Retail Banks' Salvation Lies in Mobile Adoption by Consumers

Retail Banks' Salvation Lies in Mobile Adoption by Consumers

Delight customers with mobile, and costs will drop out.

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Retail Banks' Salvation Lies in Mobile Adoption by Consumers

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Delight customers, and costs will drop out. It might sound counterintuitive, but this approach can change the trajectory of profits for established retail banks.

Consider an $11.4 billion annual opportunity for the 25 largest US banks, if these banks reached the level of mobile and online banking usage of their counterparts in the Netherlands. Each mobile interaction incurs a variable cost of about 10 cents, a small fraction of the $4 cost for a teller or call-agent interaction. As interactions migrate to mobile, a bank needs fewer tellers and call-center agents. So the 25 US banks would save $11.4 billion annually in aggregate, Bain & Company estimates, if customers’ branch and call-center usage declined to the Dutch level, and the banks reduced headcount accordingly.

The US banks would also improve their Net Promoter Score—a key metric of customer loyalty—by an average 12 percentage points, Bain estimates. That’s because mobile interactions are far more likely to delight customers than interactions at branches or through contact centers.

Realizing the fruits of the mobile revolution will require astute management. Banks will need to improve their mobile applications to make them truly easy and convenient, and they will have to get more active in guiding customers to mobile self-service, especially older customers. Too often, this group has been overlooked by banks, which typically neglect to give older consumers guidance or even much information about the benefits of using mobile apps.

Bain’s new global survey of 137,034 consumers in 21 countries suggests where banks should focus their efforts.

For example, the survey finds that high levels of routine transactions persist at branches and call centers, particularly among a relatively small group of high-frequency customers. In the US, just 18% of respondents accounted for 58% of teller interactions, and 5% of respondents accounted for 39% of phone interactions. Digital channels often are not as effective as banks would like; many consumers trying these channels contended with various problems and wound up visiting a teller or calling a contact center anyway. When consumers failed in their attempts to transact digitally, more than one-third cited technical problems or lack of functionality. Unless banks take an active role in addressing these issues, the pace of moving transactions from branches and call centers to digital channels—and the attendant cost reductions—will remain slow.

Do consumers resent branch closures?

As the shift to mobile banking progresses, most banks in most countries have begun to pare back their branch network. Both the extent of branch closures and the consequences for consumer loyalty vary by country. Between 27% (in the Netherlands) and 54% (in India) of survey respondents who experienced a nearby branch closure in the past year said they completely switched banks or started using some products from a competitor. Moreover, a branch closure caused the Net Promoter Score among those respondents to drop by 12 percentage points, on average, compared with the scores of respondents who did not experience a closure.

Given that many consumers still use their branch, it would be dangerous to make large cuts to the bricks-and-mortar network until customers find it easy to handle routine transactions through self-service digital channels. Planning for a new branch network should occur now, though, as it can take three to five years to reconfigure the network.

The path to digital adoption

For banks that have decent core functionality on their apps, yet still lag in migrating customers to digital, the way forward is clear.

First, they should step up efforts to encourage mobile adoption and move routine transactions out of the branch and call center. While many older consumers require active guidance about using mobile apps, younger people present a separate challenge, namely, learning the basics of banking. They are still navigating how to pay bills, deposit checks, transfer money and generally resolve issues with their accounts—and they generate more interactions in the process. In China, respondents aged 18–24 make almost twice the number of banking interactions, on average, as those aged 65 or older. For instance, if they’re not aware of how long it takes for a balance to update after a transaction, they will be more likely to phone the call center several times.

In tandem, banks should continue to streamline the experience of using mobile or online channels, so that consumers turn to those first. That will require simple, easy app design. Here, banks can take a cue from other industries, such as online retailers that send consumers a “Your purchase has shipped; click here to track” confirmation email. Improving the digital experience also entails eliminating any aspects of bank policies or processes that stand in the way of convenience and reliability.

By accelerating the migration of customers from high-cost branches and contact centers to self-service mobile and online, banks stand to reap a threefold payoff. They would earn greater customer loyalty by developing simple, digital channels that customers embrace. Subsequent staff reductions and reassignments to higher-value activities would lower variable costs. Banks could then close branches and increase digital sales, which would expand profitability.

Gerard du Toit and Maureen Burns are partners in Bain & Company’s Financial Services practice. They are both based in Boston.


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