PwC Banking Survey: Driving Customer Value Through Digital

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    19-Jan-2015
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Banks are constantly adapting to satisfy the needs of their stakeholders. In addition, the number of customers who use the internet has exploded.PwC surveyed approximately 3000 banking customers in nine different markets to understand customers' needs, attitudes and behaviours to digital media.Our insights from this research can help banks harness the power of the new and improved digital market, not just by saving costs, but by deepening customer relationships. The new digital tipping point explores these insights and the opportunities that exist for banks.

Transcript of PwC Banking Survey: Driving Customer Value Through Digital

  • 1. The new digitaltipping point Traditional banking is facing its steepest challenge in over a generation. We believe that a new tipping point has been reached, with digital at its fulcrum.www.pwc.com/financialservices

2. Contents02 Introduction: Driving customer value through digital04 Customer relationship primacy is the new source of value in banking05 Digital is crucial in addressing changing customer behaviour10 Customers value new digital offerings12 New digital entrants are disrupting the banking ecosystem14 The battle for customer relationship primacy among banks has begun16 Contacts PwC The new digital tipping point 1 3. Introduction: Driving customer valuethrough digitalWe are in an unprecedented period of increasing regulationand continuing cost pressures for banks. This is beingcompounded by the persistent trend in margin compressionand alarming market uncertainty.The emergence of new technologies into banking has had apermanent impact, as once traditional banking revenue poolsare now being sucked up by new competitors, especially inthe payments space. All of this is happening at a time whencustomer expectations for banking services (both offline andonline) are being reset by the experiences being provided byretailers and online providers, elsewhere.Finally, to this long list add the general lack of trust customershave in financial services owing to the credit crunch andthe general perception that the major banks all contributed tothe global market collapse. We can quickly conclude thattraditional banking is facing its steepest challenge in over ageneration. We believe that a new tipping point has beenreached, with digital at its fulcrum.2 PwC The new digital tipping point 4. Towards a customer-centric value ...now disrupting and catalysingmodel in banking change in the banking ecosystemBefore the financial crisis, banks reliedDigital has also opened up banking to aheavily on financial leverage to createnumber of innovators big and small shareholder value. Today, the economic seeking to capture value across theclimate, increased regulatorybanking value chain. In markets whereintervention and competitive banking is widely accessible, we believechallenges are forcing banks tothat while these new entrants willdeleverage and look for other sourcessecure a place as part of the bankingof value. In the new reality since the ecosystem, there is little evidence tocrisis hit, a new value model is required, suggest that they will be successful inbased upon securing customer taking over the entire customerrelationship primacy (the position ofrelationship from banks. Despitebeing the preferred and main bank forchallenges to this position, banksa customer), through efforts to regain remain the most trusted providers oftrust and build customer engagement. banking services by customers. In growing markets where the under-Preference for digital is nowbanked population is sizeable, theglobally pervasive among threat of being out-competed by newbanking customersentrants could potentially be greater.Digital will play an instrumental role inachieving this strategy. The preferenceProvides a platform forfor digital is now pervasive across allinnovationcustomer segments, globally, and Mobile is coming of age and is movingespecially so for Generation Y (thebeyond simple banking functionality todefinition varies widely, but broadly, itembrace mobile payments and otherrefers to those people born in the 1980s innovative offerings such as marketingand 1990s). In fact, for this group, now services, sophisticated authenticationat the threshold of deciding primary mechanisms, location-basedbanking relationships, the quality of thepersonalisation, etc. These innovativedigital offering is an important factor in services serve to create a superiortheir decision process. Banks have a customer experience, one that thereal imperative to act now to attractcustomer is willing to pay for.these customers and thereby lock infuture value. Banks digital strategiesStrategic partnerships will pavewill need to move beyond costthe way to success for banksreduction objectives to do this. We believe that banks should acquire or partner with innovators that are actingDigital has evolved from basic as catalysts for change. The alternativeonline banking to a broad, richfor those banks that accept the need toset of capabilities... change is to develop these capabilitiesThe full extent of what digital can offeralone an expensive and risky effort.customers goes beyond the basic mobileand internet banking services that are Traditionally, banks have preferred anow widely provided, although there is build approach for most changes.still value to be obtained for manyHowever, we believe that in thisbanks from simply delivering these scenario, a buy or partner strategybasic services well. Digital banking willwould be more optimal as this changeevolve into a richer set of offerings, requires a new way of thinking andproviding new value for banks and theirbuilding that is difficult for competitorscustomers through a new digital to copy.feature set, based on innovations in: We believe that the real battle will takeuser experience; mobile devices and place between banks, as they seek tonetworks; social media and secure primacy of the customercollaboration; customer analytics; and relationship as the basis of futurechannel integration. By embracing shareholder value. Many banks,digital, banks can deepen their existing however, may react late or continue tocustomer relationships as well as access persist with old ways and methods andnew sources of revenue. as a result, lose market share in the changing banking landscape.PwC The new digital tipping point 3 5. Customer relationship primacy is the newsource of value in bankingBanks need to focus their strategies on a customer relationship primacy model, by regainingtrust and building engagement with the customer. In the new reality of banking, financialengineering is no longer sufficient to create value and banks need to look at demonstratingcustomer value to remain relevant in the market.A number of things have driven this their primary banking provider rather Furthermore, the wide availability ofchange in banking including increased than any other source (see Figure 1). Thisinformation about financial productsregulation, the erosion of public trust underscores the importance of achieving propagated over the internet has helpedwith a series of high-profile banking primacy in a relationship, as it leads to a expose the gap between price and valuefailures, the collapse of liquidity in thegreater share of wallet for banks.for banking products to consumersmarket, increased capital requirementsand regulators. This has underminedand a reduced risk appetite among Although retail banking has benefited traditional pricing strategies, forcingcustomers. All these have contributed tofrom high levels of consumer inertia in banks to demonstrate intrinsic value toa difficult environment for banks tothe past, there is now a concerted effort their customers.operate in. from regulators around the world tomake the process of switching banksIn developed markets, growth in banking easier.1 Evidence from other industriesis flat or shrinking. The shift from assets such as utilities and insurance suggestsPwC2 conducted researchto liabilities, though preferred forthat this will lead to an increase in the with almost 3,000 bankingfunding, is resulting in lower averagelevel of switching within banking. Thesecustomers from a range ofmargins for banks. In these markets, theindustries are typically more regulated segments across markets toonly way for banks to maintain and grow and banks can learn from these as theydiscover their expectations ofvalue is to pursue a displacement strategygrapple with similar challenges.banking in the digital age. Weagainst other banks and increase theirselected both emerging andshare of wallet with the customer. OurBanks can proactively address this developing markets includingresearch revealed that a vast majoritymore by using digital to deepen their China, India, Mexico and theexisting relationship with customersUAE, as well as developedof customers preferred to purchaseand gaining primacy.markets like the UK, Canada,additional financial service products fromFrance and Poland.Our research revealed thatFigure 1: Primacy drives share of walletthere is a very high correlationbetween digital engagement andIf you were going to purchase a new banking product, how likely are you to buy from the following?share of wallet for a customerand that digitally activeCurrent bankA different bankcustomers tended to have thelargest product holdings. WeCanada 81%Canada 10%also found that primacy in aUAE 62.9% UAE23.7%banking relationship drivesincreased share of walletFrance75.3% France10.8%leading to higher revenuePoland61.1% Poland20% generation from the customerMexico75.3% Mexico 18.4%pool.India 76.9% India 10.3%Hong Kong 86% Hong Kong 9.9%China79.4%China11%1 Independent Commission on Banking, Final ReportUK53.2% UK14.9% Recommendations, September 2011, UK2 In this document, PwC refers toSource: PwC Digital Tipping Point Survey 2011 PricewaterhouseCoopers LLP (a limited liability% of respondents that chose current banking provider or another banking provider in response to the question. partnership in the United Kingdom), which is aOther options included a provider that is not a bank but has a physical presence (e.g. a supermarket chain) and member firm of PricewaterhouseCoopersan online provider. International Limited, each member firm of which isa separate legal entity4 PwC The new digital tipping point 6. Digital is crucial in addressing changingcustomer behaviourToday, a successful digital offering in banking implies the provision of high quality online andmobile banking access. We find that the new digital feature set can be used to meet theincreasing demands of the customer.There are fo