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      The customer is king

      The customer is king

      People are taking control of their banking relationships. Banks need to embrace this trend and give more power to their clients. This is the conclusion of the Ernst & Young Global Consumer Banking Survey 2012. According to this study, customers are more likely than ever to switch banks and social networks are becoming important sources of information.

      Overall, customer confidence in banking continues to fall with 40% of clients losing trust in the industry over the past year and only 22% gaining confidence. It is not surprising to note that this downward trend is the strongest in the European Union, which is in the midst of a fight over sovereign debt and the euro crisis.

      Southern European countries top this chart: in Italy 72% of people have lost confidence in their bank (compared with 48% in 2011). The same situation is encountered in Spain with a rate of 76% lacking confidence (compared with 58% in 2011).

      According to this Ernst & Young study, which surveyed 28,560 banking customers in 35 countries, people are more likely to switch banks (from 7% to 12% since 2011) than before. Bernard Lhoest is Banking and Capital Markets Leader at Ernst & Young Luxembourg. He says that people don’t switch banks overnight for no reason - banking relationships tend to be very stable.

      “Customers tend to stay a very long time with their bank; however, because of the difficulties banks face and because customers’ concerns have not been served adequately, people are starting to look around and don’t believe everything the banker is saying.”

      Power to the people

      Customers are becoming less loyal to their main bank, and they are increasing the number of banks they use. According to the survey, the percentage of customers planning to change banks has grown by 70% since 2011. Globally, clients with just one bank have dropped from 41% to 31% since 2011, and those with three or more banks have increased from 21% to 32% in the same period.

      Bernard Lhoest enumerates the reasons of this new trend: “Having a few banks is a trade-off between efficiency, risk adversity - banks going bankrupt - and the fact that even regular retail clients are conscious that you shouldn’t put all your eggs in one basket. What’s more, retailers are taking advantage of this competition between banks to get more favourable treatment”.

      Pricing is the single most important driver of customer satisfaction with 22% identifying it as their main concern, followed by online/mobile banking (12%) and easy access to a branch (9%). The authors of the Ernst & Young study suggest that banks give their customers greater flexibility, choice and control. Bernard Lhoest underlines that regaining customers’ trust is easier said than done because it takes a lot of time and effort.

      “Communication is a key element because people are usually not good at understanding financial engineering and at some point banks have decided for them. This has to stop because it is about satisfying the client and not the banks’ bottom line by selling high-margin products. It is also about giving the client the right to decide what product to choose and the information needed to make a decision presented in a way the customer can understand. The third thing is fee transparency".

      "If you go to a painter or a car dealer, you will get a fully transparent cost estimate. When you go to a bank to open an account, you are often overwhelmed with various lists of conditions and features that you do not necessarily understand or challenge and are asked to sign and six months later you receive clear information and disclosure about the fees linked to it.”

      Ask your friends

      Word of mouth marketing is gaining influence. Customers are listening to each other more than their banks or financial advisors (71%). Online communities are also an increasingly popular source of banking information. Chinese and Turkish consumers provide the most notable examples of this trend with 81% and 78% respectively using social networks like Facebook to find out more about banking products and services.

      Bernard Lhoest is convinced that social media will play a huge role in the future of marketing and advertising because young people are being brought up with these tools and because the information that comes from sources one trusts are extremely powerful. There is another aspect that is worth mentioning.

      “It drives people crazy that banks are only open from nine to five, from Monday to Friday. Let’s not get carried away, but if a bank is open seven days a week, and it gives you the option to chat or use social media, so you don’t need to go to the bank itself or the counter, this would be a big leap forward. A hotline, like it is the case for mobile phone operators, is also very important because customers want accessibility, speed and very practical answers to their questions.”

      Bernard Lhoest added that regarding the preferred channels for different banking activities, the Internet is the best way to get access to account information or to do simple transactions, whereas the visit to a branch makes more sense in the case of complex transactions or getting advice on products and services.

      One thing is for sure: today’s model will not last forever because the cost of branches is significant and will increase because of rises in salaries and IT costs. On the other hand, banks’ revenues will go down because of the fierce competition between them. CW