Bain & Company have published a survey of nearly 30,000 global consumers. The report suggests 70%+ of respondents are interested having their primary bank use their personal data if it means their banking experiences will be more personalised. This is among the main finding of Bain’s 2023 “Customer Behaviour and Loyalty in Banking” report.
This research from Bain shows a fragmentation, or unbundling, of services in 11 countries and across all age groups surveyed. This is due in part to the rise of digital-native and neobanks or virtual banks. When compared to traditional banks, these banks are providing customers with simpler offerings, more engaging experiences, and more affordable products. According to the report, fragmented behaviour is observed in people of all income levels. It is more evident in developing markets, such as Brazil and India where large groups of lower-income consumers have been historically underserved by banks. Consumers in those countries are now gaining financial access through neobanks and other fintech firms.
“More consumers are looking for better solutions to meet their needs than what their bank currently offers,” said Gerard du Toit, a partner at Bain & Company. “As consumers try more offerings, they’re increasingly apt to settle on digital-native providers. However, in every country we surveyed, traditional banks still hold most primary relationships with consumers. This provides them a competitive advantage of customer data and access that they can use for more tailored, personalised banking services that customers will love.”
Rise of e-wallets
Consumers in the countries surveyed use their primary bank account directly for the majority of spending. E-wallets have spread quickly, dominating in some countries as the preferred method of payment for eCommerce or online transactions. E-wallets and payment fintechs could make banks less relevant in consumers’ daily lives and deprive banks of transaction data. Research shows that e-wallets are the leading payment method in China and India for eCommerce purchases and across all activities. In contrast, they are lagging in Hong Kong and Brazil. Banks in the US, EU and other developed markets are not immune to the rise of e-wallets. Young consumers in those countries show the strongest preference for e-wallets over credit cards.
Higher customer loyalty scores when digital is done right
Bain’s research shows that getting the digital experience right the first time can “pay big dividends” for companies. This is because of customer loyalty, which is can be created, which is measured by Net Promoter Score (NPS). This includes consumers spending more with their bank, costing less to serve. In addition to the increased likelihood to recommend the bank to friends and family. Bain found that direct banks and neobanks earned higher NPS than traditional banks.
The value of personalised banking
Highly personalised propositions and engagement can also lead to boosts in customer loyalty. Bain found customers who perceive interactions with their bank to be personalised exhibit higher customer loyalty than those who don’t. Respondents reported that their primary bank does a good job of personalisation offering products that meet their needs. In addition to proactively resolving issues while keeping their data safe.
“To counter fragmentation in consumers’ banking relationships banks can focus on engaging customers through a simpler, more seamless and personalised digital experience,” said Katrina Cuthell, a partner at Bain & Company. “Excelling in personalisation means getting several critical moments right. First, a bank must be able to understand and anticipate its customers’ needs. Then, it needs to actively engage those customers at the right moments. Adjusting the content of communications based on the customers’ actions. And finally, it has to measure the outcomes so that personalized engagement can improve over time.”
Customers care about ESG
Respondents who perceive their bank as active and responsible along ESG dimensions tend to give the bank a higher loyalty score. This highlights the importance of clear ESG communications. Yet only 52% of respondents believe their primary bank performs well on ESG efforts. While 22% of respondents said they are wholly unaware of ESG efforts by their bank due to a lack of communication.
Bain’s research suggests consumers figure many products or features into ESG priorities, including waived fees for sustainable investments, sustainable deposits and insights that help customers to improve their carbon footprints.
Enterprise Times: What this means for business.
Clearly, banking is following the trends of other sectors, such as retail, with a greater emphasis on user experience. Customers who experience poor digital experience generally do not engage or remain loyal with those enterprises. The study from Bain & Company suggests there is an eroding loyalty among banking customers. Increasingly customers, particularly younger customers, are increasingly turning to digital-native and neobanks for ancillary services. As customers ‘unbundle’ their banking services, they crave personalised interactions with their banks. This gives traditional institutions a chance to win them back by learning from retail, travel and other business sectors. They must then develop personalised offerings to sustain engagement and foster loyalty.
