Shifts in consumer spending, saving, and borrowing are likely to depress revenue growth for many U.S. banks, increase operating costs, and squeeze profit margins, according to surveys conducted by PricewaterhouseCoopers US (PwC).
PwC’s research suggests that retail banks are on the verge of an overhaul, as they adjust growth strategies and business models, including re-evaluating the role of branches; incorporating mobile banking, payments, and social media; and breaking down the organizational, operational, and technology barriers that have prevented them from growing organically.
“After years of talking about cross-selling and customer relationship management, many banks still operate in product silos and are not based on customer needs,” John Garvey, partner and leader of PwC’s banking and financial services advisory practices, said in the report. “They still cannot identify who their best customers are, let alone identify appropriate products, pricing, servicing, and channels for them.”
Banks also face the challenge of using social media to better target their customers and mobile technology to respond to their needs faster and more effectively.
Another challenge for banks is trying to grow organically amid the rising costs of attracting new customers. Given that 92 percent of U.S. households already have checking or savings accounts, banks have limited opportunities to attract customers who don’t use any financial services.
Moreover, those who already have accounts are not likely to leave. A recent PwC retail banking survey found that more than 40 percent of Americans have been customers with their primary financial institution for more than 10 years, and consumers hold an average of 3.3 products at those institutions.
To address these challenges and capitalize on the opportunities available, banks must meet more of their customers’ financial needs throughout their lifetimes. Doing so means banks would have to adopt a more customer-centric focus to better understand and anticipate their customers’ needs and preferences.
Adopting such a customer-centric focus is difficult for some retail banks because they are organized primarily around business lines, with products housed in silos. In particular, the silos limit the knowledge one business unit has about a customer’s other accounts with the bank, hindering efficient product pricing, customer segmentation, and cross-selling.
Leading banks, including some entering the U.S. market from overseas, are moving beyond product silos to become more customer-centric. PwC identifies three essential strategies for becoming customer-centric:
• breaking down product silos and restructuring incentives;
• understanding customer needs, preferences, and behavioral drivers; and
• delivering a consistently high-quality customer experience.
Those strategies can enable banks to move beyond merely pushing products to better anticipating customer needs and proactively offering the most relevant products and services.
Meanwhile, a study by communications provider Cable & Wireless Worldwide found that banks are not taking full advantage of their online platforms, despite increasing customer engagement in the channel. Sixty percent of consumers say online banking has become the most valuable engagement component in the past two years, ranking it higher in value than banks’ trustworthiness and even the return on their money in the bank.
The research also found that online channels typically deliver only functional banking services, but that roughly half of customers want banks to incorporate social and human aspects of customer service, such as more personalized customer service and tailored advice, into online banking.
This comes as tech-savvy consumers are using their smartphones for everything but mobile banking. Consumer use of mobile banking applications has not grown since last year, according to Javelin Strategy & Research. The reason, according to Javelin, is security concerns.
Banks “need to get ahead of the problem and focus on both addressing security concerns and responding to consumers’ needs around mobile banking. Really listen to consumers and give them what they want,” James VanDyke, Javelin president, said in the report.
News Editor Leonard Klie can be reached at firstname.lastname@example.org.