WRBR_2014

90%

80%

20%

Phone

Phone Mobile

Phone

Phone

Mobile

Mobile

Mobile

Customers with positive experience with channel (%)

The clear difference in Gen Y perceptions toward banking compared to other age segments may indicate an inflection point in changing customer experience. With Gen Y comprising one-quarter to one-third of the population in many markets, this tech-savvy segment played a significant role in the decline of this year’s CEI. To reverse the decline, retail banks must begin paying attention to the needs and expectations of Gen Yers, as their influence is only expected to grow.

Evolving Customer Expectations: To understand why banks appear to be losing their touch in providing positive experiences, it is also important to understand the role of customer expectations. Customers of all ages today are avid users of technological devices designed to bring instant gratification to any task. Shopping, phototaking, communicating, researching, music-listening, and any one of a number of other activities can now be accomplished within seconds, at any time, from any location. The fast pace of technological development

throughout all aspects of customers’ lives means they are bringing the same level of expectation for convenient, fast service delivery to their banking relationships.

A number of new non-bank competitors are taking advantage of digital technology to make improvements upon the traditional ways of delivering retail banking services. Freed from the burden of legacy systems, these non-banks are nimbler in developing new financial services. Often, they offer price transparency and clarity on fees. By specializing in specific products, they can

offer best-in-class services that not only cater to rising customer expectations, but continually push those expectations higher.

Retail banks who have been slow to acknowledge this new competition and respond to the various market forces are likely to lose out. Leading players who undertake timely investments in latest digital channels would be well positioned to meet evolving customer expectations. As alternate channels replace face-to-face contact, banks do not have as much personal interaction with their customers as in earlier years. And although they have

an unprecedented amount of data about their customers available to them, most banks only leverage a small fraction of it. Semiand unstructured data remains

a particular challenge, both for its volume and the difficulty of managing it. At most banks, much of this valuable customer data is not even captured.

To reverse the decline in the CEI, banks will need to be mindful of the demographic, technological, and competitive shifts that portend lasting change in how customers perceive and embrace banking services. Their goal should be to become better students and observers of customer expectations, given the many forces that are shaping the experiences customers have.

In the face of powerful new technologies and changing customer expectations, banks must determine the role digital innovation will play as they deliver retail services within their distinct markets. It is important to note that the impact of digital innovation may vary depending on the specific market in which a bank operates. High levels of digital innovation do not necessarily guarantee high levels of positive customer experience.

Turkish banks, for example, are among the most advanced around the globe in their methods of reaching out to the customers. Turkey’s DenizBank became

the first in the world to offer customers access to their accounts via Facebook. Isbank has an iPad app that lets users perform a wide range of banking and investment functions, as well as buy event tickets and download novels. Turk Ekonomi Bankasi is revolutionizing debit with cards that feature a display screen and touchsensitive buttons, allowing users to enter passwords and view account information, right on their cards. Several Turkish banks, meanwhile, have partnered with mobile network operators to provide contactless payments. Despite the success in delivering innovative services, Turkey sits among the bottom five countries in terms of providing positive customer experiences, with only 27.7% of customers citing them.

U.S. banks, meanwhile, have been very slow to adopt advanced digital technologies for interacting with customers. It was not until 2013 that downloadable mobile banking apps were available from every one of the top 25 retail institutions.1 And U.S. banks have made very little progress in adding social media to their offerings, limiting its use to monitoring comments on social media sites and using analytics to track customer sentiment. Even so, U.S. banks have consistently posted among the highest ratings in positive customer experience, ranking second overall in the last two years. A slight decline in this year’s U.S. CEI (of 0.5%) may indicate that U.S. customers are reaching a point where they are starting to expect more from their banks.

Netherlands and Japan are also noteworthy cases. Given their tech-savvy customers, banks in Netherlands have long been among the most advanced in their digital offerings. Yet due to high customer expectations, they have had less success in providing positive experiences to their customers compared to their global peers. This year, for the first time, the expectations of Netherlands customers appear to be lining up with the banks’ capabilities, as the percent of positive experiences increased from 39.2% to 42.8%. In Japan, meanwhile, the more staid banking industry has struggled to keep up with the increasingly digital lifestyle of the Japanese, leading to the persistently lower levels of positive customer experience (23.4% in 2014).

While digital innovation may play a role in positive experiences in some regions, delivering on the basics, including fair pricing, broad product sets, and dependable service, is also necessary. In examining the factors that most influence customers when choosing a bank, we found that fees and prices are the number-one driver in most regions (See Figure 6). (In Latin America, they

are a close second, after quality, and in MEA, they are third.) After prices and fees, customers globally are most interested in a bank that provides quality service. Telephone and mobile banking, meanwhile, remain low on the list of priorities for customers seeking new banks.

Aside from pricing, we found customers are interested in having a full set of services. Not surprisingly, customers indicated that the products being offered by banks are just as important as in the past. Checking and savings accounts, mortgages, and credit cards continue to be the mainstays of any banking relationship. However, the level of positive experience associated with each type of product declined over the last year. Customers

particularly expressed grievances about their bankcards, likely the result of the higher fees banks in some markets have had to charge as a result of changing card legislation. In addition, alternative payment mechanisms, such as mobile and internet payments, may be lessening the allure of cards with more basic functionality.

Consistent service is also a must. This year, customers placed greater importance on every type of banking service surveyed, including information gathering, looking up accounts, transacting, and resolving problems. At the same time, they registered a marked decrease in positive experience associated with each type of service. The decrease was especially pronounced in the area of problem resolution, particularly with respect to credit cards and accounts. Information gathering also witnessed a large-scale decline, with positive experience decreasing across almost all products and channels. These results point to an urgent need for banks to improve their execution of basic banking tasks, bringing them in line with customer expectations.

Our findings so far present a tall order for banks. Expectations of customers, especially younger ones, are on the rise, propelled by expanding use of personal digital technology. At the same time, customers are demanding that banks deliver on the basics, presenting a full set of services, consistently and dependably, at reasonable and fair prices.

Banks need to calibrate these dual demands, stepping up to the requirements of digital-savvy customers, while still supplying high-quality basic banking services. In this context, the branch remains a vital channel. Though the branch declined slightly in importance this year, it remains the second-most important of all the channels

(after the Internet). Customers are leveraging bank branches primarily for advisory services, even as they are increasingly utilizing alternate channels such as mobile and internet for more basic transactions.

Increasingly, the bank of the future is shaping up to be a balanced network of distribution channels, with each channel working fluidly with the others to serve the various needs of a diverse and changing customer

base. To be prepared for this vision of the future, banks need to take several steps. Foremost among them is

to embrace an omni-channel approach to delivering services, ensuring a seamless and unified customer experience through all channels. Core banking systems will need to be upgraded to support all channels equally and data mining will need to be leveraged to promote fuller relationships with customers.

The bank no longer reflects where a customer goes, but what a customer does. As the number and type of channels increase, knowledge of how customers prefer to interact with their bank is critical. Only by fully

understanding individual customer habits and preferences as channels evolve, will banks be able to ensure consistently positive customer experiences.

Introduction

The use of social media to support banking activity is expected to increase.

More than 89% of respondents to our Retail Banking Voice of the Customer survey said they have a social media account.

At least 10% of customers in different regions around the world are using social media at least once a week to interact with their bank.

Retention, referrals, and cross-selling are expected to increase at banks that offer positive experiences through social media.

Banks favor offering basic information and customer service via social media, rather than transactions and access to accounts, leading to a mismatch with customer expectations.

Customers ranked access to account information via social media as most important, but very few of them currently receive that functionality.

More than half of banks (58%) said they would not offer access to account information via social media and almost half (42%) said they would not offer transaction services.

More than 90% of banks said they currently or plan to position social media as a platform for information and customer service.

Banks are pursuing a variety of initiatives in social media, even though several challenges impede its full-fledged adoption as a banking channel.

Banks are still figuring out the right mix of social media banking functionalities to offer as this channel is pretty much in a nascent stage.

Despite the potential of social media, banks are still cautious in their approach due to challenges related to security, data privacy, regulations, and evolving customer demand.

Banks must define how banking will work on social media, before social media redefines banking.

The flexibility of social media makes it possible to identify needs customers didn’t know they had.

A clear social media strategy and a comprehensive governance model are essential to taking full advantage of this popular technology.

In less than a decade, social media has evolved from a little-known pastime into an integral part of daily life for hundreds of millions of people around the world.

Facebook alone took only nine years to get more than 1.2 billion people signed up and a daily average of more than 750 million people logging on to its site.2

Social media taps into a basic human desire to get and share information, making it appealing to users of all ages in all geographies. Among the more than 17,000 retail-banking customers we queried globally in our Retail Banking Voice of the Customer survey, more than 89% of respondents said they have a social media account. Younger people in emerging markets are the most active users, with more than 50% of respondents in Latin America, MEA and APAC under 35 spending at least one hour a day on social sites (See Figure 7).

The popularity and reach of social media is only expected to increase. Younger generations who have grown up

on social media will continue to view it as an essential component of their lives. And the ability to access social media sites anytime from anywhere will continue to expand as mobile devices become more ubiquitous and gain greater functionality. While social media encompasses micro-blogging platforms like Twitter, content sharing sites like Flickr and Pinterest, and professional networking sites like LinkedIn, the most popular social media activity remains social networking, with Facebook being the most widely used site.

Financial institutions did not immediately embrace social media, as many feared losing control over customer communications. In time, banks began to recognize social media’s power as a channel for two-way communications,

an increasingly important goal as face-to-face interactions in the branch began to decrease. Banks soon began leveraging social platforms, particularly Facebook and Twitter, to support a number of initiatives.

An early goal was simply to establish a presence on social media, as customers spent more time there. Banks also found social media to be well suited to tracking emerging customer service issues and responding to them in a timely manner. Many institutions now have teams exclusively devoted to monitoring customer comments on social media and immediately responding with fixes or other feedback. In addition, non-traditional outreach on social media, like trivia questions, financial tips and even photo contests, is helping banks build their brand identities and re-engage customers. Banks are also using programs that analyze social media usage to better understand customer preferences, anticipate customer needs, and promote cross-selling.

To date, social media has not matured into a bona-fide channel for executing transactions. Increasingly, however, it is headed in that direction. Already in different regions around the world, at least 10% of customers from our 2014 Retail Banking Voice of the Customer survey say they are using social media at least once a week to interact with their bank (See Figure 8). The most frequent users of social media banking are in APAC (16%) and Central Europe (13%), followed by North America (12.4%) and Western Europe (10.8%). In the future, growth in social media banking is expected to accelerate with a concurrent growth of digital and social media.

% of Customers Who Spend More than One Hour per Day on Social Media

To some extent, the growth of social media banking will be tempered by some customers’ concerns about privacy and security. Younger customers, in a testament to their comfort and familiarity with the platform, are more likely to move from mobile to social media banking, with 51% of 18 to 24 year-olds saying so. Customers in emerging markets are also more likely to adopt social media banking. But older customers, particularly those in developed markets, appear more cautious, with only 35% of those 55 years and older saying they are likely to bank via social media.

The first chapter of this report showed that positive customer experiences have a powerful impact on the likelihood of customers to stay with a bank, refer it to friends, and buy more products from it. These dynamics continue to hold true for banks that provide positive

experiences specifically via social media platforms. We found retention is likely to increase at banks that offer strong social media experiences, with around half of all customers saying so (See Figure 9), and the percentages edging higher for those 18 to 24 years (57%) and for those in Latin America (68%) (See Figure 9).

Referrals and cross-selling are also expected to get boosts from positive social media experiences. About one-third of customers of all ages with positive encounters in social media banking (and 37% of those 18 to 24 years) said they were likely to refer friends. In Latin America, 52% said they would refer friends. Additionally, about onequarter of customers of all ages (and 28% of those 18 to 24 years) said they would buy more products from a bank with strong social media. This was especially so in Latin America, where 45% said they would.