Gaining customers' transactional banking business and using information from this is the key to successful retail banking, says E&Y banking expert

Gaining customers' transactional banking business and using information from this is the key to successful retail banking, says E&Y banking expert

By Gareth Vaughan

Banks need to secure customers' transactional banking business in order to gain key information on their preferences and requirements, because this would enable banks to tailor services to suit individual customers, says the head of financial services advisory at Ernst & Young (E&Y).

The comments from E&Y NZ's Chris de Wit come after a global consumer banking survey from the auditing and financial services firm, released earlier this month, showed retail banking customers becoming more assertive and taking greater control of the relationship with their bank(s).

De Wit told the most successful banks in New Zealand during a period of significant credit growth last decade won through price and easy and/or fast decision making around lending. Banks were able to grow without thinking too hard about who their customers were and what determined their preferences. However, banks now face periods of market share decline in some products, forcing a rethink about how well they understand their customers and how they service them.

De Wit suggests the successful banks this decade will win through innovative products and services associated with how people store and move their money. Ease of access and convenience in areas such as bill payment will determine success.

He notes the importance of the main bank relationship, or the bank with whom the customer holds their day-to-day transactional relationship, including the account where their wages or salary is paid into.

"The transactions that pass through these accounts provide rich data to banks about the preferences and requirements of their customers. For example, in an ideal world a bank would identify a major transaction  from a customer's account, such as the purchase of a house or car, and offer insurance. However, banks rarely use this information other than for making lending decisions and are therefore missing opportunities to develop meaningful bank propositions for retail customers," said de Wit.

He argues the primary bank strategy for gaining new retail customers is based on being first to market with new transactional service offerings such as mobile banking or competing on price for mortgages.

"Those banks that compete for new customers through low-balling lending rates are missing a trick," said de Wit. " If they do not pick up the transactional relationship with their customer they will never be in a position to understand customer needs and tailor banking services accordingly. The transactional account is the key to offering relevant other products to customers."

E&Y's global survey said banks' retail customers are increasingly less loyal and more likely to try new banks. Furthermore they're listening to each other - including through social media and financial comparison websites - and becoming more vocal as advocates or critics. They're also demanding lower costs, better service and greater personalisation and flexibility.

Faced with this, E&Y suggested banks need to regain the initiative by giving their customers greater convenience, choice and control. This means banks "reconfiguring business models around customer needs" and recruiting satisfied customers as advocates.

Meanwhile, de Wit said banks are being forced to understand their customers better through the introduction of new regulations such as the Anti-Money Laundering and Countering Financing of Terrorism Act.

"While banks are spending millions building or upgrading systems that can deliver these requirements, the resulting customer information will be invaluable as banks work hard to become more customer centric with their product solutions."

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