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BirdsEye View

 Customer attrition is the bane of baking, and especially retail banking. Acquisition costs of new customers are high, and competitors are coming up with new schemes daily to lure customers away. It also takes a retail banking customer an average of 18 months to season and bring their full business complement to the bank, so replacing a mature customer with a green one isn't a perfect substitute. Bottom line - retention is golden. But how do you get there?

The typical answer has been - and still is - effective cross selling. Giving customers every single product they need, but only those products they do need, to perfectly match their behaviors with the appropriate, fully customized product suite.

The implications of mobile banking on customer retention remain largely unknown, as the channel has been bundled with online banking all too often. Bain & Company has studied the topic more specifically both in the US and elsewhere, and the results are interesting.

Facts:

1. Mobile usage jumped from 21% of US customers in 2011 to 32% in 2012 (as compared to 47% in South Korea, 37% in India and 16% in Germany).

 

2. Mobile banking is more likely to increase the customer's willingness to recommend the bank than any other channel interaction. Mobile banking also offers more opportunities to wow customers with sophisticated features such as remote check deposit and with ease of use through highly intuitive apps that make tasks such as balance checking very easy. This is consistent with most European and Asian countries.

 

3. The gap between direct banks in the US and national, traditional, branch-based banks in terms of mobile usage isn't huge (53% vs. 41%), which may suggest that the investment in mobile technology is beginning to pay off and wean customers from branch hog usage.

 

4. As expected intuitively, the 25-35 year olds are the heaviest users of mobile banking in most countries; the largest gainers are the 36-45 year olds.

 

5. We all know that branch transactions are falling dramatically, at a rate of 5-10% a year. This makes sense, considering that 90%+ of all branch transactions are routine. Coupling this fact with #4 above has profound ramifications to branch distribution and staffing.

The facts above indicate that customer loyalty will be correlated to whichever bank app is on their smartphone or tablet's first page. Customers will get accustomed to the look and flow of your app and be reluctant to change, just like they do at the grocery store (they know where everything is). Hence, mobile functionality, which is already table stakes for customer acquisition, will become key for customer retention, especially when it incorporates convenience, ease of use and some "hot" functionalities.

This statement is especially true for affluent customers, who generally have lower loyalty scores than less affluent segments. Such customers typically expect premium service and tailored, expert advice. They want personal banking relationships beyond the convenience offered by digital channels. This is an important fact for banks, since an affluent customer who is a bank fan (net promoter) has 5X the economic value of a similar mass-market customer. Both the opportunity and the payback are significant and difficult to capture.

Two significant questions need to be effectively answered by bank management:

• How quickly can we convert branches from transaction mortuaries to sales outlets (a-la the Apple stores) without losing mainstream customers, and what role should mobile banking play in this transition?

 

• What investments need to be made in the affluent segment to provide impactful differentiation of service, and how will they be funded?

The answer to the first question is extremely bank-specific, and depends so much on current branch distribution, location within the US and competitive profile. The answer to the second question is also complex, since most banks claim to offer stellar, fully differentiated, inimitable customer service to all customers, let alone their MVPs. The key here is not just to figure out the funding of this effort through branch efficiencies, but also how to truly differentiate on the customers' terms, by giving them what they really want, which will induce them to stay with you through thick and thin. Starting from their needs is far more effective than developing a value proposition generated by the greatest brains in your bank. The customers know what they want. Let's not second-guess them. Use primary and secondary research to uncover what your most valued customers are after, and then give them that across channels to retain them for life. I'd bet that mobile banking plays a central role in this value proposition!