Accenture Consumer US Retail Banking Survey

7/21/2019 Accenture Consumer US Retail Banking Survey

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Banking 2020 Thought Leadership Series

A Critical Balancing Act:US Retail Banking in theDigital Era


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2 | A Critical Balancing Act: US Retail Banking in the Digital Era

As the US retail banking landscape evolves

from physical to digital, traditional

providers need a radically new approach

to distributionone that combines a

simpler, yet more comprehensive branch

offering with the continuous innovation

of seamless digital services.


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3

The Digital Challenge

For US retail banks, todays

markets are fraught withchallenges: new digitalcompetitors and digitallyempowered customers prominentamong them. Yet most stillpursue business as usual, strivingto be all things to all customers.Despite their best efforts tofocus on the customer, many

still dont offer what theircustomers actually want. Thesebanks also tend to manage theirextensive channel networks

including digitalseparately,

and not as a holistic functionimpacting all aspects of theirretail operation.

This slowness to react to the digitalchallenge is understandable. Accentureconducted online interviews with morethan 2,000 US retail banking customersof the 15 leading retail banks doingbusiness in the US today. When askedhow happy they are with the performance

of their primary bank provider, 71 percentdeclared themselves satisfied and 68percent said they would be extremelylikely to recommend their primary bankto a friend, family member or colleague.

FIGURE 1. Convergent Disruption

2013 Accenture. All rights reserved

Inside Outside

StructuralChange

CustomerEmpowerment

EmergingNew

Entrants

OngoingIndustry

Convergence

DigitalInside and

Outside

ExpandedRegulation

SubduedEconomicOutlook

ContinuedConsolidation

Convergent Disruption

Multiple disruptive forces are converging on

the banking industry at the same time, both

from inside and outside the sector, creating an

increasingly complex and highly dynamic future

environment with permanent volatility.

Our research, however, also reveals justhow fragile this apparent customer loyalty

really is. More than a quarter (26 percent)of bank customers who remain with theirprimary provider do so simply because theyconsider switching to be a hassle. Amongthem, about half just havent seen competingoffers compelling enough to make themmove, and the other half believe the processof switching to another bank is justtoo difficult.

This not only exposes the tenuous relationshipbanks have with their customers. It alsoconfirms that the right offering and approachcan induce them to switch.


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FIGURE 2. Channel Balance

New Questions, New Answers


Traditional players, of course, also have aninnate advantagethe extensive branch

networks that customers still value, as ourresearch confirms. But they cannot affordto ignore what the nimble new entrants aretelling them: winning with digital in thefuture will be all about winning more satisfiedand loyal customers with trusted, transparentand compelling offerings. And that meansbecoming an integral part of customerslives: an agile, ubiquitous presence, whereverthose customers may be.

In an era of industry consolidation, new

entrants, expanding regulation, more onerouscapital requirements, and continuing economicvolatility, retail banks urgently need a lower-cost operating model that can generatemore predictable and sustainable revenues.

Industry newcomers have

understood that in the post-financial crisis environment themost fundamental questionin retail banking has changedfrom how do you find yourfuture customers? to how donew customers find you? Andthey are leveraging their innateadvantage as digital pure plays

to deliver the speed, convenienceand low-cost personalizedservice that todays customersincreasingly seek.

Base: 2,001 2013 Accenture. All rights reserved

Indeed, if banks dont move swiftly anddecisively to build such a model, they will

lose more customers. On present trends, asa complementary Accenture analysis showsfull-service banks (collectively) could losearound 35 percent of their market share by2020, and as many as a quarter of US bankscould disappear altogether1.

The core challenge for banks: how to build aseamless digital customer experienceandoptimize its power with a better and morecost-effective complementary offering in thebranches that customers still find so attractive.

In which areas should your primary bank be developing and investing?

TRADITIONAL DIGITAL

OnlineBranch ATM MobileCallCenter

SocialMedia

43%

38%

21% 20%

12%

7%


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What are the main reasons youve stayed with your primary bank?

Good number

of nearby

branches

Good online

banking

services

Good branch

service

Low or

reasonable

fees

Stability of

bank

Trust my bank

acts in my

interest

Too much

hassle to

switch

Good ATM

networkPersonalized

service

Have not

noticed better

options

1 2 3 4 5

6 7 8 9 10


Five Key Findings

Our researchthe second

consumer banking surveyin as many yearshashighlighted five key findingsthat underscore the need fora more forceful approach.

1Banks are managing a tenuous

relationship with their customers

Future customer relationships are plainly atrisk. Customers still value what they get frombranchesbut they also want more online.Furthermore, many of the offerings that keepthem with their primary providersgoodonline services, low fees, and personalizedservice (Figure 3)are also available fromalternative providers, which often do thembetter and are easy enough to switch to.Customers acquired more than one third (34percent) of traditional retail banking productsfrom CDs, money markets, and personal and

auto loans to new checking and savingsaccountsfrom institutions other than theirprimary bank, for example.

FIGURE 3. Why Customers are Loyal


While only a few customers currentlybother to switch primary banks, those that

do switch are in search of significantlybetter options.

If retail banks dont build trust andtransparency with more compelling offeringsthe attrition risk will intensifyand threatentheir revenues. One need look no furtherthan the success of American Expressand Walmarts Bluebirdthe prepaid cardemphasizing fee transparency that grew to1 million accounts in less than a year. Orconsider the digital banking start-up, Simple,

which focuses on financial managementtools and reported 60 percent growth inaccounts over a three-month period.

2The branch-banking conundrum

Branches still constitute a significantstrategic asset for US retail banksandwill likely continue to do so for some time.Nearly four out of five customers (78 percent)say they expect to be visiting their localbank branch just as frequentlyor evenmore frequentlyfive years from now, forexample (Figure 4 on page 7); in large partbecause 66 percent of them still prefer totalk to a person rather than purchase a

banking product online. Two-thirds say theyconsider branch closures more than a minorinconvenience, and nearly half wouldswitch banks as a result.


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FIGURE 4. Future Branch Expectations


W ll your bank offer more, less, orthe same number of branches in 5

years' time?

W ll you use branches more often,less often, or with the same

frequency in 5 years' time?

Less (10%)

Same (50%)

More (27%)

Many more (8%)

Less (13%)

Same (66%)

Much less (2%)None (3%)

Much moreoften (3%)

More often (9%)

Much less (4%)Not at all (5%)

Sameor more

85%

Sameor morefrequently

78%

Branches also remain banks primary enginefor sales. Nearly 60 percent of traditional

retail bank products were sold via the branch,according to our survey.

Right now, in short, the branch remains thepre-eminent channel. Even so, though bankcustomers still prefer branches to websites,the margin is narrow41 percent to 35percent. Over time, online and mobile bankingare likely to push branches into second place.

Branches, in addition, are expensive to buildand maintain. Our research shows that the25 largest US retail banks spend in excessof $50 billion each year on maintainingmore than 43,000 branches nationwide, andopening a new branch costs more than $2million on average.

Whats more, theres a significant mis-alignment between the cost of operating a

typical full-service branch and the value ofthe products and servicespredominantlysimple transactional products and services,such as check deposit and cash withdrawalsthat branches offer to customers. It is upto 95 percent cheaper to process depositsdigitally than through a teller, for example;and the cost of online and mobile paymentsis 65 percent lower than payment viaphysical checks.


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4The digital era has arrived

Branches remain very importantbut digitabanking is becoming essential. Consumersview online banking as the single mostimportant area for banks to invest in anddevelop. Eighty-percent of them use this

channel at least once a month. Meanwhile,mobile banking activity has increasednearly 50 percent since 2012, with nearlyone-third of customers active at leastonce a month (Figure 6 on page 9). Digitalchannels are enabling customers to morefrequently interact with their bank, mostactive online and mobile banking customeruse these channels at least weekly.

FIGURE 5. Missing Revenue


From whom d d you buy f nanc al serv ces products n the last year

Checking Savings CDs HELOCs MoneyMarket

PersonalLoan

CollegeLoan

CreditCard

PrivateBanking

Mortgage AutoLoan

Retire-ment

StudentLoan

Broker-age

P&CInsurance

AutoInsurance

LifeInsurance

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pr imary bank O the r ins ti tu tions

Higher-margin products

3The cross-selling challenge

persists for full-service providers

US banks still need to work a lot harderat cross selling higher value products. Theyalready have plenty of information abouttheir customers, but they dont necessarily

know how to make sense of it. Meanwhile,our research shows that customers areleveraging their particular advantagesignificantly more transparent informationon products and pricingto shop around.And many clearly dont think that theirprimary bank has the best offering. Morethan half (53 percent) of our surveyrespondents have chosen a provider otherthan their primary bank for credit cards, 60percent go elsewhere for home mortgages,68 percent use other providers for auto

loans, and 82 percent do so for brokerageaccounts (Figure 5).


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Where did you buy or sign up for the products that you purchased overthe last year? Online.

2012 2013 2012 2013 2012 2013 2012 2013

Auto Loan Mortgage Personal Loan Home Equity Loan

11%

21%

15%

25%

8%

24%

6%

30%

9

2012 2013

How often do you do mobile banking?

+50%

Daily, Weekly,or Monthly

21%

32%

FIGURE 6. Mobile Banking is Taking Flight

FIGURE 7. Rapid Jump in Online Sales


Base: 505 2013 Accenture. All rights reserved

While branches saw a year-on-year decreasein sales of higher margin productstheInternet managed triple-digit growth acrossseveral such categories (Figure 7). Indeed,the Internet is now the most frequentlyaccessed distribution channel on a monthlybasiswell above the branch. And mobileuse has soared in the past year, almostovertaking the ATM in its perceived importance

to customers. More than a third (37 percent)of survey respondents also expect to usemobile banking more in future.

5The potential of social media and

video conferencing remains untapped

Most of the nearly three quarters (74percent) of banking customers active onsocial networks still feel that financial

activities should be kept separate. But somecustomers already see tangible benefitsfrom blending the two. Well over a third (38percent), for instance, say they would liketo be able to locate branches via social me-dia. And 30 percent would use it to accesscustomer services. Furthermore, 29 percentare interested in finding financial educationmaterial via social media and26 percent would be happy to receive billpay reminders.

The story is similar for video conferencing.Only four percent have used video conferencinto conduct their banking activitiesbut amajority is satisfied with the experience.And 31 percent say they would be interestedin using video conferencing in the future.


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The Way Forward


Positioning more products in digital channelscan also help make operating costs both

lower and more flexible. And it can cutdistribution costs, just as it has in the retailindustry2. Digital banks will spend less onnew account acquisition, and new, digitalaccounts will, in turn, generate more sales.

The digital model can also improve branchperformance. Digital channels allow banksto track customer transaction experiences,for example, including at the branch. Andthe cost advantages of investing in digitalchannels can be re-invested in upgrading

branches. Digital, furthermore, cancomplement the cross-selling opportunitiesthat are currently being lost at the branch.

Revamp the branch

More branches close to where they live orwork was a key reason to switch providersfor 27 percent of our survey respondents.About half (48 percent) said they would beinconvenienced by the closure of nearbybranches to such an extent that it would

induce them to switch.

Yet, over the next five years, as technologyadvances and online services becomeincreasingly available, branches will likelylose businessunless traditional banksleverage their strategic advantagemore effectively by reimagining thebranch concept.

Some of the largest US retail banks arealready experimenting with more open and

flexible branch formats that give customersmultiple options, 24/7, and that could, inaddition, lower the banks own cost to buildby 33 percent and their cost to operate by25 percent.

The five key findings of our

research not only underscorethe need for a new approach todistribution. They also suggesta way forward.

Enable the digital model

More personalized service and faster problemresolutionthe key reasons for switching bankscited by those that do soare capabilities atwhich the digital leaders excel. Customer-

centricity and empowerment are theirmantra. And they are able to let the customerlead because thanks to their astute leveragingof Big Data and analytics, they know justwhat the customer wantsoften before thecustomer does. They can anticipate customerneeds and engage with them to fulfill thoseneeds in real time.

In addition, their insights enable them tocontinually innovate compelling new digitalofferings and experiences. Our research

shows that it is largely inertia that keepsbank customers from switching right now;but as their interest in alternative productand service capabilities growsand alternativeproviders continue to expand such offeringsinertia could soon give way to exodus.

Digital, in short, is critical to the more agileand innovative operating model that traditionalproviders now also require. They can investin digital to transform their IT platforms,overcoming rigid legacy technology in the

back office. They can also power an analytics-driven front office, equipped with deeperunderstanding of customer needs and thusable to develop a more compelling productsetespecially for the high-margin productsthat customers currently seek from others.

We foresee greater diversity of branchtypes, tailored to the locations and

functions they serve:

Light brancheshighly automated andfocused on sales, but providing accessto remote advisory specialists via videoconferencinga technology with thelong-term potential, we believe, to bridgethe service gap between channels

Kiosksgeared to routine account servicesfeaturing advanced ATMs with video, andlocated in malls and transport hubs. Thesewe believe, could account for up to half a

banks branch network

Full-service hubslike conventionalbranches but fewer in number, offeringfull sales and service support withextended hours and specialized providersfor such products as mortgages and trading

Flagshipsa small number of strategicallylocated centers of sales and serviceexcellence to promote the banks brandand introduce new offerings around simpleand seamless-to-use self-service tools

Pioneering banks are already investing inemployee tablets, self-serve kiosks andinstant-issue credit card machines. In thefuture some even plan to introduce videotellers and account opening facilities viamobile tablet, which could dramatically cutthe cost of processing deposits, relative tothe use of ATMs.

Digital channels could be leveraged to promotehigher-value branch usage. Moreover, these

developments will reinforce a holistic salesprocess since branch customers will be ableto use such digital access points as videotellers and mobile tablet account openingwhile in the branch.


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A Winning Combination


In this regard, traditional providers havemuch to learn from the digital disruptors

players that have taken their cues fromthe best practices of the most successfulretailers: a customer-first approach thatleverages always on analytics to deliver aseamless, cross-channel experience (Figure 8).

The digital disruptors lure customers withoffers related to their ability to spendnewcategories of highly utilitarian bank account,for example, that dont come freighted withchecking or overdraft fees. They also marketthrough multiple online channels, notably

mobile and sociala channel with hugeunder-utilized potential that traditional bankscould also use to gain valuable customerfeedback and ideas, as well as informationvital to serving customers better.

By simplifying the cost structure

of their branches and optimizingtheir branch offerings, traditionalproviders can maximize theadvantages of what is still acore strategic asset. But it isonly by complementing thebranch with digital, andcontinually innovating thecustomers digital experience

across channels, that theywill develop a truly powerful,winning combination.

By infusing digital throughout the enterprisegetting smarter about data, and developing

one look and feel across all channels, USretail banks can ensure that wherever theircustomers are, they are there toobecomingintegral to the everyday lives of a sustainablecommunity of customers.

Common Characteristics of the

Emerging Disruptors

Emphasize social responsibility

Focus on customer centricity and empowerment

Present simpler fee structure to customers

Provide personal financial management tools

and access to other accounts

Embedded with social media, especially Facebook

Leverage Big Data and analytics

Offer mobile bill pay, P2P, remote-deposit, free

ATM access

Circa 2013 Circa 2013

Circa 2020 Circa 2020

Market entryScale

DisruptorsBanks

1Optimization and

Simplification

3Optimization and

Simplification

2Agility

2Agility

3Innovation

1Innovation

Market nimble Scale

FIGURE 8. Emerging Disruptors



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Moving up the Value ChainBanks risk lower margins and,thus, shrinking market share, unlessthey can leverage digital to playa bigger role in their customerscommercial lives. We are, after all,

witnessing a digital revolution thatwill transform US retail banking,impacting an estimated 40 percentof revenues and 55 to 60 percent ofoperational processes3.

As banks come to appreciate the fullsignificance of this digital revolution weanticipate a major rethink in the industryand the eventual emergence of a newservice model that will open up entirely

new sources of growth.

FIGURE 9. Banks Should Look to Develop/Manage Three New Roles


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SOLU

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NEEDS

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ASVALUE

AGGR

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BANK

ASADVICEPROVIDER

INFO

RM

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EDUCATI

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COMMU

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NTRAVEL&LEISURE

HEALTH&

PROTECTION

HOME

CONSUMPTION

TRANSPO

RTA

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ION

The key to effectiveness in making thisstrategic shift will be continuous innovationto enterand achieve a pivotal place inother value chains. Becoming so central toa customers life that when, for example,they buy a car, their bank is there not onlyto provide the loan, but also to negotiatethe best price and help insure, service andmaintain the vehicle.

To orchestrate the fulfilment of such needsthroughout their customers lives, dynamicbanks should look to develop and managethree new roles:

Value Aggregatorsoffering a distinctiveportfolio of products and servicesthrough the bank, but within a broader

ecosystem of services providers

Advisorscontinuously leveraging analyticsengines/algorithms to gain the deepcustomer knowledge that will enablethem to personalize their advice

Facilitatorsaccessing cross-industry

products and services through supportexperiences with hidden partners andleveraging tools like digital id and d-wallet


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For more information

For more information, please contact:

Wayne Busch

Managing Director,North America Banking [email protected]


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About the research

Accenture conducted online interviewswith 2,001 US retail banking customers ofthe 15 leading retail banks doing businessin the US todayincluding the 10 largestUS-based retail banks, three of the largestforeign banks with a branch network in theUS and the two largest US virtual banks.

The survey was conducted in May 2013.It has a statistical margin of error of 2.2percent. Year-over-year comparisons arebased on the results of the same surveyfielded by Accenture in June 2012.

1

References

1 Banking 2020: As the Storm Abates,

North American Banks Must Chart a New

Course to Capture Emerging Opportunities,

Accenture, November 2013

www.accenture.com/Banking20202 The RE-banking Revolution: Innovative

Practices for Banks to Improve Customer

Engagement, Accenture, July 2013http://www.accenture.com/us-en/Pages/insight-re-banking-revolution-innovative-practices-banks-summary.aspx

3 The Everyday Bank: How Digital is

Revolutionizing Banking,Accenture,September 2013


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About Accenture

Accenture is a global management consulting,technology services and outsourcingcompany, with approximately 275,000people serving clients in more than 120countries. Combining unparalleled experience,comprehensive capabilities across allindustries and business functions, and

extensive research on the worlds mostsuccessful companies, Accenture collaborateswith clients to help them become high-performance businesses and governments.The company generated net revenuesof US$28.6 billion for the fiscal yearended Aug. 31, 2013. Its home page iswww.accenture.com.

This document is produced by consultants at Accentureas general guidance. It is not intended to providespecific advice on your circumstances. If you requireadvice or further details on any matters referred to,please contact your Accenture representative. Thisdocument makes descriptive reference to trademarksthat may be owned by others. The use of suchtrademarks herein is not an assertion of ownershipof such trademarks by Accenture and is not intendedto represent or imply the existence of an associationbetween Accenture and the lawful owners ofsuch trademarks.

Copyright 2013 AccentureAll rights reserved.

Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture.

Accenture Consumer US Retail Banking Survey

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