Customers’ retail banking experience falls again

Capgemini and Efma's twelfth annual World Retail Banking Report (WRBR) reported that customer satisfaction had fallen.

Capgemini and Efma’s twelfth annual World Retail Banking Report (WRBR) reported that, for the second year in a row, customer satisfaction has fallen and improvement in global retail bank customer experience is stagnating. What has caused this and how can banks pick up their game? Patrick Brusnahan reports

The WRBR is one of the financial sector’s largest customer experience surveys with this year’s report including over 16,000 respondents across 32 countries. The 2015 report honed in on customer experience’s lack of improvement, competitive threats from outside the banks and the effect poor middle- and back-offices are having on the overall customer experience.

The consumer experience has stagnated
According to the report, banks’ efforts to provide better services are not meeting customers’ expectations. This has led to a drop in the Customer Experience Index (CEI), from 73.5 in 2013 to 72.7 in 2015.

The most dramatic decreases in CEI were in the Middle East and Africa (with a current average CEI of under 70 from 73.9 in 2013), followed by North America (an average of 77.7, down from 80.1 in 2013). The United Arab Emirates was the country that saw the largest drop in CEI (8.3 points) compared to 2013. The other three were in Europe, with Norway dropping 5.9 points, followed by Belgium and Germany, each with a decrease of five points.

Central Europe, partly due to large CEI gains in Russia (71 to 75.8), Turkey (72.2 to 76.1), and the Czech Republic (74 to 77.5) over the last two years, recorded the largest increase in CEI. Spain was joint-top with Russia in improving its CEI with a rise of 4.8 points.

Perhaps not surprisingly, across all regions the lowest customer experience levels came from Generation Y customers, reflecting their generally higher expectations. In North America, the CEI for Gen Ys was 72.2, compared to 80.1 for customers of other ages within the region. Another example is in Latin America where the CEI for Gen Ys was 70.8 while all other Latin Americans registered a CEI of 77.2.

The smallest gap was in the Middle East and Africa where Gen Ys recorded a CEI of 67.8 points compared to 70.8 points for everyone else; a gap of only three points.

The report states that these high expectations are down to the ‘high importance of digital technology to that demographics’ lifestyle’. The report said: “Accustomed to instant access and seamless transactions in most aspects of their social and professional lives, Gen Y brings very high expectations to their banking interactions.”

Another finding was that consumers were moving away from neutral experiences to either positive or negative ones. In nearly every region, the percentage of customers with positive experiences grew. Central Europe had the biggest increase, spiking from 38.2% to 54.7%, bolstered by sizable increases in Turkey and Russia, increases of 24.4% and 23.6% respectively. Latin America was the next-highest jump in positive experience, going from 43.2% to 52.7%.

With Turkey in particular, the increase in positive sentiment was attributed to the upgrading of core systems and significant efforts made in the back-offices.

North America was the only region to not follow this trend as positive experiences declined from 56.4% to 55.6%. Capgemini’s report believes that this could be down to the ‘return on investments in the front-office and digital channels are struggling to keep up with evolving customer expectations.’

Negative experiences are a different story. Western Europe suffered from a substantial increase in negative sentiment, from 4.9% in 2014 to 11.7% in 2015. Eight of the top ten countries with the highest increases in negative customer experience were within the Western Europe region. Five of them even posted double digit increases. Only Japan, with an increase of 13.7% beat them in this category.

This extreme level of negative experience throughout Western Europe means that, for the first time, the region has overtaken Asia Pacific in this aspect, which only has 9.1% negative experience.

Newer channels failing to beat branches
As pressures increase on margin in the banking sector, institutions have looked towards low-cost digital channels to curb spending and, possibly, replace the physical branch.

The WRBR suggests that many customers do not actually believe that the new offerings can offer the same level and breadth of service available in a branch.

The report states that the Internet has becoming the most-favoured channel by customers in all regions. All the regions had two-thirds, or close to, of their customers utilising banking websites at least weekly.

In addition, the popularity of mobile rose in every region. Latin America, North America, and Central Europe recorded double digit rises in popularity over the last year. Across most regions, mobile usage is at approximately one-third of customers accessing it at least weekly.

The significant rises in mobile and Internet usage, however, failed to have a significant impact on the branch. On the other hand, branch usage had a humble rise in North America and Europe over the last year while only decreasing slightly in Latin America and barely at all in Asia Pacific.

Despite customers adapting to using the Internet and/or mobile devices to check their balances, the branch is still very much the channel to handle any other matter. The complexity of the product does not matter. 53.2% of customers said they would want to use the branch when applying for a simple product; that amount being even higher than the 51.7% of customers who said they would want to use the branch for a more complex product.

This is very much in line with what bankers wanted as 52.4% of bankers surveyed would prefer customers to use a branch to apply for advice-based products. However, 56.1% of them reported that they would prefer customers to use the Internet for simple products. Interestingly, no bankers wanted customers to apply for products on social media, whether they were complicated or not.

16.2% of respondents visited a bank branch at least weekly. This is actually a rise from two years ago.

The report stated: “In effect, the banking industry’s great effort to minimise the use of expensive branches by replacing them with lower-cost channels still leaves work to be done.”

The next challenge, according to the WRBR, is convincing customers that the standard or service is just as good through the Internet or a phone as it is in branch.

Profitability is another challenge as the standard methods of keeping customers, cross-selling, and references are quickly becoming inefficient.

In every region, the number of customer likely to stay dropped and the number of customers unlikely to stay increased. In the Asia Pacific region, 12.1% of customers said they were unlikely to stay at their bank, a 12.3% rise from the previous year. In Latin America, 46% of customers said they were likely to stay with their bank, but that is 9.8% less than 2014.

Once again, Gen Y customers were less satisfied than other groups and were the most likely to switch banks. The difference was particularly apparent in North America, where only 47.3% of Gen Ys believed they were likely to stay with their bank in the next six months, compared to 69.8% of others.

The report said: “As the wealth an influence of Gen Y customers increases, their increased tendency to switch banks may have important implications for profitability.”

However, this seems unlikely as the number of switches is still very low. In the twelve months from 1 April 2014 to 31 March 2015, there were 1.14 million switches in the UK. This was a 7% increase in the 1.06 million switches in the same time period the year before. So the trend has yet to significantly show itself at this time.

Competition from the outside
As customers become ever more dissatisfied with banks, they are turning towards alternatives for their financial needs.

While banks still hold the majority of products across all regions, other bodies have made significant steps within the North America and Western Europe markets.

Banks have acknowledged this threat, but the danger is much higher than what banks are seeing. The report believes that customers are more likely to hear, research, and apply for different banking services using non-traditional avenues.

FinTech firms have started carving significant inroads into the banking sector with potential to disrupt the market. Internet and technology firms have established a strong presence in the credit card and payment worlds. Banks actually believe that customers are more comfortable with Internet and technology firms than they are with banks.

However, this threat is not expected to be fully-formed for 36 months.

The threat is due to the agility and ability to leverage technology, derive insights from data, and develop simple and intuitive offerings. This is strange as banks have a substantial amount of data themselves.

While this influx of new options is worrying, banks have been holding their ground against this onslaught. Most customers, a large 77.1%, maintained their current account at their primary bank, but were not as loyal when it came to other products. Only 62.1% had their credit card at their primary bank; 59.6% their personal loans, and 52.5% their mortgage.

The report states that banks should ‘pay particular attention to the vulnerable payments area’. This is due to customers being engaged with other banks and financial services providers at a relationship level when they strayed from their primary bank. The main exception was credit cards where Internet and technology companies have created a sizable presence.

Given the focus that giants such as Google and Apple have places on developing new customer-orientated payments products, this is not particularly surprising.

These alternative entities seem to have made greater progress in North America and Western Europe. 23.5% and 20.4% of credit cards in North America and Western Europe respectively were held by entities other than banks, compared to only 14.9% in Latin America and Asia Pacific.

Non-traditional entities had an even greater share of the market when it came to more complex products. 43.3% said they turned towards other entities for mortgages, despite only 23.6% of bankers believing they had done so.

Capgemini said: “As entities other than primary banks continue to make inroads into the various lifecycle stages of acquiring financial services products, banks cannot remain idle. With every incursion by a non-bank into the financial services sales process, banks run a higher risk of becoming disintermediated from their customers.”

Banking executives are particularly worried about competitors coming from the Internet and technology firms. Capgemini’s poll of banking executives found that 83.3% of them viewed customers as already comfortable with conducting their banking through these fields. This is higher than the 64.8% who think customers have high levels of comfort at banks.

Investing in the back and middle
A key problem for banks, as stated by the report, is the lack of investment in middle- and back-office functions.

Customer experience was prominent in terms of investment in the front-office, but not elsewhere. As a result, banks have claimed that digital maturity in middle- and back-offices is much lower.

Over the next three years, it is predicted that investments in middle- and back-office functions are actually set to decrease while the high level of investment at the front increases.

This is fairly distressing as Capgemini’s research found that the majority of customer dissatisfaction actually came from back-offices.
However, improving these offices has some roadblocks; the cost and the need for a focus on digitisation.

92.6% of bank executive respondents claimed that customer experience was the main driver for front-office investment. While these investments are important, it detracts attention from investing in middle- and back-office processes aimed at improving the customer experience. Only 53.8% of bank executives cited customer experience as a driver for middle-office investments and only 46.3% of respondents believed it to be a driver for back-office investment. This has led to stagnation in their development with nearly 85% of them only having access to basic digital capabilities.

This is in direct contrast to the front-office, where 31.5% of them have advanced levels of digital maturity.

The report concluded: “With the increasing competition and changing customer behaviours and preferences, the banking industry is at an inflection point, the threat of disintermediation is real and imminent.”