Banking sector challenges: fintech disruption and falling customer experience ratings
Customer experience among banking customers is on the decline, according to the latest World Retail Banking Report from global consulting firm Capgemini. 2015 is the second year in a row, and the first in the history of the report, of decline in figures from the Customer Experience Index for consumer banking. These figures have declined in Australia and much of the world.
Published annually, the report looks at customer experience rather than straight-out satisfaction. This means customers who report positive experiences are also more likely to become advocates for the brand, as opposed to simply being satisfied yet disengaged.
Marketing recently published two articles by Dr Jana Bowden of Sydney’s Macquarie University, which point out that customer satisfaction ratings for Australian banks are actually tracking at an all-time high. As she discusses, however, a difference in net promoter score exists between customers who are ‘very satisfied’ versus just ‘fairly satisfied’. She criticises this seeming inaccuracy in the reporting systems.
We started out this interview with Phil Gomm, Capgemini Australia director and banking industry practice leader, by asking him for his thoughts on the reporting side of banking satisfaction.
Phil Gomm: Customer satisfaction, I’m comfortable, is reporting an all-time high. However I think I’m in-line with your thinking, that it camouflages what’s underlying and causing some greater concern. The Customer Experience Index is more about whether expectations are being met as opposed to pure satisfaction, and if you start to think in terms of the experience then we’ve seen a marginal drop globally in that experience index. That’s what’s sounding out the alarms for us, and it gives us the confidence to be able to describe a degree of stagnation in customer experience, and deteriorating profitable customer behaviours. We track that back to basically having a bad experience where things go wrong. When things are fine, obviously your satisfaction tends to be higher, but when your expectations are not met, that’s when you become less likely to promote that particular entity, and I think the banks are moving from customer satisfaction more towards net promoter scores; who are our customers who we are delighting, who are likely to take new product from us, who are likely to refer their friends and family to also use our products and services? We think this is probably a more accurate measure than pure satisfaction.
The other challenge around satisfaction around today’s very modern world is that in the same way that the internet has given product manufacturers extraordinary breadth and depth in terms of access to new markets, in the same way it’s given voice to the dissatisfied customer, and so you can no longer feel satisfied that you’re running as a 97% customer satisfaction, simply because of the amplitude and volume that that 3% dissatisfied customer now has with the tools that are at their fingertips in terms of social media in particular and of course sitting on the backbone of the internet.
So our message here is that the banks need to think more in-line with what sort of experience are they delivering to their customers and how closely are they meeting the expectations that are being increasingly set for their customers by outside influencers. When they have extremely intuitive technology solutions delivered from the likes of the emerging fintech, or financial technology, organisations, then they begin to expect that as the norm. So the same experience you get on apps is what you expect when you go to your bank’s internet banking channel. If they’re not maintaining pace with that very intuitive customer experience front-end, then they’re likely to be increasing the negative outcomes that come using the model of customer experience index.
M: Okay, so before we go into some more thoughts on what banks can do to improve, can we run through some of the stats from the report that you consider to be most relevant to Australian customers and banks at the moment?
PG: The overall decline in the Customer Experience Index is marginal at about 0.8 percentage points, from 73.5% in 2013 to 72.7% in 2015. According to our Australian statistics, customers who are likely to leave their banks increased anywhere from 3.6 percentage points to 12.3 percentage points last year.
Then there is this other interesting statistic – customers unwilling to make referrals rose by over 9.5 percentage points in some regions. And the unlikelihood to purchase a second product increased as much as 25 percentage points and that tracks back to Western Europe. They unfortunately delivered this 25 percentage point increase in the unlikelihood to purchase a second product from their primary financial services provider.
In the Asia Pacific region it’s not quite as extreme; the likelihood to leave their bank in the next six months is up 12.3 percentage points to 15.1%.
M: Are the changes this year quite significant compared with other years?
PG: It’s a continuing trend. Up until 2013 we’d seen a consistent improvement in the Customer Experience Index. In 2014, we witnessed the first decline that we’d recorded over the lifetime of producing the report, and in 2015 that decline has continued. We’re also tracking this back to the increasing influence of both technology-savvy Gen Y who have very high expectations in terms of the digital access to their financial services provider.
M: Thinking about what you said before about the fintech companies, how do banks keep up?
PG: We think the battleground is actually forming around ownership of the current account – where you put your paypacket, basically – which has been dominated by banking institutions for a considerable period of time. The banks are now having to defend their right to have the trust of their customers to deposit their salary with their organisation. The statistics, and you’ll have many reference points for this, they’re quite extraordinary in terms of the volume of users on their internet channels, and increasingly, accessed via mobile platforms. This resonates very strongly in the australian market also where we have very high penetration of mobile technology, so this competition is accelerating on that basis.
There is also a burden on existing banks around legacy infrastructure, that’s limiting the banks’ ability to drive really actionable insights through both the use of advanced analytics approaches that can drive innovation, and there are a new breed of very agile, very innovative and very digitally-savvy non-bank players that are luring customers away with an array of new offerings.
I’m going to be very mainstream here, but to make a point about the introduction of Apple Pay, which is really only just around the corner for us: it was only quite recently that we had the first innovation which was the move from contact-based payment with cards at point-of-sale, i.e. mag stripe or dip, using the chip, to contactless, using NFC paywave. Now that we’ve got very very comfortable with using paywave at point-of-sale to make our payments, and we’ve completely pushed away into the back of our minds any concerns around security, in favour of the frictionless convenience of the transaction of point-of-sale, that the next progression is to remove the plastic card from that transaction and go directly to the phone. That’s exactly what Apple Pay introduced. Although it’s using the same underlying rails in terms of the Visa and Mastercard infrastructure –
M: With Apple Pay you don’t change anything to do with the bank account that’s behind it, do you?
PG: You don’t. All you do is record the details of your credit card inside your phone and then the phone can access those details and talk to the point-of-sale terminal in order to be able to take the transaction. But what it does do, is because Apple owns the device, they’re in a very strong position to be able to negotiate with the banks for a percentage of the value of the payment, which is paid for by the merchant. So Apple have managed to get into the value chain at a ‘value hotspot’, as we describe it, and that hotspot is that point of transaction capture and acceptance. And this is where the really smart tech-savvy organisations are targeting highly-profitable sectors of the value chain which have been dominated by the banks historically.
M: With customers changing their attitudes towards security and such, will it get to the point where tech companies have a lot more control, or is it that banks need to get on top of the tech themselves? Are we going to be seeing proper competition to banks and people moving away from actually having a bank account and a credit card in the traditional sense?
PG: Look, it’s a great point, and I’m glad you raised it because we think that the single greatest asset the banks have in terms of being able to improve their customer experience, and their best defence to deflect against the competition that’s coming from the non-banks players, is to address the weaknesses in their middle and back office. So we’re saying, “It’s back to your knitting, guys. People want immediacy of transaction and they want transparency of that transaction”.
If we use the analogy of parcel delivery: you used to lodge the package with your carrier, and hopefully a fortnight or so later if it was an international transfer it would turn up at the destination – that was the old model. Today you lodge the package, you immediately go onto the internet and you can track that package as it’s on its journey from where it was lodged to where it’s going to arrive, and you’ve got that immediacy. You can see that package as it transitions through each of the hub cities it’s going through, as it goes in and out of warehouses, as it leaves gateways in and out of countries and arrives in new destination countries. It’s that type of immediacy and transparency that we’re increasingly demanding from our financial services provider.
If we track that back to basically banking being four key functions: they take deposits, they make loans, they manage risk and of course they make payments. It’s in this space of making payments where we think banks have got to increase the robustness of their back office in order to be able to provide that same degree of transparency, particularly when things go wrong, so they can meet their customers’ expectations, and saying, “We’re just simply not going to be complacent about six- or eight-day delays at various points in that value chain, particularly when things are going wrong and you’re trying to get your money back.
M: Thinking about disenfranchised customers, to what extent should we be looking at the smaller banks, such as Bendigo Bank? They’re a little bit more popular, they seem to have less unhappy customers. Is that going to become more of a trend – people getting frustrated with the big banks and going to the smaller ones with the better reputations?
PG: I think the big banks still maintain a very robust and defendable position, in that at the end of the day they still have and hold customer trust, and it’s about their ability to be able to preserve that trust that their customers implicitly have in their banking service provider. Because we’re talking about people’s money, I think that for some time to come, customers are still going to be comfortable banking with their primary service provider. The Australian population has tended to be fairly sticky, so it takes a fairly significant event that the bank has been unable to fix for people to actually move.
I hear your point but i’m not sure that it resonates strongly that people differentiate to a significant degree between the products and services that are provided across each one of the majors. The majors have got to be able to play very, very fast catch-up as innovations are brought to market. They have to have agility, they need to have the technical competence, and they need to be able to move very quickly in order to defend against those competitive threats as they emerge.
M: What about the difference between personal and business banking? Is there much difference in customer satisfaction there?
PG: That’s another whole area of observation, but I’m comfortable to suggest to you that the same degree of innovation that’s required in the retail space is equally, and probably at an increased order of magnitude, required in the business banking space.
M: Okay, interesting. Which banks do you think are doing the best jobs of keeping up with these changes?
PG: They’re each taking slightly different approaches, which I find fascinating. Westpac have maintained a multi-brand strategy with the St George brand, the Bank of Melbourne and Westpac, and they’ve been able to segment their customer base effectively with a variation in service between each one of those brands.
When I look towards ANZ, I think they’ve invested significantly in building the kind of enabling infrastructure and they’re about to come to market with some quite challenging developments and innovations which I think will be increasing their competitiveness. They also have adopted, and made very public, their super regional strategy in terms of growth in Asia which will support their business model.
I think the NAB are very successfully articulating their transformation journey, and we’re seeing investors now responding positively to that message. They’ve been undertaking their core platforms’ refresh program for a number of years now, and are beginning to enjoy the benefits of their investments in those areas.
The CBA, as the media have covered extensively, have taken a very complex refresh of their core leger systems but I think their next challenge is going to be the peripheral supporting systems in their middle and back office which they’re only just facing into.
That kind of creates an interesting playing field around who’s perhaps got ascendency. I think the varying strategies give each an advantage in their own right, but I think we’re going to see an accelerated period of new, digital solutions that are being brought to market in order to address the competitive threat that’s coming from the fintech organisations and get back to improving this Customer Experience Index that we’re describing.
M: Great. Have you got any final thoughts or advice?
PG: I want to close on this note on the competitive threat from fintech firms. There’s been a lot of interest in the market around what Google might do with their wallet, or how far into financial services Apple Pay is likely to go. What will retailers do as they begin to leverage insights over the very rich data they have on their customer base? We think that that potential to disrupt the banking market place comes from their ability to be able to leverage technology, derive insights from data and develop simple and intuitive offerings which will facilitate this idea of positive customer experience. And we think that many of the new entrants to the market are being really positively regarded for their customer service and they threaten to lure customers away from traditional banks. The rise of these emerging competitors introduces an increased flight risk of banking customers, and we think the solution for banks is to dramatically improve the customer experience and put it on a par with the non-banks that are angling for their customers.
Bank executives still very much expect their investments in their middle and back office are going to decrease, while already at a high level their investment in the front office is expected to rise, especially in investments along the lines of channel and mobile and internet, in order to be able to dispel that competitive threat. I think that’s going to be consistent with the way they’ll approach this challenge.
M: It will be an interesting couple of years.
PG: Yes, it’s quite an interesting time. I think the playing field will continue to be levelled out, I think we’ve proven that we’re a pretty sticky group of customers as I say, but the challenge is back on the banks.
M: Thanks so much for your time.
PG: Nice chatting. Thank you very much, Michelle.