Retail banks are under attack from new players such as technology firms and challenger banks. Gwendolyn Lim, a partner with Bain's Financial Services practice, describes three strategies for incumbent banks to defend against these threats.
Read the Bain Report: In Search of Customers Who Love Their Bank
Read the transcript below.
GWENDOLYN LIM: Today, what we see of retail banks is they're under attack from both tech firms as well as challenger banks. And these are for two really great reasons. Tech firms have been armed with reams of customer data, as well as huge war chests to play with, whereas challenger firms have been picking off individual products and customer experiences such as payments.
In light of these two challenges, retail banks have been seeing themselves losing a great deal of customer engagement, as well as data. So what do they need to do? Be focusing on customer loyalty. We know that loyalty actually drives growth and economics, and at Bain, our framework for loyalty starts off with the Elements of Value, of which there are 30. In retail banking, we have found that the five most important Elements of Value are quality (by a wide margin), time savings, reduction of anxiety, simplification, and heirloom, which is another word for saying good investment for future generations.
In places where we've seen banks compete really well with tech firms, it's when they've been able to band together, such as in payments. In many, many countries, banks have been losing out in terms of their banking apps to technology providers. However, in countries such as Sweden, Poland, and Singapore, the banks have banded together to form a platform, which is actually proving to be very robust and customer-centric.
In payments as well as other banking episodes, what is key to success is simple and digital. And if you think about this, tech firms are native in terms of how they use simple and digital. That's why firms such as Rocket Mortgage are doing very well, especially also challenger banks. And even retail banks themselves are finding out that for customers who interact more with them digitally, those customers have higher loyalty as well as a lower cost to serve.
Through our work in our survey, we would suggest three things for banks to do going forward. First, continue digital migration of the customers. This is going to be really important, and customers are actually already very comfortable with digital channels, as well as voice assistants. Second would be to pursue Elements of Value, focusing more on the emotional elements, which pay back around one and a half times more than functional Elements of Value. Third, think about forming consortiums and/or buying the technology that's needed for them to deliver simple and digital.
So again, that's what we would say: loyalty always wins the day.
In Search of Customers Who Love Their Bank
With banks facing increased competition from tech firms, our latest Customer Loyalty in Retail Banking Report examines how the banks can focus on what customers value most.