Weaker customer relationships challenge retail banks

Stagnating global customer experience levels combined with an alarming increase in customers willing to leave their banks for non-bank competitors such as brand-name retailers, FinTech firms, crowd-funding websites, peer-to-peer lenders, Internet/mobile service providers, and Apple NFC-based payment systems.

According to the report, these findings underscore the need for retail banks to make investments to improve customer experience, especially with middle and back offices, which are essential to providing engaging digital services through faster processing times and reduction in errors.

In addition to lower customer experience levels, the report found that globally customers’ propensity to leave their primary bank (especially Gen Y) is on the rise, while willingness to make referrals or buy additional products has decreased significantly. The percentage of customers who said they were likely to leave their primary bank in the next six months increased anywhere from nearly four percentage points (pp) to over 12 pp last year depending on region.

Reasons for customers leaving banks could be the increase in non-bank competition, growth of start-up banks which offer attractive digital products, and the ease in logistically switching banks, the report suggests.

Also concerning for banks was the expanding number of customers who said they were not likely to make referrals or purchase an additional product from their primary bank. Customers unlikely to make referrals rose over 9.5pp in some regions and the unlikelihood to purchase a second product from their primary bank increased as much as 25pp in Western Europe.

Banks also appear to have stalled in their ability to steer customers away from the branch toward lower-cost channels, the report found. Branch usage rose modestly in North America and Europe during 2014, while decreasing only slightly in Latin America and barely at all in Asia-Pacific.

All of these factors provide non-banks with the opportunity to attract customers away from their primary banks. Internet and technology firms, in particular. Already, such firms have carved out a significant presence in the area of payments and credit cards, particularly in North America and Western Europe.

“Disenchanted customers, combined with the agility and innovative nature of non-bank competitors, is leaving the door wide open for capturing market-share,” said Jean Lassignardie, chief sales and marketing officer at Capgemini Global Financial Services.

The report suggests underfunding in the back offices has undermined efforts to attract and retain customers through slow processing times, errors, and exceptions that contribute greatly to reduced service in customer interactions.

“Improving customer experience is the best strategy to deflect competition from non-bank players. While investments in improving front office customer experience have expanded banks’ offerings, middle and back office transformation has been plagued by under-investment and will be the key to resolving disjointed customer experiences and improving longer term loyalty rates,” said Lassingardie.

The report draws on research insights from 32 markets and global data from over 16,000 retail banking customers, and executive interviews across six regions.