CUSTOMER LOYALTY IN RETAIL BANKING: GLOBAL EDITION … · Customer Loyalty in Retail Banking: Global Edition 2016 | Bain & Company, Inc. Page 3 Massive migration in sight Delight

CUSTOMER LOYALTY IN RETAIL BANKING: GLOBAL EDITION 2016

Cost savings hinge on promotingmobile adoption

Net Promoter Score® is a registered trademark of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.

Copyright © 2016 Bain & Company, Inc. All rights reserved.

Acknowledgments

This report was prepared by Gerard du Toit and Maureen Burns, partners in Bain’s Financial Services practice, and a team led by Christy de Gooyer, a practice area director. Team members are Karan Chhabra, Sourish Gue, Lakshay Kataria, Rachit Jain, Thiago Lamelo and Pranav Singh. The authors thank Bain partners in each of the countries covered in the report for their valuable input and John Campbell for his editorial support.

Key contacts in Bain’s Global Financial Services practice

Global Edmund Lin in Singapore ([email protected])

Americas Mike Baxter in New York ([email protected]) Maureen Burns in Boston ([email protected]) Gerard du Toit in Boston ([email protected])

Asia-Pacifi c Peter Stumbles in Sydney ([email protected])

Europe, Middle Henrik Naujoks in Zürich ([email protected])East and Africa

Customer Loyalty in Retail Banking: Global Edition 2016 | Bain & Company, Inc.

Page i

Contents

Massive migration in sight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 3

1. Mobile banking ekes out gains, but branch and phone use persists . . . . . . pg. 11

2. How branch closures affect consumers . . . . . . . . . . . . . . . . . . . . . . . . . pg. 19

3. Hidden defection goes digital and siphons off value . . . . . . . . . . . . . . . . pg. 23

4. Movement on the loyalty leader boards . . . . . . . . . . . . . . . . . . . . . . . . . pg. 29

Appendix: Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 33


Page 2


Page 3

Massive migration in sight

Delight customers, and costs will drop out. It might sound counterintuitive, but this approach can change the

trajectory of profi ts for large, traditional retail banks that have been frustrated by the slow pace of taking out costs.

Consider the $11.4 billion annual opportunity for the 25 largest US banks. If these banks reached the level of mobile

and online banking use of their counterparts in the Netherlands, they would improve their Net Promoter

Score®—a key metric of customer loyalty—by an average of 12 percentage points, Bain & Company estimates. That’s

because mobile interactions are far more likely to delight customers than interactions at branches or through

contact centers. Dutch banks began to reconfi gure their branch networks a decade ago, as the country’s strong

broadband infrastructure and shift to cashless commerce enabled consumers to adopt mobile banking early on.

The payoff is not only customer loyalty, but reduced costs as well. Each mobile interaction incurs a variable cost

of about 10 cents, a small fraction of the $4 cost of a teller or call-agent interaction. As interactions migrate to

mobile, a bank needs fewer tellers and call-center agents. So the 25 US banks would save $11.4 billion annually in

aggregate if customers’ branch and call-center use declined to the Dutch level, and the banks reduced headcount

accordingly (see Figure 1).

Loyalty thus points the way to profi table growth. Of course, earning loyalty is not easy. The locus of loyalty has

shifted in recent years from friendly service at the branch to other attributes, especially simplicity and conve-

Figure 1: Large US banks have an $11.4 billion cost savings opportunity

Estimated addressable service cost base ($ billions)

Estimate for top25 US banks (national

and regional)

16.4

Domesticbenchmark

(best in class)

Australiabenchmark

Netherlandsbenchmark

Full potential

5.1

−3.2

−4.2

−4.0

20 4+ + + =4 4 32

0

5

10

15

20

EstimatedNet Promoter Score(percentage points)

$11.4 billion change in cost base by attaining benchmark’smix of branch and contact-center interactions

Note: Cost components are roundedSources: Bain/Research Now Retail Banking NPS Survey, 2016; SNL Financial; Bain analysis


Page 4

nience. And those features depend largely on creating strong digital channels, then teaching customers how to

use them.

This constitutes a sea change for banks, particularly for midsize or smaller regional banks that have relied on local

knowledge and branch service to attract and keep customers. Top loyalty scores for an excellent branch experience

miss the main point: Mobile channels have become the new way for busy consumers to do their banking. Banks

that expect people to travel to the branch or wait in the queue for a phone agent for routine transactions are wasting

people’s time.

Senior managers who understand this shift have a massive opportunity within their grasp, if they can wrangle

their organizations to harness the mobile revolution. By accelerating the migration of customers from high-cost

branches and contact centers to self-service mobile and online, they stand to reap a threefold payoff:

• They would earn greater customer loyalty by developing simple, digital channels that customers embrace.

• As more customers adopt digital, the level of routine or avoidable transactions in high-cost branches and call

centers will go down. Subsequent staff reductions and reassignments to higher-value activities will lower

variable costs.

• Banks can then close branches and increase digital sales, which expands profi tability.

Realizing the fruits of the mobile revolution will require new management techniques. Most banks will have to

become more aggressive and thoughtful about guiding customers to mobile self-service. Banks also must

improve their mobile apps to make them truly easy and convenient. Bain’s new global survey of 137,034 consumers

in 21 countries suggests where banks should focus their efforts, and practical ways to sequence that process.

Leaders make it simple and digital

Globally, direct banks continue to lead in Net Promoter Scores in most countries. These branchless institutions

generally offer simpler product lines and streamlined operations, which appeal to many consumers who get over-

whelmed by too much choice. Tangerine Bank, the loyalty leader in Canada, offers just one type of checking

account online, compared with four to six at the major traditional banks. Some of the largest global and regional

banks have borrowed a page from the playbook of direct banks, as they simplifi ed products and improved their

digital operations.

In the UK market, for example, Santander has steadily improved its relative Net Promoter Score over the past fi ve

years. The bank simplifi ed its current-account product suite from about 100 to fewer than 10 products under the

“123” branding, which refers to the mix of interest rates and cash-back rates. That simple proposition made it

much easier for new customers to buy products and for bank agents to sell them. Critically, Santander migrated

its entire back book of existing customers to the new system, even though the higher rates compressed its mar-

gins. (The bank recently reduced its interest rates, as the runaway success of 123, combined with record-low

central bank rates, have made the program prohibitively costly to run in light of the new Brexit circumstances.)

Santander also accelerated the development of its digital channels ahead of some other traditional banks, so that

a customer now can refi nance a mortgage online.


Page 5

Smaller national or regional banks, by contrast, are getting squeezed in the middle. Many of them remain rooted

in their branch experience and have not pushed as hard to build out their digital presence. Their past loyalty

advantage that centered on the branch experience has waned.

Mobile growth starts to level off

For the fi rst time in our annual survey, mobile growth has moderated, and in some countries appeared to be

approaching the top of the classic S curve for technology diffusion. Transactions on smartphones and tablets,

however, did continue to displace those on desktop and laptop computers, with nearly all countries now showing

more mobile than online transactions.

Mobile adoption has been highest among the youngest consumers, but there is still ample room for growth

among those in their 50s and older. Too often, this group has been overlooked by banks, which typically neglect

to give older consumers guidance or even much information about the benefi ts of using mobile apps. (For a

detailed analysis of US consumer behavior by age and transaction channel, see the Bain Brief “Bank Branch/Call

Center Traffi c Jam.”)

Despite the rise of mobile, high levels of routine transactions persist at branches and call centers. In the US, for

instance, nearly 90% of respondents visited a teller during the previous quarter, and nearly half called their bank.

A relatively small group of high-frequency customers create much of the traffic. Just 18% of respondents

accounted for 58% of teller interactions, and 5% of respondents accounted for 39% of phone interactions. Digital

channels often are not as effective as banks would like; many consumers trying these channels contended with

various problems and wound up visiting a teller or calling a contact center anyway. When consumers failed in

their attempts to transact digitally, more than one-third cited technical problems or lack of functionality.

Consumers who do not use bank mobile apps reported several reasons, notably habit, but also lack of knowledge

and access issues. In addition, older users are slightly more dissuaded by habit and security concerns. Unless

banks take an active role in addressing these issues, the pace of moving transactions from branches and call

centers to digital channels—and the attendant cost reductions—will remain slow.

Do consumers resent branch closures?

As the shift to mobile banking progresses, most banks in most countries have begun to pare back their branch net-

work. Both the extent of branch closures and the consequences for consumer loyalty vary greatly by market. Of survey

respondents who experienced a nearby branch closure in the past year, 27% in the Netherlands and 54% in India

said they completely switched banks or started using some products from a competitor (see Figure 2). More-

over, a branch closure caused Net Promoter Scores to drop by an average of 12 percentage points, and as much as

21 points in France, compared with the scores of respondents who did not experience a closure.

Here again, the Dutch experience is instructive for many countries. Dutch banks have not completely eliminated

brick and mortar, but rather changed the nature of the branch. ING has side counters in bookstores and tobacco

shops, while SNS has franchise arrangements with insurance agents and others. Most customers in this densely

populated country thus still have access to a banker in walking or biking distance, but in a streamlined, low-cost

format. So while many Dutch respondents said they have experienced a branch closure, relatively few switched

banks or gave a lower Net Promoter Score as a result.


Page 6

Given that many consumers still use a branch—60% of UK respondents visited one during the previous quar-

ter—it would be dangerous to make large cuts to the brick-and-mortar network until customers fi nd it easy to

handle routine transactions through self-service digital channels. Banks can accelerate customers’ transition to

digital channels, and planning for a new branch network should occur now, as it can take three to fi ve years to

reconfi gure the network.

Hidden defection is rampant

Many consumers—about 29% globally on average—said they would switch their primary bank if it were easy to

do so. And hidden defection—purchasing a new banking product from a competing bank or fi nancial technology

fi rm—is taking place everywhere. It’s most pronounced in developing markets, where fewer consumers have

long-standing relationships with an institution.

When the ball is up for grabs, a primary bank wins 64% of all purchases on average. But look at what walks out

the door: Credit cards, loans, insurance and investments are the most purchased categories at competitors, where-

as the primary bank tends to get a higher share of new, low-value deposit accounts (see Figure 3). The primary

bank win rate for loans is just 57% vs. 78% for deposits. The stakes are high, as a 5-point increase in the overall

win rate represents about $5 billion in revenue across the 25 largest US banks, we estimate.

Direct banks and fi ntechs are taking a substantial share of new purchases on the strength of their relatively simple

product lines and streamlined user experience, and appear to be well-positioned to continue expanding their

Figure 2: About 40% of customers who experienced a branch closure took their business to other banks

0

20

40

60

80

100%

Net

herla

nds

Pola

nd

Aus

tralia

Can

ada

Sout

h Ko

rea

US

UK

Mex

ico

Spai

n

Hon

g Ko

ng

Fran

ce

Ger

man

y

Italy

Sing

apor

e

Braz

il

Mal

aysi

a

Indi

a

Share of respondents who experienced a branch closure in the previous 12 months

Didn’t switch, but started using products/servicesof competing banks

Started using another branch or channelof the same bank

Switched

Note: Excludes countries with fewer than 100 respondents who experienced a branch closureSource: Bain/Research Now Retail Banking NPS Survey, 2016


Page 7

share. Consumer purchases of additional banking products through digital channels, especially online, have

become common and should increase as the ranks of younger, plugged-in generations swell.

Established technology companies with powerful brands and huge customer bases also are poised to move into

such banking realms as consumer lending. For example, Apple offers leasing of its iPhones, and WeChat offers

instant lending in China. In fact, developments in China may provide a glimpse of the future. Our survey respon-

dents in China actually reported lower mobile usage for routine banking interactions this year, probably because

consumers increasingly use more convenient and engaging non-bank platforms such as WeChat and Alipay for

payments, savings and other daily fi nancial transactions (see Figure 4). We expect these and other major tech

fi rms to wedge their way further onto banks’ traditional turf.

For banks looking to stem the tide of hidden defections, our analysis of the survey data shows where they

should focus. Based on the variables in the survey, purchases from a competitor are most likely when the con-

sumer owns multiple products at a primary bank, gives a low Net Promoter Score and is older. Of course,

other elements also explain defections, such as exceptional products, pricing and salesmanship at the winning

competitors. Still, there are no shortcuts to organic growth, especially with regulators’ heightened scrutiny of

cross-selling practices and their desire for banks to focus on high-quality advice and service over sales.

Sustained organic growth hinges on earning the right to sell customers another product. Nationwide Building

Society in the UK, for instance, ranks as the loyalty leader among traditional banks and has above-average win

rates for product purchases.

Figure 3: Primary banks may win deposits, but they’re losing higher-value products like loans to competitors

0

10

20

30

40

50

60%

0 10 20 30 40 50 60%

Poland

Italy

China

Hong Kong

India

UK

Japan

Poland

Italy

IndiaCanada

US

Share of purchases at primary bank in last year, by product

Share of purchases at competing banks in the last year, by product

MalaysiaSwitzerland

France

SpainGermany Mexico

Singapore Australia

Canada

South Korea

US

SwitzerlandUK

France

Spain

GermanyChina

Hong Kong

MalaysiaMexico

Singapore

AustraliaSouth Korea

Japan

Loans Deposits

More loans purchased at competing bank

More deposit products purchased at primary bank

Source: Bain/Research Now Retail Banking NPS Survey, 2016


Page 8

The path to digital adoption

For banks that have decent mobile apps, yet still lag in migrating customers to digital, the way forward is clear.

First, they should step up efforts to encourage mobile adoption and move routine transactions out of the branch

and call center. Many older consumers require active guidance and information from banks about using mobile

apps. Younger people present a separate challenge, mostly involving the basics of banking. They are still navigat-

ing how to pay bills, deposit checks, transfer money and generally resolve issues with their accounts—and they

generate more interactions in the process. In China, respondents age 18–24 make almost twice the number of

banking interactions on average as those age 65 or older. If young consumers don’t know how long it takes for a

balance to update after a transaction, they will be more apt to phone the call center several times. Younger respon-

dents also say they fi nd digital channels confusing or inadequate for their banking, and often need help.

Banks should continue to streamline the experience of using both mobile or online channels, so that consumers

turn to those channels before the branch or contact center. That will require designing simple and easy apps.

Here, banks can take a cue from other industries, such as online retailers that send consumers a “Your purchase

has shipped; click here to track” confi rmation email. Improving the digital experience also entails eliminating

bank policies or processes that impede convenience and reliability.

Once banks have accelerated mobile adoption and improved the digital banking experience, they can turn to

building new functions for consumers to research and purchase products.

Figure 4: Growth in mobile banking is leveling off in many countries, and actually declined in China

0

5

10

15

20

25

30

Netherlands

South Korea

2012 2013 2014 2015 2016

Number of mobile interactions per respondent in the previous quarter

India

ChinaCanada

UK

SpainUS

Note: 2012 data not available for NetherlandsSources: Bain/Research Now Retail Banking NPS Surveys, 2012–2016; Bain/GMI NPS Survey, 2013


Page 9

Organizing for simple and digital

Understanding the nature of this once-in-a-generation opportunity for digital migration is fairly straightforward.

The bigger challenge lies in organizing the migration and instilling changes at the front line and back offi ce in

order to greatly improve how consumers do their banking.

Established banks tend to organize around functional silos, such as operations, compliance, IT and contact centers,

along with their associated metrics. That legacy, combined with traditional process thinking, creates a powerful

paradigm that makes it hard for the organization to see banking through its customers’ eyes and act accordingly.

But a few banks are making real progress toward a simple and digital experience—meaning fast, lean, automated

and right the fi rst time—by organizing around episodes rather than functional silos. From a customer’s perspec-

tive, the entire episode of buying a home and mortgage or resolving card fraud matters more than any single

interaction along the way. Episodes tend to cut across many functions and departments. So organizing and man-

aging directly around episodes is essential for succeeding with digital adoption and thereby earning greater loyalty

from customers.

• Mobile banking now exceeds online banking among consumers in most countries, with Sweden, South Korea, the Netherlands and Australia leading the way. But the previous torrid pace of mobile growth slowed in 2016.

• Yet banks still have a major opportunity to encour-age older customers to adopt mobile, as seniors’ mobile use is well below that of young customers in every country.

• Routine interactions such as checking a balance or making a deposit have been slowly declining at branches. Levels of call-center use, however, persist and even tipped slightly higher in some countries. The Netherlands, where mobile banking took off early, has very low branch and phone use, and has experienced the greatest decline globally in commercial bank branches per capita.

• A small group of heavy users drives much of the branch and phone activity in every country. Brazil and Mexico have the highest share of heavy users.

• Besides the Netherlands, banks in a few other countries have made the greatest progress to-ward digital self-service by customers: Sweden, Poland and Australia. By contrast, Mexico, China, Hong Kong and India are the most branch-dependent markets.

1.Mobile bankingekes out gains, but branch and phoneuse persists


Page 12

Figure 5: Mobile continues to displace online

10

20

30

40

50

60%

10 20 30 40 50 60%

Sweden

Germany

South Korea

UKSpain

Online interactions' share of total interactions in the previous quarter

Mobile interactions' share of total interactions in the previous quarter

ItalyIndia

Netherlands

Mexico

France

Australia

China

Canada

Singapore

Hong KongPoland

US

Japan

Mobile exceeds online

Online exceeds mobile

2013 2016

Notes: Mobile refers to interactions on smartphones and tablets; online refers to desktop and laptop computer interactions; Brazil, Malaysia, Switzerland not included in2013 surveySources: Bain/Research Now Retail Banking NPS Surveys, 2013 and 2016; Bain/GMI NPS Survey, 2013

Figure 6: Growth in mobile banking is leveling off in many countries, and actually declined in China

0

5

10

15

20

25

30

Netherlands

South Korea

2012 2013 2014 2015 2016

Number of mobile interactions per respondent in the previous quarter

India

ChinaCanada

UK

SpainUS

Note: Netherlands was not included in 2012 and 2014 surveys; line is interpolated from other yearsSources: Bain/Research Now Retail Banking NPS Surveys, 2012–2016; Bain/GMI NPS Survey, 2013


Page 13

Figure 8: Use of branches is declining slowly

0

2

4

6

UK

SingaporeNetherlands

China

Australia

2012 2013 2014 2015 2016

Average number of routine branch interactions in the previous quarter, per respondent

Canada

USIndia

Notes: Netherlands was not included in 2012 and 2014 surveys; line is interpolated from other yearsSources: Bain/Research Now Retail Banking NPS Survey, 2012−2016; Bain/GMI NPS Survey, 2013

Figure 7: Younger customers are more likely than older customers to bank via mobile

0

20

40

60

80

100%

Indi

a

Sout

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rea

Chi

na

Net

herla

nds

Mal

aysi

a

Swed

en

Sing

apor

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Braz

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Mex

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Aus

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Spai

n

Italy US

Pola

nd

Hon

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ng UK

Fran

ce

Can

ada

Ger

man

y

Switz

erla

nd

Japa

n

Share of respondents using mobile banking in the previous quarter

Under age 25

Age 55 or older

Average



Page 14

Figure 9: Many countries still have a high number of branches

Spai

n

68

Italy

49

Braz

il

47

Switz

erla

nd

45Fr

ance

38Ja

pan

34

US

32

Pola

nd

31

Aus

tralia

29

UK

25

Can

ada

24

Hon

g Ko

ng

22

Swed

en

21

Sout

h Ko

rea

17

Mex

ico

14

Ger

man

y

14

Indi

a

13

Net

herla

nds

13

Mal

aysi

a

11

Sing

apor

e

9

Chi

na

8

Estimated number of commercial bank branches per 100,000 adults, 2015

−4 −1 0 0 −2 0 3 −2 5 −8 −1−2 −2 42 −2 −2 0 −1 1 −1

0

20

40

60

80

CAGR (%)2006−2015

Notes: Commercial bank branches exclude credit unions, financial cooperatives and all microfinance institutions; compound annual growth rate for Brazil calculated from 2007−2015 and for China from 2012−2015Source: 2016 Financial Access Survey data, International Monetary Fund

Figure 10: Consumers in most countries still want to use contact centers

0

1

2

3

Japan

Spain

India

2012 2013 2014 2015 2016

Average number of contact-center interactions in the previous quarter, per respondent

France

US

Netherlands

China

Australia

Notes: Netherlands was not included in 2012 and 2014 surveys; line is interpolated from other yearsSources: Bain/Research Now Retail Banking NPS Survey, 2012–2016; Bain/GMI NPS Survey, 2013


Page 15

Figure 12: Frequent users account for most of the volume in branches

0

20

40

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80

100%

Respondents Interactions0

20

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100%


20

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60

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100%

Respondents Interactions

Percentage of total respondents by number of branch interactions in previous quarter

US Germany Japan


0 1 2 3 to 5 More than 5

Number of interactions

Figure 11 : A few countries lead in developing self-serve banking models

5

15

25

35

45

0268

Sweden

China

Poland

Japan

Hong Kong

Malaysia Spain

France

Netherlands

Australia

Human channels

SwitzerlandItaly

Germany

South Korea

CanadaMexico India

Singapore

Brazil

USUK

4

Self-serve

Low interaction

Heavy interaction

Branch dependent

Average interactions per respondent in the previous quarter, by channel

Digitalchannels

Note: Digital channels exclude ATMsSource: Bain/Research Now Retail Banking NPS Survey, 2016


Page 16

Figure 13: The share of frequent branch users varies signifi cantly by country

0

10

20

30

40

50%

Braz

il

44

Mex

ico

38

Chi

na

28

Indi

a

26

Mal

aysi

a

26

Italy

23

Spai

n

22U

S

18H

ong

Kong

18

Can

ada

17

Aus

tralia

17

Sout

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rea

14

Fran

ce

13

UK

12

Ger

man

y

11

Japa

n

10

Switz

erla

nd

10

Pola

nd

9

Sing

apor

e

8

Swed

en

6

Net

herla

nds

4

Share of respondents who conducted branch interactions more than five times in the previous quarter


Figure 14: Frequent users account for most of the volume in contact centers

Percentage of total respondents by number of contact-center interactions in the previous quarter

US UK South Korea

0

20

40

60

80

100%


20

40

60

80

100%

Interactions0

20

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100%

Respondents Interactions


Respondents

0 1 2 or 3 More than 3

Number of interactions


Page 17

Figure 15: The share of frequent users of contact centers varies signifi cantly by country

0

10

20

30%

Braz

il

23

Mex

ico

19

Indi

a

15

Mal

aysi

a

12

Spai

n

10

Hon

g Ko

ng

10

Italy

10

Aus

tralia

9Fr

ance

7C

hina

6

Sout

h Ko

rea

5

UK

5

Ger

man

y

5

Sing

apor

e

5

US

5

Can

ada

4

Pola

nd

4

Switz

erla

nd

4

Net

herla

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3

Swed

en

3

Japa

n

1

Share of respondents who called contact centers more than three times in the previous quarter


• A signifi cant share of consumers experienced a nearby branch closure. Spain, which experienced a wave of consolidation, had the highest share of respondents reporting a closure, at 17%. Next were India, where the government recently relaxed regulations on urban branch closure, and the Netherlands and the UK. Japan and China had the lowest shares, at 1% and 2%, respectively.

• Branch closures affect consumer behavior and perceptions. Roughly 40% of respondents globally reported that they switched their primary bank or started using other institutions for purchases of new banking products after they experienced a bank closure. India and Malaysia had the greatest share of such behavior; the Netherlands and Poland had the least.

• Closures correlate with lower loyalty scores in every country surveyed, but the effect varies sub-stantially. Banks in France, Germany, Canada and South Korea suffered the sharpest drop in Net Promoter Scores after closures. Those in Singa-pore and India had only a slight decline associated with closures.

• Closures can have ripple effects, depending on how a bank handles the transition. Consumers who experienced a closure said they are 3 per-centage points more likely in Australia and 24 points more likely in India to switch their primary bank in the future. Globally, the gap averaged 11 points.

2.How branch closures affect consumers


Page 20

Figure 16: Banks in a few countries have been more aggressive in closing branches

0

5

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15

20%

Spai

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17

Indi

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16

Net

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14

UK

12

Mex

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11

Sing

apor

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10M

alay

sia

9Br

azil

9

Ger

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9

Hon

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8

Aus

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6

Fran

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Pola

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US

5

Switz

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Can

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3

Chi

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2

Japa

n

1



Figure 17: About 40% of customers who experienced a branch closure took their business to other banks

0

20

40

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80

100%

Net

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Pola

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Didn’t switch, but started using products/servicesof competing banks

Started using another branch or channelof the same bank

Switched

Note: Excludes countries with fewer than 100 respondents who experienced a branch closureSource: Bain/Research Now Retail Banking NPS Survey, 2016


Page 21

Figure 19: Consumers who experienced a branch closure are 11 percentage points more likely to switch banks

0

10

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30

Indi

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Ger

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US

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Italy

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UK

Braz

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Mex

ico

Pola

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Hon

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Aus

tralia

Difference in likelihood to switch, between those who experienced a branch closure and those who did not (percentage points)

Notes: Includes respondents who selected “somewhat likely” and “extremely likely”; excludes countries with fewer than 100 respondents who experienced a branch closure;likelihood to switch has been adjusted for the mix of banks (those that did/did not have a branch closure that respondents experienced)Source: Bain/Research Now Retail Banking NPS Survey, 2016

Figure 18: Branch closures correlate with lower loyalty scores

−30

−20

−10

0

Fran

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apor

e

Difference in Net Promoter Score between respondents who experienced a branch closure over the previous 12 months and those who did not(percentage points)

−21−20

−19 −19−18

−15−13

−12 −12 −11

−9 −9 −8

−5−4

−2 −2

Low

er N

et P

rom

oter

Sco

res

Notes: Excludes countries with fewer than 100 respondents who experienced a branch closure; difference in Net Promoter Scores has been adjusted for the mix of banks (thosethat did/did not have a branch closure that respondents experienced)Source: Bain/Research Now Retail Banking NPS Survey, 2016

• About one-third of consumers globally said they would be more likely to switch their primary bank if it were easier to do so, with India and Poland at the highest levels. Younger customers globally were even more likely to express a desire to switch. India, Malaysia and the UK had the largest switching gap between young and old consumers.

• Not only did many customers say they would switch, but hidden defection—the purchase of additional banking products outside the primary bank—is even more prevalent. China, Hong Kong and Malaysia had the highest rate of hidden defection. The proportion of people purchasing only from a competing bank was particularly high in the UK and US, at 22% and 20%, respectively.

• What are consumers buying? In every country ex-cept Spain, consumers bought more higher-value products such as loans at competing institutions, while primary banks everywhere tended to win new lower-value deposits or current-account purchases.

• Consumers used digital channels about 1.4 times as often for purchases at competing institutions than for those at primary banks. This digital gap was greatest in the US, Japan and Canada.

• Direct banks and fi ntechs took a substantial share of product purchases. The share reached 34% in the UK, 29% in Germany and France, and double digits in 16 of 19 countries.

• Greater loyalty improved the odds of cross-selling. Consumers who are promoters of their primary banks were far more likely than detractors to buy the next product from that bank.

3.Hidden defection goes digital and siphons off value


Page 24

Figure 20: About one-third of all consumers would switch banks if it were easy

0

20

40

60%

Indi

a

Pola

nd

Mal

aysi

a

Hon

g Ko

ng

Braz

il

Mex

ico

Sout

h Ko

rea

Spai

n

Sing

apor

e

Chi

na UK

Italy

Net

herla

nds

Fran

ce

Aus

tralia US

Ger

man

y

Can

ada

Switz

erla

nd

Japa

n

Share of respondents likely to switch if switching were easier

Age 35 or younger

Age 55 or older

Average

Note: Includes respondents who selected “somewhat likely” or “extremely likely”Source: Bain/Research Now Retail Banking NPS Survey, 2016

Figure 21: Hidden defection exists everywhere, most acutely in developing markets

0

20

40

60

80

100%

Chi

na

Hon

g Ko

ng

Mal

aysi

a

Indi

a

Mex

ico

Braz

il

Sout

h Ko

rea

Sing

apor

e

Japa

n

UK

Spai

n

US

Ger

man

y

Can

ada

Pola

nd

Fran

ce

Italy

Switz

erla

nd

Aus

tralia

Share of respondents in the previous 12 months, by purchasing behavior

Purchased from both primaryand competing banks

Purchased from competingbanks only

Purchased from primarybank only

Did not purchase anybank product



Page 25

Figure 23: Consumers make digital purchases at competing banks at 1.4 times the rate at their primary banks

0

20

40

60

80%

UK

Ger

man

y

Aus

tralia US

Japa

n

Can

ada

Pola

nd

Italy

Chi

na

Fran

ce

Switz

erla

nd

Indi

a

Sing

apor

e

Spai

n

Hon

g Ko

ng

Sout

h Ko

rea

Braz

il

Mal

aysi

a

Mex

ico

1.4 1.7 1.6 1.0 1.2 1.3 1.1 1.1 1.1 0.9 1.31.5 1.5 1.9 1.9 2.0 1.2 1.5 1.0Competingbank multiple

Share of purchases made digitally

Competing Primary

Note: Only the most recent purchase consideredSource: Bain/Research Now Retail Banking NPS Survey, 2016

Figure 22 : The primary bank loses one-half to one-fi fth of product purchases to competing banks

Spai

n

68

Chi

na

68

Aus

tralia

73

Fran

ce

73

0

20

40

60

80

100%

Italy

78

Pola

nd

74Br

azil

Mex

ico

67

Indi

a

Switz

erla

nd

66

Sout

h Ko

rea

Can

ada

Japa

n

61

Hon

g Ko

ng

58

Ger

man

y

57

Sing

apor

e

55

Mal

aysi

a

US

UK

Primary purchases as a percentage of all purchases in the previous 12 months

7367

63 6155 52 51

2014 2016

Note: 2014 data not available for SwitzerlandSources: Bain/Research Now Retail Banking NPS Surveys, 2014 and 2016


Page 26

Figure 24: Primary banks may win deposits, but they’re losing higher-value products like loans to competitors

0

10

20

30

40

50

60%

0 10 20 30 40 50 60%

Poland

Italy

China

Hong Kong

India

UK

Japan

Poland

Italy

IndiaCanada

US

Share of purchases at primary bank in last year, by product

Share of purchases at competing banks in the last year, by product

MalaysiaSwitzerland

France

SpainGermany Mexico

Singapore Australia

Canada

South Korea

US

SwitzerlandUK

France

Spain

GermanyChina

Hong Kong

MalaysiaMexico

Singapore

AustraliaSouth Korea

Japan

Loans Deposits

More loans purchased at competing bank

More deposit products purchased at primary bank


Figure 25: Direct banks and fi ntechs capture a substantial share of purchases

0

10

20

30

40%

UK

34

Ger

man

y

29

Fran

ce

29

Can

ada

23

Aus

tralia

23

Italy

23

Hon

g Ko

ng

23

US

22

Pola

nd

15

Spai

n

20

Switz

erla

nd

18

Mex

ico

15

Sing

apor

e

14

Mal

aysi

a

13

Japa

n

13

Sout

h Ko

rea

12

Braz

il

9

Chi

na

9

Indi

a

7

Share of purchases made at competing direct banks or online-only providers, in the previous 12 months



Page 27

Figure 26: Loyalty matters when it comes to purchasing additional products

33 39

59

79

57

79

4765

6781

70 76

60

7988 95

8593

31

53

50

71

Term depositInvestment

management/adviceSmall business

accountEveryday transaction

accountSavings account

Personal loanCredit card (primary)Credit card(secondary)

Home loan Super-annuationInvestment propertyloan

Australia: Purchases made at primary bank in the previous 12 months, as a percentage of all purchases in that category


Detractor Promoter

• Direct banks continue to lead in Net Promoter Scores relative to national, regional or smaller competitors. In a few markets such as the UK and Germany, large branch banks gained ground.

• Some big banks have demonstrated sustained progress over the past few years. In the UK, Santander has signifi cantly improved its Net Pro-moter Score, rising to No. 2 among traditional banks in 2015 and further closing the gap with the leader this year. In Spain, BBVA moved up steadily to clinch the No. 2 position among tradi-tional banks last year and has continued to nar-row the loyalty gap.

• For an individual bank, what matters is how it performs against peers in its market. Using that lens, Net Promoter Scores varied widely from country to country. In Australia, for instance, the score of top performer ING Direct was 86 per-centage points higher than the worst performer. In Hong Kong, loyalty leader HSBC outperformed the worst by just 12 percentage points.

• In-country differentials between the loyalty leader and the laggard were largest in the Northeast region of the US, Spain, Germany, Italy and the UK.

• Only a few banks have held the top spot year over year, including USAA in the US and First Direct in the UK.

4.Movement on the loyalty leader boards


Page 30

Figure 27: In the Americas, there is a large gap between loyalty leaders and laggards

Lowest bank Highest traditional bankHighest direct bank

Brazil

Canada

US–Midwest

US–Northeast

US–South

US–West

Caixa Econômica Federal,Banco Itaú, Banco Bradesco

TangerineTD Canada Trust,National Bank of Canada

Huntington National Bank

TD Bank

TD Bank

Union Bank, Bank of the West

USAA

USAA

USAA

USAA

–100 –60–80 –40 –20 0

Primary banks’ Net Promoter Scores relative to loyalty leader, indexed to zero, 2016


Figure 28: In the Asia-Pacifi c region, there is a large gap between loyalty leaders and laggards


Australia

China

Hong Kong

India

Japan

Singapore

South Korea

Malaysia

ING Direct

China Merchants Bank, ChinaMinsheng Bank, Bank of China

HSBC

Bendigo Bank, Suncorp Bank

Shinsei Bank, Japan Post Bank

ICICI Bank, Citibank

OCBC Bank Singapore

Industrial Bank of Korea,Shinhan Bank

Maybank

–100 –60–80 –40 –20 0




Page 31

Figure 30: In the UK, Santander has advanced by making its product line simple and digital

Net PromoterScore of leader

Leader

No. 2

No. 3

No. 4

No. 5

No. 6

No. 7

No. 8

No. 9

No. 10

First Direct

Nationwide

Santander

Bank A

Bank B

Bank C

Bank D

Bank E

Bank F

Bank G

Net Promoter Scores relative to the UK loyalty leader

2012 2013 2014 2015 2016

69 68 65 66 64

−22 −31 −30 −22 −26

−33 −47 −53 −45 −42

−70 −69 −53 −51 −46

−76 −79 −55 −54 −48

−86 −81 −59 −63 −59

−93 −81 −68 −64 −62

−94 −83 −70 −71 −62

−103 −83 −76 −71 −64

−109 −91 −84 −90 −85

Sources: Bain/Research Now Retail Banking NPS Surveys, 2012–2016

Figure 29: In most markets in Europe, there is a large gap between loyalty leaders and laggards


Sweden

Switzerland

Italy

Netherlands

France

Germany

Poland

Spain

UK

Handelsbanken

Raiffeisen Bank

FinecoIntesa Sanpaolo

La Banque Postale

Sparda-Bank

Bank MillenniumBankinter, BBVA, Banco Sabadell

Nationwide

Difference in Net Promoter Scores too close to call

ING Direct,BoursoramaDeutsche Kreditbank,ING-DiBaING Bank

ING Direct

First Direct

–100 –60–80 –40 –20 0




Page 32

Figure 31: Direct banks continue to lead in many countries

US UK Australia


−20

0

20

40

60

80

Big 4 and theirsubsidiaries

Regional/smaller banks

Direct banks

Net Promoter Score

−20

0

20

40

60

80

Directbanks

Net Promoter Score

Regionalbanks

Nationalbanks

−20

0

20

40

60

80

Buildingsocieties

Largebranchbanks

Directbanks

Net Promoter Score

2009 10 11 12 13 14 15 16 2012 13 14 15 16 2012 13 14 15 16

Figure 32: Direct banks continue to lead in many countries

Spain Germany Canada


−100

−50

0

50

100

CreditunionsBig 5banks

Directbanks

Net Promoter Score

−100

−50

0

50

100

Net Promoter Score

Bailed-outregional

Directbanks

InternationalNationalRegional

−100

−50

0

50

100

CooperativebanksNationalbanks

Directbanks

Net Promoter Score

2012 13 14 15 162012 13 14 15 16 2011 12 13 14 15 16


Page 33

Appendix: Methodology

Bain & Company partnered with Research Now, an online global market research organization, to survey con-

sumer panels in Australia, Brazil, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Malaysia,

Mexico, the Netherlands, Poland, Singapore, South Korea, Spain, Sweden, Switzerland, the UK and the US. The

survey’s purpose was to gauge customers’ loyalty to their principal bank and the underlying reasons customers

hold their views. Conducted from July to September 2016, the survey polled 137,034 respondent consumers of

national branch network banks, regional banks, private banks, direct banks, community banks and credit unions

in these countries.

For individual bank analysis in the Americas and most countries in Europe, we included only banks for which we

received at least 200 valid responses. In Switzerland and Asia, we included banks with at least 100 responses. In

many instances, sample sizes exceeded these thresholds.

Survey questions

Respondents were fi rst asked to identify their primary bank, then were asked the following questions to assess

their loyalty to that institution:

• On a scale of zero to 10, where zero represents “not at all likely” and 10 represents “extremely likely,” how

likely are you to recommend your primary bank to a friend or relative?

• Tell us why you gave your primary bank the score you did.

We asked what major products respondents hold with their primary bank and with other banks, and which of

these products were purchased in the past year. We also asked respondents what their most recent purchase had

been, and the channels they used to make this purchase. Further, we asked how often they interacted through

various channels to do their banking in the past three months. We then questioned whether respondents experi-

enced a closure of a bank branch that they used. If so, we asked how this closure affected their relationship with

the bank, and if not, we asked their likelihood of switching their bank in the future. The remaining questions

elicited demographic profi le information: household income, investable assets and region of residence.

For statistical signifi cance, the results of our data analysis are robust both for the measurement of bank Net

Promoter Scores by country and for respondent Net Promoter Scores for each demographic category. For the

Americas and most countries in Europe, the Net Promoter Scores measured for each bank in the country and US

regional rankings are statistically signifi cant to an 80% confi dence level, with a two-tailed test of the confi dence

interval ranging from ±2% (n=868) to ±7.4% (n=228). In Switzerland and Asia, where sample sizes were smaller,

confi dence intervals are wider, with a maximum of ±10%.


Page 34


Page 35


Page 36

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