EY Bank Relevance Index
The global banking industry faces new challenges from disruptive bank alternatives, creating a pivotal opportunity to regain relevance with customers. With the emergence of new competitors offering easy, personalized, trusted products, traditional banks’ connection with their customers is fragile. Banks must strengthen their relevance with the disruptive and convenient products customers want, while striving to rebuild the trust that was once an intrinsic component of the relationship.
To measure the state of bank relevance, EY surveyed more than 55,000 consumers around the world as part of our 2016 Global Consumer Banking Relevance campaign to produce the Bank Relevance Index (BRI). The BRI measures a range of current and future behaviors and attitudes to build a composite score on the basis of:
- How customers use banks now: the role of primary financial service provider and products and services consumers use banks for today
- How customers want to use banks in the future: a combination of consumer trust in banks, and the products and services they would consider buying from banks in the future
The BRI is therefore a combination of both leading and lagging indicators of customers relationship with their bank. At the maximum BRI value of 100, consumers would hold all their financial products with banks, use them as their primary financial services providers, trust them fully and turn exclusively to banks for financial advice, new products and services. At the minimum BRI value of zero, customers would use solely nonbanks for all aspects of their financial lives.
The average bank relevance score globally, based on 32 markets surveyed, is 75.1. What happened to nearly 25% of bank relevance?
Thirty years ago, banks faced little or no competition in providing financial advice and services, and were deeply trusted. As such, they were highly relevant to the lives of nearly all consumers. Our study results demonstrate the impact of new competitors and banking services, as well as decreasing consumer engagement with banks and increasing interest in banking alternatives.
Further, they reveal:
- How vulnerable the banking industry is to losing customers to new types of providers
- How four main variables shape banks’ relevance
- How consumers are recalibrating their definition of a bank
Our research shows variations across markets, as outlined further in this article, and across banks within a given market. Some banks are 10 index points behind direct competitors in the same country. This gap represents a significant difference in vulnerability between banks to losing market share to nontraditional financial services providers.
The index reflects how these trends are playing out in individual countries and within specific product and service categories.
What’s driving the relevance threat?
- Rapidly changing customer preferences and expectations
- The rise of easy-to-use FinTech products and alternatives to traditional banking
- Banks’ challenges of keeping up with consumer demand for evolving digital services, easily accessible information and customized products
- Industry scandals that have eroded trust in banks — from financial stability to keeping their customers’ best interest at heart
The top-line relevance composite scores are valuable for global, regional, demographic and brand-specific comparisons. However, a deeper level of insight can be found in the components that make up the overall scores.
These components represent four essential factors that banks must be aware of and manage if they are to reverse the trend of decreasing relevance.
The relevance formula: four variables that impact the relevance of banks around the world
The four variables of bank relevance
- Primary financial services provider defined as bank
The financial institutions that people consider to be their primary financial service provider is changing. This variable is likely to erode over time as more nontraditional banks appear on the radar, and reputation and legacy become less important.
Consumers in developed markets including Denmark, Germany, Canada and the UK are most likely to define a traditional bank as their primary provider of financial services.
- Trust in banks
Traditional banks often consider trust as a foundational strength. The index reflects waning trust over a broad range of relationship elements including privacy, security, fee transparency and providing unbiased advice.
Trust for traditional banks is highest in China and India and lowest in Japan and Ireland.
- Mix of products currently held at a bank
Consumers are turning to new providers to manage their finances and purchases. The impact of mobile banking and nontraditional banking providers are most evident in emerging markets.
Consumers in both the US and China hold fewer than the average share of the financial products with traditional providers, while consumers in Russia and France hold more.
- Future product consideration
The index shows customers no longer consider banks to be the first or only option for managing their financial lives. For some products, such as mortgages and checking accounts, banks currently dominate; however, in some categories, including products where banks dominate today, the potential erosion of accounts may be dramatic.
Consideration for traditional banks is highest in Nordic countries, while the lowest scores come from both developed markets (US and UK) and developing markets (Africa, India and Latin America)
Results for individual countries suggest priority actions for banks in each market. For example, in Spain, Greece and Italy the main focus should be on trust, while in India, Mexico and Brazil the key to success is deepening the relationship with consumers and reaching the unbanked population. In South Africa and Nigeria, findings show that despite higher trust levels, consumers are not using traditional banks to buy new products and services — severely diminishing overall bank relevance in these markets.
The 23-point differential across the 32 countries included in the index shows that the struggle to stay relevant varies by market.
- The Nordics Region had the highest bank relevance scores and ranked above the global average; Finland was at the top at 82.7.
- Germany and Switzerland also ranked highly, with greater rates of “complete trust” than other countries for traditional banks.
- Asian banks are more vulnerable to decreasing relevance, as demonstrated by low scores in Indonesia (66.9), China (69.5) and India (71.1), likely due to the prevalence of mobile and nontraditional banking options and the evolving “unbanked” population.
- Our research also found that more than 12% of consumers in Hong Kong and 6% in Singapore already name a nontraditional bank as their primary financial service provider.
EY BRI: average bank relevance, by country
Comparing current product holdings for consideration to new products illustrates the growing threat to bank relevance on a product-by-product level.
Good news: most consumers still hold core products (mortgage, checking and savings accounts, loans, credit cards, etc.) with banks.
Bad news: approximately half of all consumers would consider using a nontraditional bank for many products.
Product shift: more consumers would consider nontraditional banks in the future
To remain relevant, banks must nurture the customer experience by listening to market demands for convenient, simple-to-use, easy-to-understand banking products and services that integrate seamlessly into their lives.
- Go beyond banking: deepen customer relationship by offering solutions that go beyond banking products and address all aspects of important stages of customers’ lives
- Make it easy: grow customer-centered digital platforms and effectively enable the salesforce to give customers real-time, anytime access to products, services, support and advice
- Make it personalized: leverage market and customer insights to build relationship-based products and pricing that is delivered seamlessly across all channels
- Keep customers’ interest at heart: invest in the skills, culture, incentives and toolkit of your front line
- Make trust a top priority: promote transparency in all transactions and proactively protect the customer from data, privacy and cybersecurity threats
The BRI is the engine behind EY’s most extensive research survey into consumer banking behavior and trends, due out later this year.
Powered by responses from 55,867 banking consumers in 32 countries, the survey measures the full impact of the market forces and disruptive trends shaping banking today, and the steps banks must take to secure a successful future.
Only by understanding customers’ needs and expectations for convenience, simplicity and transparency can banks begin to battle their dwindling relevance.
To make sure you don’t miss upcoming insights and analysis from the report, sign up to the EY Banking & Capital Markets mailing list.