Banks around the world are losing revenue by missing opportunities to deepen their existing customer relationships, and are ceding new product sales to competitors, according to Bain & Co.
In its fourth annual report on banking customers’ loyalty, Bain’s surveyed more than 190,000 customers in 27 countries, and found the following:
- Less than 1% of respondents in the developed world were new to banking (2.7% in the developing world), with another 2.5% switching from their primary bank (3.2% in the developing world)
- About half of banking customers in developed countries and 84% in the developing world bought a new bank product over the past year
- Customers bought one-third of those products, on average, from a bank other than their primary bank.
Bain said that although many factors influenced the new product purchase decision, such as level of competition in a local market, two factors stood out in swaying customers to buy: customers’ loyalty to their primary bank and the bank’s ability to actively sell to its customers.
The report found that a bank’s relative customer loyalty measure explained roughly half of the variation in its relative win rate, and that approximately a third of banking products in the U.S. were sold, not bought. Customers did not plan to buy a particular product, but received an offer and then decided to purchase it.
“The ‘easy growth’ is over for banks, as increased competition worldwide is forcing banks to fight over too few new customers,” Gerard du Toit, a partner in Bain’s global financial services practice and lead author of the report, said in a statement.
“But there is a surprisingly large upside with existing customers to increase win rates on new product sales.”
According to the report, the unbundling of financial products has spread through some countries faster than others. In Hong Kong’s highly competitive market, three-quarters of bank customers bought a new product over the past year, though only slightly more than half did so through their primary bank.
In contrast, 38% of customers in Denmark bought a new bank product, with 81% staying with their primary bank.
The report recommended a model of “loyalty plus five capabilities” to spur existing customers to buy more from their existing bank, attract new customers and reduce costs without damaging customer relationships. The five key capabilities:
- Decide where you have to win and where you’re willing to lose
- Design products that “pop” in order to keep pace with the latest benefits customers value
- Accelerate the digital transformation — the report found frequent mobile banking users in all 27 countries were much more loyal that non-users
- Loyalty gives you the right to win more business, but you do have to ask for the sale
- Build branding that delivers more trust and less buzz — telling what a bank has to offer, not what it aspires to be.
The report showed that few large incumbent banks had made meaningful progress on more than one of the five elements. JPMorgan Chase in the U.S. was an exception, Bain found.
Chase posted the biggest loyalty gains in 2013 among the national banks, as measured by Bain, moving from the third quartile to the second quartile and opening a lead over other national banks.
Bain attributed Chase’s progress to such factors as select investments in mobile technology, a concerted effort to improve the customer experience and effective marketing to tell people how the bank could simplify their financial lives. Those factors combined to help Chase perform well above average in winning new relationships and cross-selling to existing customers, Bain said.
“The banking math is simple,” du Toit said. “Loyal banking customers own more products, and buy more products — but that doesn’t mean they’re going to make your sales for you.”
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