Forbes.com

The Hidden "Run" on Banks

Bank managers can't count on loyalty in the years to come without investment in digital tools.

Von Maureen Burns

First published on Januar 26, 2015
Min. Lesezeit


This article originally appeared on Forbes.com. In Frank Capra’s classic It’s a Wonderful Life, a stalwart television rerun during the past Christmas season,the good folks of Bedford Falls band together to save Jimmy Stewart’s bank from ruin, because he stood by them during tough times. Your own bank manager can’t count on such loyalty in the year to come. In fact, if you’re like many bank customers, you’re quietly killing the bank manager’s business. When Bain & Company surveyed 83,000 customers in 22 countries recently, we found that more than one-third of them bought a banking product from their primary bank’s competitors during the past year. Your savings or current account have probably borne the same bank name for years, but is that the name you think of first when you sign up for credit cards, loans or insurance? Probably not. If one-third of bank customers were closing their current accounts each year—actually defecting—the bank manager would be as desperate as George Bailey on the bridge railing. Yet this hidden defection, often involving more lucrative products, goes largely unnoticed by banks because they seldom know their customers were shopping in the first place or that they lost the business. This trend is accelerating as digital startups and specialist firms, less encumbered by creaky old IT systems and a thicket of banking regulations, offer better, simpler solutions and make it easy for people to find them. Strong demand for peer-to-peer lender Lending Club’s recent initial public stock offering is just the latest sign of investors’ and customers’ confidence in alternative business models. Meanwhile, banks’ classic advantages—personal relationships between bank managers and customers, big branch network and a reputation for security—have been crumbling. Even regulation in some countries, such as the UK, has grown more accommodating, as regulators who once frowned on new business models now want to promote competition. As a result, bank revenues and profit margins look more and more vulnerable. In Germany, France and Italy, for example, Bain estimates that at least 30% of retail bank revenues are at risk of migrating or disappearing by 2020. Younger consumers in particular are willing to try companies with relatively short track records but plenty of online reviews, like Fidor. Licensed as a bank in 2009, Fidor is based in Munich but operates exclusively online. Customers can earn €50 by creating a “user-help-user” video on YouTube. They see their current account interest rate rise by 10 basis points for every 2,000 people who “like” Fidor on their Facebook profile. And they can buy currency online and make payments in a variety of currencies through The Currency Cloud, a multicurrency, regulated e-wallet. Likewise, a growing number of customers are using nonbank online lenders because of the convenience. Lenda in San Francisco, for instance, has shortened the process of a mortgage approval to 21 days and is aiming for seven days. Which of these digital start-ups will thrive remains to be seen, but they, not traditional banks, are currently the source of most of the digital innovations that appeal to customers. So digital firms are starting to siphon off many of the most profitable lines of bank business, especially the pools of lazy profits such as foreign exchange fees. Who will emerge the winner out of all this turmoil? That’s easy: customers. Just as online shopping adds convenience and flexibility to holiday retail shopping, the digital transformation of banking will mean more convenient, faster, cheaper options when it comes to handling one’s finances. Better yet, your bank may work harder than ever to earn your loyalty before your business melts away. Many banks have already realized the value that consumers place on the convenience of mobile apps. Mobile has become the most-used banking channel in 13 of 22 countries, our survey found, and accounts for around 30% of all banking interactions worldwide. The share of customers using mobile apps rose by a stunning 19 percentage points in the past year. Hana Bank in South Korea, for example, has made it easier for people to move money through any device. Customers can withdraw cash from ATMs via their smartphones, parents can send money to their children’s phones and Hana’s mobile app includes near-field payments technology that can be used to pay at many stores. Wrapped into Hana’s digital services are engaging location-based offers and coupons, as well as the ability to borrow for larger purchases while in the store. Your traditional bank really has no choice: It needs to offer digital tools as good or better than any in the market—and use those tools to earn your loyalty. If you demand that it does, you might just save its life. Written by Maureen Burns, a partner in Bain & Company’s Financial Services practice.

This article originally appeared on Forbes.com.

In Frank Capra’s classic It’s a Wonderful Life, a stalwart television rerun during the past Christmas season,the good folks of Bedford Falls band together to save Jimmy Stewart’s bank from ruin, because he stood by them during tough times.

Your own bank manager can’t count on such loyalty in the year to come. In fact, if you’re like many bank customers, you’re quietly killing the bank manager’s business.

When Bain & Company surveyed 83,000 customers in 22 countries recently, we found that more than one-third of them bought a banking product from their primary bank’s competitors during the past year. Your savings or current account have probably borne the same bank name for years, but is that the name you think of first when you sign up for credit cards, loans or insurance? Probably not.

If one-third of bank customers were closing their current accounts each year—actually defecting—the bank manager would be as desperate as George Bailey on the bridge railing. Yet this hidden defection, often involving more lucrative products, goes largely unnoticed by banks because they seldom know their customers were shopping in the first place or that they lost the business.

This trend is accelerating as digital startups and specialist firms, less encumbered by creaky old IT systems and a thicket of banking regulations, offer better, simpler solutions and make it easy for people to find them. Strong demand for peer-to-peer lender Lending Club’s recent initial public stock offering is just the latest sign of investors’ and customers’ confidence in alternative business models.

Meanwhile, banks’ classic advantages—personal relationships between bank managers and customers, big branch network and a reputation for security—have been crumbling. Even regulation in some countries, such as the UK, has grown more accommodating, as regulators who once frowned on new business models now want to promote competition.

As a result, bank revenues and profit margins look more and more vulnerable. In Germany, France and Italy, for example, Bain estimates that at least 30% of retail bank revenues are at risk of migrating or disappearing by 2020.

Younger consumers in particular are willing to try companies with relatively short track records but plenty of online reviews, like Fidor. Licensed as a bank in 2009, Fidor is based in Munich but operates exclusively online. Customers can earn €50 by creating a “user-help-user” video on YouTube. They see their current account interest rate rise by 10 basis points for every 2,000 people who “like” Fidor on their Facebook profile. And they can buy currency online and make payments in a variety of currencies through The Currency Cloud, a multicurrency, regulated e-wallet.

Likewise, a growing number of customers are using nonbank online lenders because of the convenience. Lenda in San Francisco, for instance, has shortened the process of a mortgage approval to 21 days and is aiming for seven days.

Which of these digital start-ups will thrive remains to be seen, but they, not traditional banks, are currently the source of most of the digital innovations that appeal to customers. So digital firms are starting to siphon off many of the most profitable lines of bank business, especially the pools of lazy profits such as foreign exchange fees.

Who will emerge the winner out of all this turmoil? That’s easy: customers. Just as online shopping adds convenience and flexibility to holiday retail shopping, the digital transformation of banking will mean more convenient, faster, cheaper options when it comes to handling one’s finances.

Better yet, your bank may work harder than ever to earn your loyalty before your business melts away. Many banks have already realized the value that consumers place on the convenience of mobile apps. Mobile has become the most-used banking channel in 13 of 22 countries, our survey found, and accounts for around 30% of all banking interactions worldwide. The share of customers using mobile apps rose by a stunning 19 percentage points in the past year.

Hana Bank in South Korea, for example, has made it easier for people to move money through any device. Customers can withdraw cash from ATMs via their smartphones, parents can send money to their children’s phones and Hana’s mobile app includes near-field payments technology that can be used to pay at many stores. Wrapped into Hana’s digital services are engaging location-based offers and coupons, as well as the ability to borrow for larger purchases while in the store.

Your traditional bank really has no choice: It needs to offer digital tools as good or better than any in the market—and use those tools to earn your loyalty. If you demand that it does, you might just save its life.

Written by Maureen Burns, a partner in Bain & Company’s Financial Services practice.