Lack of trust and non-traditional offerings threaten bank relevance

Thursday, 22 September 2016

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  • Almost a third of Australian consumers report decreased dependence on their bank
  • Australia’s bank relevance score stands at 78.4 out of a possible 100, slightly above the global average of 75.1
  • Trust in traditional banks lags behind digital-only banks and fintechs

Thirty percent of Australian consumers surveyed report decreased dependence on traditional banks and established financial companies and increased excitement about alternatives, according to the EY 2016 Global Consumer Banking Survey.

The survey of 55,000 consumers across 32 countries, including 2,001 from Australia, found a lack of trust, along with increased competition from new players and changing consumer behaviors and expectations set by digital innovators are eroding the relevance of traditional banks.

Australian retail banks scored just 78.4 out of a maximum value of 100 on the inaugural EY Bank Relevance Index (BRI), which evaluates how customers interact with banks now and how they expect to in the future. This places them within the top third of markets surveyed and above global average of 75.1 and the developed market average of 76.6.

Rob Colwell, EY Banking Customer Leader for Oceania, says while banking relevance in Australia remains relatively strong, the growing number of alternative options for obtaining financial products and services is putting this at risk.

“Although 86 percent of Australian consumers surveyed still use a traditional bank as their primary financial service providers (PFSP), 32 percent say they have used non-bank providers in the last 12 months, and 21 percent of customers have not yet used them but plan to do so in the near future,” Colwell says.

Consideration of alternative providers is even higher within particular product categories such as mobile payments (48 percent), credit cards (42 percent) and personal loans (41 percent).

Trust and customer experience key to future relevance

Notably, Australian respondents were significantly more likely to trust alternative financial service providers than traditional banks. Forty-four percent of Australian non-bank customers say they have complete trust in their provider, compared to just 36 percent of traditional bank customers.

“Consumers do broadly trust Australian banks to look after their money securely, however only 20 percent have complete trust that they will give them unbiased advice that puts their interests first,” Mr Colwell says.

“This is consistent with global trends, where consumers were more likely to trust non-traditional competitors, such as digital only banks, fintechs and supermarkets offering banking services to provide transparency of fees, unbiased advice and product recommendations in the best interest of the customer.”

The research also found that, after more attractive rates and fees, the next four top reasons Australians would consider switching to a non-bank provider all related to customer experience attributes: better online experience and functionality; access to different products and services; easy to set up an account; and more innovative products. In fact, 27% percent of Australian respondents say they wouldn’t hesitate to switch their primary financial service provider if they found an alternative with a better digital experience or offer.

Among the other key survey findings:

  • Only 37 percent of Australian customers believe there is a product differentiation among providers, and only 21 percent feel extremely confident in the banking industry today
  • 47 percent of Australians prefer digital channels, but only 31% are confident to manage their own finances
  • Human interaction is still important – 57 percent of Australian customers value the ability to research online, but still want to visit a branch or call a real person when taking up a new product or getting advice.

Re-building relevance

The report outlines four ways for traditional banks to improve their relevance among consumers:

  1. Build and earn trust, not only in a bank’s ability to securely look after customers’ money, but in the ability to always do the right thing for the consumer and provide unbiased, high-quality advice.
  2. Better understand customer behaviors and attitudes and tailor propositions to different types of customers.
  3. Rethink distribution and customer engagement, in particular the role of branches and customer journeys across channels.
  4. Innovate like fintechs to radically simplify products and deliver exceptionally simple customer experiences.

“While Australian banks remain among the most relevant globally, they are facing many challenges, as customers re-evaluate their relationships and a new breed of innovative competitors enter the market,” Mr Colwell says.

“In this environment, traditional banks will need to reconsider current practices if they want to maintain relevance with an increasingly disenchanted consumer base. Those that don’t adapt, will find their ongoing ability to grow wallet and market share to deliver stable returns to shareholders increasingly at risk.”

“Yet, despite these obstacles, the survey results are optimistic. Retail banks, both in Australia and globally, can address these challenges and maintain relevance in their customers’ lives by better leveraging their scale, customer base, brand recognition and infrastructure, and keeping their customers’ interests front and centre.”

View the report online at Follow us on Twitter: @EY_Banking


Notes to Editors

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About the report

EY 2016 Global Consumer Banking Survey gathers insight from 55,000 consumers from 32 countries worldwide to develop a deep and quantitative understanding of customer preferences and behaviors, as well as their attitude toward new emerging competitors that increasingly challenge traditional banks.

As a result, EY developed the Bank Relevance Index (BRI). The BRI measures a range of current and future behaviours and attitudes to build a composite score based on how customers bank now and how they want to bank in the future.