EVOLVING THE CUSTOMER EXPERIENCE IN BANKING

EVOLVING THE CUSTOMER EXPERIENCE IN BANKING

EVOLVING THE CUSTOMER EXPERIENCE IN BANKING “Alexa, move my bank accounts to ...”

Net Promoter® , Net Promoter System® , Net Promoter Score® and NPS® are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. Copyright © 2017 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, and David Phillips, a consultant. Team members are Madhav Jalan, Lakshay Kataria, Sidhant Law, Akash Malhotra, Jocelyne Moyer, Pranav Singh and Lavanya Srivastava.

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.

Research Now is a global leader in digital research data for better insights and business decisions. Founded in 1999, the company was a pioneer in originating online data sampling. The company provides research data solutions for its 3,700 market research, consulting, media and corporate clients through access to more than 11 million deeply profiled business professionals and consumers. Research Now currently operates in more than 40 countries around the globe, with locations in the Americas, Europe, the Middle East and Asia-Pacific. For more information, please go to www.researchnow.com.

Evolving the Customer Experience in Banking | Bain & Company, Inc.

Page i Contents “Alexa, move my bank accounts to . pg. 1 1. Consumers to technology firms: Bring on the financial products . pg. 9 2. Banks still lag in digital basics, especially with mobile . pg. 15 3. AI-based consumer technologies go mainstream . pg. 21 4. Different strokes for different customer episodes . pg. 25 5. Hidden customer defection runs rampant, with banks neglecting to ask for the sale . pg. 31 6. Movement on the loyalty leader boards . pg. 37 Appendix: Methodology.

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Evolving the Customer Experience in Banking | Bain & Company, Inc. Page ii

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 1 “Alexa, move my bank accounts to …” Amazon’s acquisition of Whole Foods is an audacious plunge into grocery in the US. More quietly, the company has also been moving into financial products, including Amazon Cash, which gives customers the ability to deposit cash directly to their Amazon accounts from more than 10,000 retail locations throughout the US; and lending more than $1 billion in the past year to small merchants selling through its online platform.

We already see the dynamic of technology firms moving into banking in Asia. In China, e-commerce giant Alibaba has amassed the world’s largest money-market fund, issued $96 billion of loans in five years and grown Ant Financial to a market capitalization roughly equivalent to the ninth-largest bank in the US. Alibaba also started online bank MYbank, which approves loans instantly, using automated processes based on consumers’ financial history with Alibaba. Japan’s main e-commerce giant, Rakuten, operates the country’s largest Internet bank and third-largest credit card company by transaction value.

Financial services now account for nearly 40% of Rakuten’s revenue.

As these examples illustrate, it turns out that retail banking is being upended not by nimble fintech start-ups, but by established tech firms. Many of the tech giants possess the ingredients of success: digital prowess, large customer bases, organizations well versed in improving the customer experience, and ample leeway to extend their corporate brands into banking. Should banks worry? They do appear to be vulnerable to losing the special status they once enjoyed. Banks have a strong reservoir of trust, to be sure. But consider that US and UK consumers ranked PayPal and Amazon nearly as high as banks for trust with their money, in Bain & Company’s new survey of 133,171 banking customers in 22 countries.

Many consumers are open to buying financial products from established tech firms (see Figure 1). The greatest latent demand exists in countries where the bank branch experience is more time-consuming and cumbersome, such as India and Mexico; there, 91% and 81% of respondents, respectively, expressed a willingness to run their finances through major tech firms. By contrast, where banks have taken some of the pain out of banking by digitalizing most routine transactions, as in the Netherlands, they have inoculated themselves to some extent against the threat.

Demand for alternatives to traditional banks will only grow, as younger respondents in our survey showed the greatest willingness to try these offerings.

Moreover, more than one-quarter of US respondents would consider using voice-controlled assistants for their everyday banking, and Amazon currently dominates the voice-enabled speaker market with its Alexa assistant on the Echo device. Given that Amazon, Alibaba and others already sell payment services, credit cards and loans, it’s plausible that they will offer a suite of retail banking services in the near future.

The perils of digital lag Banks have a stiff challenge with meeting customer expectations for digital tools. Consumers young and old prefer using websites and mobile applications for their routine banking transactions, which tend to be the most frequent interactions. In the UK, for example, consumers give an average Net Promoter Score® (a key metric of

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 2 loyalty) of 35 to their routine transactions done digitally, higher than the 20 points for transactions done through employees at the branch or call center.

People get annoyed when they’re forced by bank policies and processes to use additional channels for everyday banking business. Refining the website and mobile app to be convenient, multifunctional and easy to use with just a few taps or strokes will be critical to earning customers’ advocacy and loyalty. Yet on these basic characteristics, banks’ mobile apps and websites fall short in the view of many respondents. In the UK, only 45% of respondents said their primary bank’s website lets them do everything they need, or is easy to use (see Figure 2). Beyond the basics, banks have barely touched some technologies that have reached a tipping point in consumer markets.

A large group of respondents said they use voice assistants such as Siri, Alexa or Google Assistant on their smartphones (one-quarter of all US respondents, for example, and an even higher share among young adults) or Alexa or Google Home at home (almost one-fifth of US respondents). Just as intriguing is the 5% to 6% share of respondents in Australia, the UK and the US already using voice assistants for banking; between one-fifth and one-quarter are open to trying the technology for their banking in the future. A few banks have made progress in this regard, including Santander in the UK and Capital One in the US.

Last year, Capital One launched functions using Alexa skills, which employ a chatbot that works with Alexa. These chatbots have some constraints, including the need for explicit commands, such as “What’s my payoff quote?” for an auto loan. But USAA recently introduced an Alexa offering that lets members speak conversationally. Banks that master the digital basics will be able to further secure customers’ loyalty by quickly putting the new Note: Rankings on a scale of 1 to 9, with 1 indicating highest trust Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Snapchat Facebook Microsoft Google Apple Amazon PayPal Banks in general Primary bank Average ranking by US consumers Which company would you trust most with your money? By age, Americans willing to buy financial products from tech companies More trust Less trust 1.7 3.3 4.0 5.1 5.4 5.5 7.4 8.3 4.3 “ ” Among tech companies, consumers are most likely to trust PayPal and Amazon with their money Figure 1 18−34 35−54 55 or older 61% 73% 42%

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 3 technologies to practical use in test-and-learn prototypes that can be improved in a few iterations and then broadly rolled out. And banks should be sure to automate back-end processes behind the new technologies to avoid adding complexity along with the new channels. Beyond the loyalty benefits, there are also compelling cost reasons to accelerate development of digital channels that can handle more routine transactions and move them out of expensive branches and call centers. Each mobile interaction incurs a variable cost that’s a tiny fraction of the cost for a teller or call-agent interaction.

As interactions migrate to mobile, a bank needs fewer tellers and call-center agents. The five largest banks in Mexico, for instance, could eliminate $500 million in costs if they reached the level of mobile and online banking usage of their counterparts in the Netherlands. Dutch banks began to reconfigure their branch networks a decade ago, as the country’s strong broadband infrastructure and shift to cashless commerce allowed consumers to adopt mobile banking early on.

Banks in other countries have equally large opportunities to take out costs. In the US, for example, 40% of respondents went to a branch teller at least once in the previous quarter to make a deposit, compared with 21% using digital channels and 18% using automated teller machines (ATMs). The lower costs and high customer advocacy for digital channels serving routine interactions create a virtuous circle (see Figure 3). The more transactions that digital channels accommodate seamlessly, the more customers will use them instead of the call center or branch. And the reduction in “bad” call and branch volumes allows banks to reinvest more to further improve digital channels, while reserving their employees for the knottiest problems.

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Many customers feel banks’ current digital channels fall short, even as new technologies take hold Figure 2 Is easy to use Use voice assistants on phone already already 44% 34% of online customers and 27% of customers Use voice assistants at home 18% of customers of mobile customers Lets me do all I need 45% 25% of online customers and of mobile customers UK respondents who agree US respondents who agree only only

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 4 Citibanamex has taken on the “bad” volume challenge, which is particularly vexing in Mexico. The bank reckoned that its customers and employees were spending 5 billion minutes per year at branches, with the vast bulk of that time on the customers’ end. This waste took a toll on the bank’s cost-to-income ratio and ultimately on profits, as well as on both customer and employee advocacy. Through a combination of initiatives ranging from simplifying online forms and printing formats, to migrating more transactions to ATMs, to reducing wait time at teller windows, Citibanamex freed up 1 billion minutes, giving a major boost to customer satisfaction and employee advocacy.

Cost implications also show up in such nonroutine events as disputing fees. In the US, for instance, there’s a significant gap between the leading and the lagging banks in the incidence of these dispute events. Laggards not only suffer from having more detractors among customers, they also bear roughly twice the cost of resolving the dispute as the leaders do. In some cases, this can exceed any differences in the revenues collected from the fees themselves. It’s better to eliminate such events in the first place.

Organizing around customer episodes, not products We have seen some banks handle these challenges by organizing in a new way, around how customers experience the business. That’s a marked departure from the standard, internally oriented approach to organizing around products and functions, such as the checking account or the risk-management function. As part of shifting to the customer experience, a few pioneering banks have adopted as a key unit of management the “episode”—activities In 87%/59% of interactions, people start with digital 95%/78% of people reported using digital Data in red for digital leader Data in black for digital laggard Customer behavior with US banks When people try digital, they are successful 90%/87% of the time Note: Net Promoter Score® is a registered trademark of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Strong digital tools create a virtuous circle of higher adoption and digital-first habits, contributing to greater loyalty Figure 3 Adopt digital Succeed in digital Start with digital Contributing to a higher Net Promoter Score 76/37

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 5 that customers perform when they have a task to complete or a need to fulfill (see Figure 4). Typical episodes include “I want to pay a bill online,” or “I want to buy a home” or “I want to dispute a fee.” Design and management of each episode occur through small, cross-functional teams that are responsible for owning and improving an individual episode. Teams typically use Agile methods to arrive quickly at a minimum viable product, gathering and baking feedback from customers into successive versions of the episode before rolling it out broadly.

One bank has managed to take Agile episode management to scale, with more than 250 active teams. The bank is realizing substantial gains as a result. For instance, one team generated an auto-finance mobile prototype in one week, a project that previously would have taken at least six months. Different episodes require a different blend of digital and human processes, tuned to the unique considerations of each episode. High-stakes, emotional moments of truth, such as handling a complaint, demand outstanding customer service, as our survey respondents strongly prefer working with employees to dispute a fee or resolve a problem.

Low-stakes, but frequent, episodes such as reviewing one’s account activity should be as fast and convenient as possible through digital channels. Banks should work to reduce the frequency of bad episodes, and treat episodes involving sales as an opportunity to reinforce the bank’s brand.

You have to ask for the sale In fact, episodes that involve buying financial products represent huge untapped opportunities for banks, which they can realize through more personalized selling. Source: Bain & Company client Move and manage money • Evaluate my options • Apply to open an account • Receive approval or rejection Join and onboard Open an account Get a credit card Manage my profile and preferences Pay for things Borrow Own a home Invest Resolve an issue • Get ready to use my account • Register for and receive digital access • Receive and activate my debit card Figure 4 Customer episodes for “Open an account” at one retail bank

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 6 Hidden defection—purchasing an additional banking product from a competing bank—takes place everywhere, totaling 25% to 51% of additional products, depending on the country. Credit cards, loans, insurance and investments are the most purchased categories at competitors, whereas the primary bank tends to keep a higher share of low- value deposit accounts. To stem the tide of hidden defections, our analysis of the survey data shows that banks should consider more, and more targeted, marketing and sales pitches. In the US, for instance, 42% of defectors said they bought from a competitor bank because they received an offer or saw an advertisement.

Only one-fifth were actively researching when they decided to buy the product. Just as striking, more than half would have purchased from their primary bank if the bank had made an offer (see Figure 5).

The lesson: Ask for the sale. Banks have copious data on their customers’ risk profile and stage of life, which allows them to present the right offer at the right time and place—before competitors step in and poach a willing customer. Since more consumers tend to purchase credit cards, investments and other secondary products more frequently through digital channels than they do when buying primary products, it follows that banks could ramp up their digital marketing efforts. • • • Banks’ efforts to build out websites and mobile apps have made for an intense competitive game within the sector.

An entry by Amazon or other tech firms into banking would take the competition into a different league. Banks should consider more, and more targeted, marketing and sales pitches Figure 5 Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 The lesson: Ask for the sale.

In Australia, more than one-third of defectors said they bought from a competitor bank because they received an offer or saw an advertisement. Only one-quarter were actively researching when they decided to buy the product. Half would have purchased from their primary bank if the bank had made an offer.

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 7 Consumers’ expectations keep rising as people grow accustomed to simple, convenient digital channels in other parts of their lives. If banks don’t reorient their approach and radically accelerate their rate of progress, loyalty will suffer, and they will watch technology firms poach more business.

Meanwhile, their economics will erode as too many routine transactions continue to flow through expensive branch and call-center networks. Bank employees, used judiciously, will also figure in this competitive battle, as long as they are deployed to resolve complicated problems or serve high-value customers who merit personalized attention. Banks that go a step further to mobilize small teams around individual customer episodes stand to steadily earn greater advocacy and loyalty, the best defense against incursions by technology firms.

• Customers are surprisingly amenable to trying financial products offered by technology firms, especially large, established firms. While some consumers express willingness to try such products from start-ups, there’s a 10- to 40-percentage- point gap across countries between large firms and start-ups. • Younger customers show the greatest willingness to try such offerings, but a large share of older customers in all countries also are comfortable with the idea. Credit cards get the highest expres- sion of interest, followed by a basic account. • Interest in tech firms’ offerings is greatest in countries where customers have long used nonbank payment systems, such as India and China, or where it’s time- consuming to use branches, as in Mexico.

People in these countries also have been underserved by banks in terms of digital tools, compared with leading countries such as the Netherlands. • Among the major technology firms, PayPal and Amazon rank nearly as high as banks for trust with the money of US and UK consumers. • Consumers in many developing countries give higher loyalty scores to the digital tools they do have, relative to channels where they interact with employees. This may suggest pent-up demand for digital where branches are crowded or offer a poor experience. And where Net Promoter Scores for mobile fall well below the scores for online, as in Mexico and Germany, banks may want to add more of a human touch to the mobile experience.

1.

Consumers to technology firms: Bring on the financial products

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 10 Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Many customers would consider buying financial products from technology firms they already use Figure 6 20 40 60 80 100% Percentage of respondents who would be open to a new financial offering from an established technology firm India China Brazil Malaysia Mexico Chile Hong Kong Singapore Poland Spain Japan US Germany South Korea UK Australia Canada Netherlands Belgium France Switzerland Argentina Customers are more open to buying from technology firms in countries where banks underserve digitally Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 20 40 60 80 100% 0 5 10 15 20 25% India Brazil Mexico US Germany Australia Canada UK Spain Netherlands Singapore Hong Kong China Percentage of respondents expecting to buy a financial product from an established technology firm Percentage of interactions occurring through branch or call-center staff Argentina Malaysia Japan Chile South Korea Belgium Switzerland France Poland Figure 7

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 11 Interest in technology firms’ financial products is highest among young people US Netherlands China Mexico Percentage of respondents who would be open to trying a new financial offering from an established technology company 20 40 60 80 100% 18‒34 73 35‒54 61 55 or older 42 20 40 60 80 100% 18‒34 57 35‒54 40 55 or older 25 20 40 60 80 100% 18‒34 90 35‒54 88 55 or older 74 20 40 60 80 100% 18‒34 87 35‒54 79 55 or older 61 Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 8 Asian customers are actively using mobile payment apps from technology firms 2 4 6 8 10 China 9.1 Hong Kong 6.3 3.6 Malaysia 2.7 Average number of third-party payments per user in the past week South Korea 20 40 60 80 100% China 91 Hong Kong 66 South Korea 56 Malaysia 34 Percentage of respondents using a third-party payment app such as WeChat and Alipay in the past week Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 9

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 12 Customers rank certain technology firms almost as high as traditional banks for trustworthiness Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Average user ranking on a scale of 1 to 9, with 1 indicating highest trust More trust Less trust 1 2 3 4 5 6 7 8 9 Snapchat 8.3 Facebook 7.4 Microsoft 5.5 Google 5.4 Apple 5.1 Amazon 4.3 PayPal 4.0 Banks in general 3.3 Primary bank Banks in general Primary bank 1.7 US UK 1 2 3 4 5 6 7 8 9 Snapchat 8.2 Facebook 7.5 Microsoft 5.7 Google 5.5 Apple 5.4 Amazon 4.6 PayPal 3.4 3.1 1.7 Figure 10 Half of US consumers would consider obtaining a credit card from technology companies Figure 11 20 40 60% Credit card 52 Bank account 32 Investment 30 Mortgage or home loan 21 Percentage of US respondents who would consider buying these products, if offered by their favorite technology company Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 13 Customers in developing countries are more likely to favor digital purchasing –15 –10 –5 5 10 15 Purchase-channel Net Promoter Scores, indexed to human-channel score of zero India China Spain Germany Brazil UK Netherlands Singapore Mexico US Canada Human channel Share of purchases made digitally Australia 42% 50% 31% 49% 28% 63% 57% 37% 14% 42% 35% 47% Digital favored over human channels Human favored over digital channels Mobile Online Notes: Countries ordered by weighted average digital-channel Net Promoter Score, relative to human channel; mobile refers to interactions on smartphones and tablets; online refers to desktop and laptop computer interactions Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 12

• Banks have been trying to migrate transaction volumes out of the branch and call center to digital channels over the past five years, but the results of such efforts have leveled off as banks picked off the easiest targets. Banks in Hong Kong, China and India have made the greatest progress in reducing the number of interactions requiring employees. • Yet banks in most countries still have a long way to go in this migration, compared with “self- serve” leaders in the Netherlands, Poland and Australia. In the US, for example, 40% of respon- dents went to the branch teller at least once in the past quarter to make a deposit, compared with 21% using digital channels and 18% using ATMs.

• Migration to digital proves well worth continued efforts. Routine transactions that require bank staff not only cost 20 times more than those done online or through mobile, but consumers also prefer to handle routine banking business digitally. • Cost-reduction opportunities remain large and well within reach. In Mexico, for instance, the top five banks have an opportunity to take out more than $500 million in cost from traditional branch and phone channels, by performing at the best domestic and international benchmarks. • Even within markets, there’s a large gap between the leader and laggard in the percentage of deposits made digitally.

2. Banks still lag in digital basics, especially with mobile

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 16 Many banks have made progress in moving interactions out of the branch… 3 6 9 12 India Mexico Brazil China Spain Hong Kong Malaysia France Belgium US South Korea Canada UK Germany Poland Singapore Australia Japan Netherlands Average number of interactions per respondent conducted through human channels in the past quarter 2014 2017 Note: 2013 data shown for the Netherlands, which was not surveyed in 2014 Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 13 …But in most countries, banks have far to go in shifting to digital channels 5 10 15 20 25 30 35 40 45 1 2 3 4 5 6 7 8 9 Canada Spain Average number of interactions per respondent in the past quarter Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Interactions conducted digitally Interactions conducted through human channels France China Germany India Hong Kong Chile Australia Argentina Belgium Brazil South Korea Switzerland US UK Singapore Malaysia Japan Mexico Poland Netherlands Branch and phone dependent Heavy interaction Low interaction Self-serve Figure 14

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 17 Many people continue to make deposits through tellers rather than digital channels 20 40 60 80 100% US Branch ATM Digital 81 UK 63 Australia 53 Percentage of respondents who made deposits in the past quarter, by channel Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 15 Migrating routine interactions to digital channels earns higher loyalty and reduces costs in the UK 10 20 30 40 UK respondents’ Net Promoter Scores for routine interactions, by channel Human 20 Digital 35 1 2 £3 UK banks’ approximate cost per interaction, by channel Human 3.00 Digital 0.15 Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017; Bain analysis Figure 16

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 18 Some banks have managed to accelerate the migration to digital 20 40 60 80 100% Leader (Bank of America) Branch ATM Digital 77 Laggard 85 Percentage of US respondents who made deposits in the past quarter, by channel 1 2 $3 Leader (Bank of America) 1.10 Laggard 2.50 Estimated average cost per US customer for a deposit transaction in the past quarter Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017; Bain analysis Figure 17 Mexico’s largest banks could eliminate more than $500 million in cost from branches and call centers 200 400 600 $800 Estimated total addressable labor cost base, $ millions Total for top five Mexican banks 619 Domestic benchmark (Chile) −257 International benchmark (Netherlands) −272 Full potential 90 Incremental change in cost base by meeting benchmark’s mix of branch and call-center interactions Sources: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2107; SNL Financial; Bain analysis Figure 18

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 19 Mobile channels have mainly reduced online interactions in the UK 10 20 30 40 50 ATM Online Mobile 2013 14 15 16 17 Average interactions per UK respondent in the past quarter, by channel Branch Phone 7.8 –5.3 –2.6 –0.7 –1.2 Change in average interactions per respondent, 2013–17 Notes: Mobile refers to interactions on smartphones and tablets; online refers to desktop and laptop computer interactions Sources: Bain/Research Now Customer Loyalty in Retail Banking Surveys, 2013–17 Figure 19

• Consumers used to convenient, high-functioning digital tools in other areas of their lives, such as retail purchases, want banks to deliver at an equally high level—yet are often disappointed.

Fewer than half of UK respondents said their bank’s website lets them do everything they need, or is easy to use. The share is even lower for banks’ mobile apps. • Turning to newer technologies, a large share of customers use voice assistants on their smart- phones (one-quarter of US respondents) or at home (almost one-fifth). Young adults are the most active users of such voice assistants as Amazon Echo/Alexa and Google Home. • Some 5% to 6% of respondents in the US, UK and Australia already use voice assistants for their banking, and between one-fifth and one-quarter are open to trying the technology for banking in the future.

Many banks have put the technology in their innovation pipeline, but to date only a few banks, such as Santander UK, Capital One and USAA, actually use it in market. • Consumers won’t embrace all new digital technol- ogies, however. Use of both online chat and video- conferencing, for instance, has tapered off over the past two years. While many banks have pushed those technologies, in part because they wanted to reduce workloads in branches, the technologies have not sparked broad consumer participation. 3.

AI-based consumer technologies go mainstream

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 22 Many UK customers find their bank’s digital tools disappointing 10 20 30 40 50% 18–35 36 47 35–54 25 43 55 or older 16 46 "Lets me do everything I need" 18–35 44 42 35–54 35 43 55 or older 24 49 "Easy to use" 10 20 30 40 50% Mobile Online Notes: Mobile refers to interactions on smartphones and tablets; online refers to desktop and laptop computer interactions Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Percentage of mentions of UK respondents who strongly agree Figure 20 Voice assistants are coming on strong in the US 10 20 30 40% 18–34 37 26 55 or older 17 35–54 10 20 30 40% 18–34 26 35–54 19 55 or older 12 Average Average “Do you regularly use a voice assistant on your smartphone (e.g., Siri, Google Assistant, Bixby)?” “Do you have a voice assistant device at home (e.g., Amazon Echo/Alexa, Google Home)?” Percentage of US respondents who reply “yes,” by age Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 21

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 23 The share of customers using voice assistants for banking could grow sharply Figure 22 US UK Australia 10 20 30% Currently using 6 Open to using in the future Currently using Open to using in the future Currently using Open to using in the future 27 10 20 30% 5 21 10 20 30% 6 22 Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Current and future use of voice assistants for banking Not all technologies catch fire with US customers 0.1 0.2 0.3 0.4 2013 14 15 16 17 Average number of online chat and videoconferencing banking interactions per US respondent in the past quarter Sources: Bain/Research Now Customer Loyalty in Retail Banking Surveys, 2013–17 Figure 23

• Consumers encounter many episodes during their banking, from routine bill payment to resolving a stolen credit card, and different types of episodes require different management strategies. Fee disputes don’t occur often, but have high stakes and thus a strong propensity to create detractors among consumers. Bill payment and money with- drawal, by contrast, might be less emotional, but occur frequently. Banks can earn greater loyalty by reducing the volumes of unnecessary transac- tions, making routine interactions easy and con- venient, and improving the service experience of high-stakes episodes.

• When consumers make routine banking transac- tions, they prefer digital channels to branch or phone channels. Conversely, they give higher Net Promoter Scores to employee channels for emotive episodes like resolving a problem. • All age groups have similar usage rates of digital channels for their routine interactions. But younger customers are much more likely to try digital channels for sales, disputes and resolutions. • For routine episodes, the great majority of cus- tomers complete their business digitally. When they fail to complete the episode digitally and must switch to speaking with bank staff, they give much lower loyalty scores for the episode than when they succeed.

• There’s a different dynamic for emotive episodes. Only half of respondents try digital first, and only one-quarter succeed in handling the issue. When they subsequently switch from mobile to an em- ployee channel, Net Promoter Scores for the epi- sode actually rise. When they switch from online, those scores decline. Consumers have higher ex- pectations for completing their business online than through mobile. • Top-performing banks have fewer disputes, resolve those they do have faster and use digital channels better. As a result, they spend much less on disputes. 4.

Different strokes for different customer episodes

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 26 An emotive episode affects loyalty more than a routine episode Pay bill This bubble size equals 50% of respondents completing the episode Deposit money Check account activity Withdraw money Transfer money Open checking account Replace lost/ stolen card Discuss unrecognized transactions Dispute fee Resolve login problem Register for online account Resolve complaint Address declined purchase Apply for mortgage Refinance/ renew mortgage High Low Low High Potential to annoy Potential to delight US respondents Routine Create detractors Create promoters Moments of truth Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 24 Routine Resolve Sale Dispute Episodes: US customers prefer digital channels for routine episodes, employee channels for emotive episodes Routine Emotive Sale Resolve Dispute –20 20 40 60 Deposit money Pay bill User ID or password problem Unrecognized transaction Open new account Mortgage application Resolve complaint Dispute fee Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Average Net Promoter Scores for episode Figure 25 Human channels Digital channels

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 27 For emotive episodes, young customers in the US use digital channels much more often than older customers Routine Emotive Sale Resolve Dispute 20 40 60 80% 55 or older 55 or older 55 or older 55 or older Share of episodes that US customers started on digital channels, by age Note: “Withdraw money” was excluded from routine episodes because digital was not an option Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Under 25 Under 25 Under 25 Under 25 Figure 26 Many routine and most emotive episodes in the US involve human channels 20 40 60 80 100% 16,000 routine episodes Succeeded on self-serve Started digital, finished human Started and finished with human channels 8,000 emotive episodes Share of recent episodes, US repondents Note: Self-serve includes digital and ATM; “withdraw money” excluded because the switching question was not asked for this episode Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 27

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 28 US customers get annoyed when they have to switch from digital to complete a routine interaction Figure 28 20 40 60 80 100% Succeeded on self-serve 80 Percentage of routine episodes, US respondents Started digital, switched to human 20 40 60 Mobile Succeeded Switched to human 50 36 Online 45 9 Starting channel Net Promoter Scores for routine episodes that started digitally and switched to human Notes: Self-serve includes digital and ATM; “withdraw money” excluded as the switching question was not asked for this episode; mobile refers to interactions on smartphones and tablets; online refers to desktop and laptop computer interactions Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 –14 –36 Customers often switch to a human channel for an emotive episode, and are annoyed when they started online 10 20 30 40 Mobile Succeeded 25 38 Online 26 13 Starting channel Net Promoter Score for emotive episodes that started digitally, US respondents 10 20 30 40 50% Succeeded on self-serve Switched to human 50 Percentage of emotive episodes, US respondents Switched to human 13 Notes: Self-serve includes digital and ATM; mobile refers to interactions on smartphones and tablets; online refers to desktop and laptop computer interactions Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 –13 13 Figure 29

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 29 Leading US banks have mastered dispute resolution… Top US banks have fewer disputes overall When they do have disputes, they get it right the first time They also use digital channels more 29 7 Percentage of dispute episodes resolved using digital 4 26 Percentage of dispute episodes not resolved in first contact 10 20 30% 2 4 6 8% 5 7 Disputes as a share of total episodes Top three banks Bottom three banks Top three banks Bottom three banks Top three banks Bottom three banks 10 20 30% Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 30 …As a result, leaders spend half as much as laggards to resolve disputes 40 20 60 80 100 US banks’ dispute-resolution cost, indexed Bottom performer 100 Reduce dispute volumes −22 Improve first-contact resolution −14 Migrate to digital −20 Top performer 44 Incremental change in cost base by meeting top performer’s benchmarks Sources: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017; Bain analysis Figure 31

• Banks continue to lose many product purchases to competitors. Across countries, 25% to 51% of customers (in Brazil and the UK, respectively) who bought a banking product in the past year turned to a bank other than their primary one. • Much of this defection occurs through digital channels, particularly for credit cards. Digital purchasing is most prevalent in the UK, the Netherlands, Germany and Australia. It is least prevalent in Mexico, Chile and Malaysia. • Stemming this tide could be more straightforward than banks realize: They have to ask for busi- ness at the right moment. Only one-fifth of US defectors were actively researching products when they decided to buy.

Half of US defectors and one-third in Australia bought from a com- petitor because they received an offer or saw an advertisement.

• Even when consumers have bought from a com- petitor, they still have ties to the primary bank. At least half of defectors in multiple countries would have purchased from their primary bank if the bank had made an offer. These perceptions leave primary banks with an opening to actively pursue new business, as well as build the brand in customers’ eyes. 5. Hidden customer defection runs rampant, with banks neglecting to ask for the sale

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 32 Primary banks lose one-half to one-fourth of product purchases to competing banks Figure 32 20 40 60 80 100% Purchases from primary bank as a percentage of all purchases in the previous 12 months India China Brazil Malaysia Mexico Hong Kong Singapore Spain Japan US Germany South Korea UK Australia Canada Netherlands France Argentina Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 In most countries, consumers are more likely to make digital purchases from competing banks than from their primary bank 80% 60 40 20 UK Netherlands Germany Australia US China France Canada India Japan Singapore South Korea Spain Hong Kong Brazil Argentina Malaysia Mexico Percentage of respondents using a digital channel for their most recent purchase in the past 12 months, by type of bank Primary bank Competing bank Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 33

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 33 Credit cards are especially prone to digital purchases at competing banks Credit cards Deposits Investments Loans 0 20 40 60 80% Primary bank Competing bank Percentage of most recent purchases that German respondents made digitally in the past 12 months, by type of bank Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 34 Most customers were not actively researching a product when they decided to buy 10 20 30 40 50% US 21 Australia 25 UK 50 Percentage of "hidden defectors" who learned about a competitor's product through active research Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 35

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 34 Many defectors were responding to competitors’ advertising or offers 10 20 30 40 50% Hidden defectors’ reasons for buying from a competitor US Competing bank reached out with offer 42 Australia 36 UK 31 Advertisement from competing bank Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 36 Most defectors would be willing to buy more from their primary bank, if it made a personalized offer 20 40 60 80 100% US I don't know No, I wouldn't have purchased from my primary bank Yes, I would have purchased from my primary bank Australia UK “If your primary bank had proactively reached out to you with a personalized offer for the identical product that you purchased at the competitor, would you have purchased it at the primary bank instead?” Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 37

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 35

• Direct banks continue to lead in Net Promoter Scores relative to national, regional or smaller competitors in many countries. • Some big banks have demonstrated sustained progress over the past few years. In Mexico, BBVA Bancomer moved up steadily in recent years to clinch the No. 2 position among traditional banks last year and has continued to narrow the loyalty gap, as it has gained market share. The bank started its digital transformation rela- tively early.

• 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-country differentials between the loyalty leader and the laggard were largest in Spain, Germany, the UK, and the Northeast and Midwest regions of the US. The gaps were narrow- est in the Netherlands, Mexico and South Korea. • Only a few banks have held the top spot from year to year, including USAA in the US and First Direct in the UK.

6. Movement on the loyalty leader boards

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 38 In the Americas, there is a large gap between loyalty leaders and laggards Argentina Brazil Canada Chile Mexico US–Midwest US–Northeast US–South US–West –100 –80 –60 –40 –20 0 Primary banks’ Net Promoter Scores relative to loyalty leader, indexed to zero, 2017 Banco Macro, Banco Galicia Itaú Unibanco TD Canada Trust Royal Bank of Canada, Umpqua Bank, Union Bank TD Bank Huntington National Bank Tangerine BCI Scotiabank, Santander, BBVA Bancomer USAA USAA USAA, Frost Bank USAA Highest-rated traditional bank Highest-rated direct bank Lowest-rated bank Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 38 The same holds true in most Asia-Pacific markets… Australia China Hong Kong India Japan Malaysia Singapore South Korea –100 –80 –60 –40 –20 0 Primary banks’ Net Promoter Scores relative to loyalty leader, indexed to zero, 2017 ING Direct Bank of China Bendigo Bank Citibank Citibank Shinsei Bank Maybank Citibank Shinhan Bank, Kookmin Bank Highest-rated traditional bank Highest-rated direct bank Lowest-rated bank Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 39

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 39 …And in Europe as well Belgium France Germany Netherlands Poland Spain Switzerland UK –125 –100 –75 –50 –25 0 Primary banks’ Net Promoter Scores relative to loyalty leader, indexed to zero, 2017 Argenta Banque ING Direct, Boursorama Credit Mutuel Sparda-Bank Bankinter BBVA, Nationwide Difference in scores too close to call DKB, ING DiBa Bank Millennium, ING Bank ING Direct Raiffeisen First Direct Highest-rated traditional bank Highest-rated direct bank Lowest-rated bank Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017 Figure 40 BBVA Bancomer has steadily improved its customer loyalty position Net Promoter Score of leader −7 −10 −11 −15 −21 No.

2 No. 3 No. 4 No. 5 No. 6 −2 −7 −8 −14 −14 −4 −7 −7 −10 −19 −4 −8 −11 −13 −17 −4 −6 −6 −7 −13 54 56 51 50 54 53 2012 2013 2014 2015 2016 2017 −1 BBVA Bancomer −2 −6 −6 −10 Net Promoter Scores relative to the Mexican loyalty leader Source: Bain/Research Now Retail Banking NPS Surveys 2012–17 Figure 41

Evolving the Customer Experience in Banking | Bain & Company, Inc. Page 40 Appendix: Methodology Bain & Company partnered with Research Now, an online global market-research organization, to survey consumer panels in Argentina, Australia, Belgium, Brazil, Canada, Chile, China, France, Germany, Hong Kong, India, Japan, Malaysia, Mexico, the Netherlands, Poland, Singapore, South Korea, Spain, 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 August 2017, the survey polled 133,171 respondent consumers of national branch network banks, regional banks, private banks, direct banks, community banks and credit unions in these countries.

For most individual bank analysis, we included only banks for which we received at least 200 valid responses. In Argentina, Chile, India, Malaysia and Singapore, we included banks with at least 100 responses. In many instances, sample sizes exceeded these thresholds. Survey questions Respondents were first 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. Ratings of zero to 6 signify detractors, 7 and 8 signify passives, and 9 and 10 signify promoters. Net Promoter Scores are calculated by subtracting the percentage of detractors from the percentage of promoters. A positive score indicates advocacy and support, while a negative score shows the opposite. 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 bank and 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 also asked questions about respon- dents’ attitudes toward using technology companies for financial products. The remaining questions elicited demographic profile information: household income, investable assets and region of residence. For statistical significance, the results of our data analysis are robust for the measurement of bank Net Promoter Scores by country or US region. Where our threshold for the bank’s inclusion in the Net Promoter Score rankings is a sample size of 200, the score measured for each bank is statistically significant to an 80% confidence level, with a two-tailed test of the confidence interval ranging from plus or minus 2.6% for a sample size of 979, to plus or minus 7.4% for a sample size of 200.

In countries where sample sizes were smaller, confidence intervals are wider, with a maximum of plus or minus 10%.

Key contacts in Bain’s Global Financial Services practice Global Edmund Lin in Singapore (edmund.lin@bain.com) Americas Mike Baxter in New York (mike.baxter@bain.com) Maureen Burns in Boston (maureen.burns@bain.com) Gerard du Toit in Boston (gerard.dutoit@bain.com) Asia-Pacific Peter Stumbles in Sydney (peter.stumbles@bain.com) Europe, Middle East and Africa Henrik Naujoks in Zurich (henrik.naujoks@bain.com)

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