Customer profitability down at banks
People more likely to shop around finds global survey
A majority of executives at leading retail banks globally say average customer profitability has remained below pre-crisis levels, while their customers’ price-sensitivity and inclination to “shop around” have increased, according to an Accenture survey.
The consultant says that interviews with 46 senior executives of major banks in 14 countries suggest that nearly half of the top retail banks globally (46 percent) have seen their average customer profitability decline by 5 percent to 15 percent since the financial crisis. It adds that an additional 11 percent have seen even greater customer profitability declines.
According to the executives interviewed, efforts by retail banks to restore customer profitability face new and long-term headwinds on several fronts:
– 59 percent reported decreased customer loyalty since the financial crisis;
– 63 percent say their customers are more price sensitive; and
– 63 percent say their customers are “shopping around” more frequently
More than two-thirds (68 percent) of executives said they expect such independent consumer banking behaviors, which have emerged or accelerated from the crisis, to continue long term.
“Our research shows a fundamental power shift between the banks and their customers since the financial crisis began,” said Noel Gordon, global MD of Accenture’s banking industry practice, and co-author of the research. “Consumers have emerged more confident in making financial decisions for themselves, more skeptical of their bank brands, more price-conscious and more willing to move away from institutions that provide poor service. For the banks, traditional profit-recovery strategies – rate and fee increases, conventional cross-selling and organic growth – will not readily fix the problem because broader customer expectations and service demands have risen in the wake of the financial crisis.”
According to the executives questioned, the primary strategies that banks are employing to boost customer revenues are increased cross-selling to existing customers (87 percent), the pursuit of new customers (54 percent) and increasing prices for their products and services (33 percent).
Despite these measures, the survey suggests that most retail banks will continue to struggle to meet emerging consumer demands. The vast majority of bank executives (83 percent) reported increased demand for “direct” services – online, telephone, and mobile – since the financial crisis, and nearly two-thirds (63 percent) believe that meeting those demands will be a major challenge for their companies in the next three years. Other major challenges they cited include responding to demands for more personalized banking services and addressing customer pricing sensitivities (cited by 49 percent and 44 percent of executives, respectively).
“The banks that will win the race to rebuild profitability will be those that recognize their customer relationships have changed for good,” said Piercarlo Gera, global managing director of Accenture’s financial services industry strategy practice and co-author of the research. “Banks will need to work on their service models by introducing more sophisticated customer segmentation, making sure key segments are serviced with the appropriate mix of banking channels and giving those segments a greater ability to define and select their services. This will help them ‘pull’ customers in rather than simply push products out, and increase sales while better managing their costs of servicing customers. By working at their business models in this way, banks can drive more sustainable operating costs and stronger long-term customer profitability for the post-crisis environment.”
The survey revealed a significant shortfall between new consumer service demands and the current capacity of banks to meet those demands. The majority of executives cited strong customer analytics (82 percent), well integrated service channels (79 percent), personalized offerings (68 percent) and innovative technologies (53 percent) among the most important capabilities to attract and retain post-crisis customers. Yet only half as many executives rated their own bank’s capabilities in those areas as being strong (39 percent, 26 percent, 26 percent and 13 percent, respectively).
Among the survey’s other major findings:
– According to executives, the main sources of new bank customer innovations are competitors from other industries (65 percent), technology innovators (45 percent), and specialist financial services companies, such as credit unions (43 percent)
– The primary areas of investment for retail banks are developing and improving new channels (54 percent), integrating multi-channel distribution (49 percent), and improving customer insight capabilities (33 percent)
– Nearly two-thirds (63 percent) cited “lifetime” customer value as a primary factor they will use to manage customer profitability over the next three years
– Fifty-three percent of executives acknowledged a decline of trust in banking brands as a key customer response to the financial crisis
– Most said customer savings had increased (70 percent) and appetite for credit decreased (53 percent) in response to the crisis
The findings of the survey will be published in a forthcoming Accenture whitepaper about bank customer-profitability and changing consumer behaviors after the financial crisis.