrying backdrop, is the strategy of internet banking helping to retain these disturbingly footloose customers?
At best, you could say the case is not proven: 13% of customers with online banking don’t use the service at all. For mobile telephone banking, the news is worse: nearly half (43%) were uninterested.
Of course, it’s possible that those disloyal customers, the ones looking to move their business, are not particularly profitable. But if you see the risk of trouble ahead, it makes sense to check that you’ve done all you can to prepare for it.
For instance, can your bank identify a customer’s profitability across the whole of his or her relationships with you? Even more fundamental, do you have reliable tools to:
• Establish and quantify the key drivers of profit and loss for all of your retail products?
• Pinpoint how each customer account performs against these measures?
• Bring together all of these individual account details to form one integrated customer view?
Fundamental as it may seem, many banks are unable to generate these basic data.
Even where the information is available, too often retail banking operates in product silos: managers in mortgages don’t talk to credit cards, managers in loans don’t talk to savings. As a result, there is built-in resistance to seeing customer relationships as a whole. And this gets in the way of taking the next logical step: identifying what profitable customers want, and delivering it to them. Price, of course, is likely to be a major element here, as is product content. But, assuming that these components are broadly competitive, experience suggests that the next thing loyal, profitable customers need is for the bank to show that it values their business.
Once, banks could count on inertia to keep those customers. Not now. Fail to respond to that very human need to be recognised, and many of your most valuable accounts are all too ready to go elsewhere. Remember also, in many markets regulators have introduced legislation deliberately aimed at making switching easier.
Common sense suggests that closing down branches and forcing customers to the impersonal offerings of the Internet is unlikely to win new friends. Just by way of illustration, when battling to make anything other than the most straightforward travel booking on the Internet, have you ever thought to yourself “Next time, I go to a travel agent”?
The plain fact is that electronic account handling requires our customers to undertake the detailed, boring form-filling that once a friendly branch teller – or travel agent – would do for us. All very well for our less profitable accounts, of course. But is it really the way we should be treating customers with complex requirements whose business is valuable to us?
Maybe it’s time for institutions to think again about the “Cost to serve” issue. Because a much better question is “What is the cost to serve badly?”
And finally…..
Regular readers may remember that from time to time we highlight outlandishly long names for payment cards. Here’s one we spotted recently: "The Arnold Palmer Invitational Presented by MasterCard" Prepaid MasterCard Business Gift Card. Pity the poor copy-writer who has to work that into an ad!
¹Understanding Customer Behavior in Retail Banking, Ernst & Young, February 2010.
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