Keeping consumers tougher for banks

McKinsey survey sees mobile phones becoming the channel of choice for consumers.

Loyalty, what loyalty? Bankers may dread the question, but that’s something an increasing number of financial services customers are asking these days.

A McKinsey Personal Financial Services Survey for 2011 released on Wednesday has found that banks have seen a dramatic 40 percentage point decline in loyalty of the financial customer in just four years.
 

TOP 5 LOYALTY DRIVERS

2007

* The waiting time at the branch office is reasonable

* When opening an account, employees try to understand the customer’s needs and make sure he is getting the appropriate product or service

* Employees are willing to go out of their way to help the cutomer

* The interest rates on deposits are at the highest levels

* The interest rates on loan products are at the lowest levels

2011

* The company treats the customer as an individual * The company is flexible in how they work with their customers * The customer’s friends and colleagues recommend them  * Employees are willing to go out of their way to help the cutomer * The bank is always pro-actively sharing information on products and services that could be useful to the customer

Customers now prefer to shop around and choose banks based on lenders' service quality, instead of the price tags on their products.

“While Indian consumers say they want to consolidate their banking relationships, they continue to shop around because banks are not delivering the products and services, such as frontline services, that can lock them in,” Renny Thomas, partner in McKinsey India, said in a conference here on Wednesday.

So four years earlier the queue in front of the cash counter may have prompted you to move to another bank. Now, customers who are spoilt for choice select banks based on availability of financial analysts, recommendations of friends and colleagues, and service offering.

The average number of banking relationships across India rose 19 per cent between 2007 and 2011. During this period, the average percentage of people willing to shop around for a new bank also increased by 15 per cent.

“Interestingly, consumers ranked courteousness and friendliness second only to good knowledge in their choice of a financial planner – even above the planner's ability to bring high return on investment,” Thomas said.

The percentage of consumers using financial planners increased to 43 per cent from 14 per cent in the past four years. The percentage of consumers willing to take risks on capital growth also rose to 44 per cent from 24 per cent during this period.

MOBILE SHIFT
Mobile phones are also becoming the channel of choice for consumers in banking and financial transactions. A survey of 5,000 people by McKinsey revealed usage frequency of mobile phones in a week for banking transactions had increased by 338 per cent in India between 2007 and 2011. This was more than double the growth in average weekly usage of mobile phones for financial transactions in developed economies in Asia.

“We see a marked shift away from using branches as a main channel for interaction in many markets (in India). This represents a fundamental shift in consumer behavior and has significant implications for banks as they consider their channel strategy and how they should allocate investment resources,” Thomas said.

After the financial crisis, the desire among consumers for localisation of banks have gone up. This does not refer to presence of a large number of branches in a particular geography but providing products and services catering to the needs of the local population.

The number of respondents in McKinsey's survey who said they “prefer to deal with a local institution” rose to 95 per cent in 2011 from 75 per cent four years before.

McKinsey also said there was a significant decline in demand for insurance products, now being replaced by investment products like equities and debt instruments. Insurance products, however, still remain the most purchased product for Indian consumers.