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REBEX Pulse: COVID and the Bionic Retail Bank

With the seismic shifts in retail banking due to the pandemic, banks want to understand their place in this uncharted environment. They are looking for advice since prior standings are no longer applicable. To address this, we are pleased to share some highlights from the third Retail Banking Excellence Benchmark (REBEX by BCG) Pulse survey.

The survey was conducted from 12,000 retail banking customers in 16 countries globally during October and November 2020. The findings focus on the latest trends shaping retail banking, indicating how changes over the past year may form the basis of strategic planning for the longer term.

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REBEX Pulse: COVID and the Bionic Retail Bank

  1. 1. White Paper REBEX Pulse: COVID and the Bionic Retail Bank By Thorsten Brackert, Mindy Hauptman, Byron Marshall, Holger Sachse, Bjorn Schwarz, Aldo Tolentino & Monica Wegner February 2021
  2. 2. 1 BOSTON CONSULTING GROUP February 2021 he COVID-19 pandemic has been a gamechanger for retail banking, with customers around the world moving more of their financial lives online. Digital has surged in popularity, and online and mobile have become the preferred channels for many aspects of everyday banking. Still, for a large number of customers, face-to-face interactions remain important, particularly when it comes to big financial decisions. This evolving landscape creates an opportunity for banks to create a “bionic” customer proposition, combining the best of face-to-face, digital, and remote — at a time in which trust in banks is rising. These are among the key findings of BCG's third Retail Banking Excellence Benchmark (REBEX) Pulse survey of 2020; a comprehensive poll of 12,000 retail banking customers in 16 countries globally.1 The survey, conducted in October and November, provides context around the latest trends shaping retail banking, and shows how changes over the past year will play a powerful role in shaping the industry’s future. COVID-related restrictions have been significant catalysts for accelerating shifts in customer behavior. With crowded environments carrying new risks, a third of respondents say they do not feel comfortable visiting banks in person. This has increased pressure on branch networks, many of which were already challenged by declining footfall and high relative costs. Looking forward, 35% of customers expect to make less use of branches, while 31% say they will use online and mobile banking channels more — a higher proportion than in our April survey. Still, branches remain a vital part of the equation. Despite the pandemic, 73% of consumers visited a branch at least once in the past six months, and 29% would switch if a convenient branch were not available. When it comes to complex financial decisions, relating to mortgages and investments for example, only around a half of respondents would be comfortable with remote only or hybrid face-to-face/remote interactions. Given these contrasting dynamics, retail banking decision makers must tread a fine line — continuing to ramp up digital but leveraging the best of branches to meet customers’ needs. In the wake of the pandemic, we see four strategies to keep pace with current and future trends: 1 Selected findings from this survey have been included in the BCG report “Global Retail Banking 2021: The Front-to-Back Digital Retail Bank” although the geographies covered vary between the two documents, so numbers are not always exchangeable. T
  3. 3. 2 BOSTON CONSULTING GROUP February 2021 • Continue to build the “mobile first” experience. Capitalize on COVID-related behavior shifts, boosting functionality and adding human elements to guide customers on their end-to-end journeys. • Revisit the role of branches. Focus on brand presence, customer acquisition, and advisory for complex needs — potentially with a reduced footprint. • Invest in remote advisory. Elevate remote channels so they become a viable alternative to, or supplement to, face-to-face interactions. • Reinforce efforts around data and cyber security. Invest in capabilities to foster more trust in digital and remote channels. Through initiatives in these areas, retail banks can align themselves more closely with evolutions in customer behavior. Thereafter, qualities that will divide the best from the rest include fast, fact-based decision making and effective execution front-to-back. The Accelerating Shift to Digital and the Role of Branches It is a given that a seamless digital experience and digitized back office are table stakes in most retail banking markets. For many incumbents, therefore, the key strategic uncertainty relates to the size and role of physical networks. The non-negotiable facts are that branch footfall and ATM use are declining in many countries — albeit faster in some than others. At one end of the spectrum are China and Brazil, where almost half of customers expect to visit branches less after COVID, BCG research shows. At the other extreme are the US and Italy, where customers expect their usage to remain relatively high. Even so, nearly one in five customers in these markets says that they will visit branches less often in future. For simple banking activities, the shift to digital is almost complete. While some customers continue to prefer face-to-face interactions, most are now at ease checking balances, paying bills, and transferring money online. (See Exhibit 1).
  4. 4. 3 BOSTON CONSULTING GROUP February 2021 Virtual channels are becoming more popular, with about half of consumers, mainly in mature markets, preferring either fully remote or hybrid remote/face-to-face engagement for more complex needs. The trend is similar across mortgages, small business loans, and investments. Some 27% would prefer to meet with a mortgage advisor remotely and 21% favor a combination of in-person and remote channels. Just 6% say they are happy to go fully digital. Still, satisfaction levels are slightly lower for channels that mix digital with human services than for digital channels more generally. Some 60% of customers express satisfaction with video chats, compared with 83% that are satisfied with online banking and 69% that are satisfied with branches. BCG analysis suggests this may be impeding uptake of remote channels for more complex needs. (See Exhibit 2).
  5. 5. 4 BOSTON CONSULTING GROUP February 2021 Still, branches are set to remain an important channel, with more than 40% of customers saying in-branch meetings are their preferred option for big financial decisions. (See Exhibit 3). Indeed, some 65% of respondents say they continue to use branches “sporadically” and 8% use them “frequently” or even “daily.” Two thirds of those planning to visit a branch in the next six months will do so even if social distancing requirements remain in place.
  6. 6. 5 BOSTON CONSULTING GROUP February 2021 The survey also reveals a strong association between branch presence and customer loyalty. In short, customers like to see the brand on the high street. Indeed, around 18% of customers say they would switch banks based on branch locations. Continuing demand for branches provides decision makers with food for thought. Factors cited as intrinsically linked to branch use include deposits and withdrawals, the desire to speak with a human being, and the perception that digital channels cannot serve a specific need. Of course, cash is becoming less ubiquitous in general, with 39% of respondents using less cash since the start of the pandemic. As engagement with online and third-party apps grows, it is reasonable to expect branch visits for cash-based transactions to diminish. With that in mind, there is an imperative for banking leaders to find the right balance between physical and digital channels, and to ensure that the branches they retain are equipped to service customers’ real needs. Finally, while branches are important relationship drivers, the most relevant factor when it comes to switching decisions is pricing — cited by 39% of respondents as the primary consideration (compared with 18% for branches). New entrants often build market share by outcompeting on rates, and incumbents should not underestimate these strategies, particularly given customer’s increasing confidence in the security of digital-only propositions (and the safety belt of government deposit guarantee schemes). Incumbent
  7. 7. 6 BOSTON CONSULTING GROUP February 2021 banks therefore must remain competitive on pricing, ensuring that the deals offered elsewhere are not a significant cause of attrition. Rising Trust The good news is that trust in banks has risen during the pandemic. Banks are seen as honest brokers that provide excellent digital services, are reliable on data security, and are transparent in their communications. Notably, trust has risen slightly more for online players than for incumbents, but probably from a lower base. More than 20% of customers across countries trust their bank more since the start of the crisis, with respondents in 15 of 16 countries reporting higher levels of trust. The outlier is the Netherlands, where recent money laundering and tax-related controversies may have played a role. Perhaps surprisingly, the biggest gains in net trust (gains in trust net of reductions) are reported among younger customer cohorts, with increases of around 15% in the under-45 age group since the beginning of the crisis. (See Exhibit 4). Still, banks should not rest on their laurels — while a significant proportion of customers trust their banks more since the start of the crisis, a smaller but still material proportion trust their banks less. In other words, polarization of views has increased. Despite rising aggregate levels of trust, overall loyalty to banks remains fragile, reflecting the disrupted state the world finds itself in. Some 23% of customers say they are highly or somewhat likely to switch providers in the next six months, with customers in southeast Asia
  8. 8. 7 BOSTON CONSULTING GROUP February 2021 most likely to jump ship. (See Exhibit 5). The least dynamic market in terms of customer switching is Hungary, with just 10% of customers eyeing alternative providers. The flightiest customers tend to be younger (~35% from 18 to 34 years) and have higher incomes (32%). A similar proportion – around one in three – say they would be comfortable making deposits in digital banks. Indeed, among the most enthusiastic groups, digital is seen as almost equal to traditional banks in terms of safety and security. Implications for Banks In contemplating the shifting landscape, retail banking leaders need to take multiple factors into account, not all of which point in the same direction. While COVID has accelerated the move towards digitization, the branch continues to play an important role in the minds of customers, both for transactions and on an emotional level. Branches are seen as a reassuring presence, and customers in some cases are willing to forego convenience to maintain a branch-based relationship (the “shop-window effect”). Given that banks have made considerable efforts rebuilding trust since the financial crisis, and that competition from online-only is increasing, these are advantages they are unlikely to want to give up easily. In addition, the current challenging economic environment suggests customers may have a greater need for financial advice. Banks are well placed to meet these needs if they offer the right products and channel mix. We see four strategic priorities: Continue to build the “mobile first” experience. Digital should be seen as a no-regret investment and a wave of innovation within and outside the industry means that incumbents cannot afford to wait. Instead, they should continue to build out a “mobile first” experience. That means ensuring that customers have access to all their information on their phones and can execute the same transactions via mobile as online. Banks should also move toward conducting more sales through their apps. It makes sense, where possible and viable, to inject digital channels with human characteristics, for example through real-time connectivity to relationship managers, who can guide customers through the digital journey. Revisit the role of branches. The dominant trend in recent years has been to cut branch numbers with a view to creating efficiencies. The next step requires a more strategic approach, in which remaining branches are transformed into spaces that offer customers
  9. 9. 8 BOSTON CONSULTING GROUP February 2021 experiences that go beyond digital. With that in mind, branches need to combine experiential excitement with the ability to deliver on interaction, education and advice. It may be that footprints should be recalibrated, remembering the important role that branches play in marketing, and it makes sense to consider alternative formats. Potential options include locating branches in high-traffic shopping centers or retail stores, creating pop-ups, or taking out the cash element — which is expensive due to security requirements. Branches can then be made more comfortable and accessible, incorporating digital tools and visualizations to support customers in their more complex needs. These full service “hub” formats can be complemented with smaller “spokes” to provide access via self-service or other cost-efficient means. Invest in remote advisory. Given relatively low levels of satisfaction with remote advisory, banks may wish to invest in that aspect of the business, helping customers come to terms with the practicalities of video, and working out how to add value. It may be that new relationship manager playbooks are required, or that more resources can be made available to ensure the customer is able to complete the journey, including documentation, seamlessly. Reinforce efforts around data and cyber security. Trust levels are high, but just one major cyber incidence (even at another bank) could create uncertainty around digital propositions. Given the increasingly sophisticated abilities of bad actors, investment in cyber tools and training are likely to be no-regret moves. They will also serve to reinforce trust and create competitive differentiation. *** There is no blueprint for developing a multi-channel customer proposition, and individual banks will need to tailor their strategies to their individual circumstances. However, these efforts, and engagement with shifting consumer appetite, are likely to be the keys to success in a much-changed and uncertain post-COVID landscape.
  10. 10. 9 BOSTON CONSULTING GROUP February 2021 Thorsten Brackert Mindy Hauptmann Byron Marshall Holger Sachse Bjorn Schwarz Aldo Tolentino Monica Wegner Thorsten Brackert is a director and partner in the Frankfurt office of the Boston Consulting Group. Mindy Hauptman is a partner and associate director in the firm’s Philadelphia office. Byron Marshall is REBEX director for North America in BCG’s Chicago office. Holger Sachse is a managing director and senior partner in the firm’s Dusseldorf office. Bjorn Schwarz is REBEX director for EMEA in BCG’s London office. Aldo Tolentino is the global director for REBEX in the firm’s Miami office. Monica Wegner is a managing director and partner in BCG’s Sydney office. The authors wish to express their gratitude to Ankur Patil, Richard Cummings, Svenya Mueller, Jorge Martinez de Paz, Alex Walker and Sebastian Balmaceda for their support. You may contact the authors by e-mail at: brackert.thorsten@bcg.com hauptman.mindy@bcg.com marshall.byron@bcg.com sachse.holger@bcg.com schwarz.bjorn@bcg.com tolentino.aldo@bcg.com wegner.monica@bcg.com About BCG Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the
  11. 11. 10 BOSTON CONSULTING GROUP February 2021 pioneer in business strategy when it was founded in 1963. Today, we help clients with total transformation—inspiring complex change, enabling organizations to grow, building competitive advantage, and driving bottom-line impact. To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive.

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