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

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

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...... pg . 40

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

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

“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 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

Page 1 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 1 Among tech companies, consumers are most likely to trust PayPal and Amazon with their money

By age, Americans willing to buy financial “”Which company would you trust most with your money? products from tech companies

73% More trust Primary bank 1.7 Banks in general 3.3 61% PayPal 4.0

42% Amazon 4.3 Apple 5.1

Google 5.4

Microsoft 5.5

Facebook 7.4

Less trust Snapchat 8.3

18−34 35−54 55 or older Average ranking by US consumers

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

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

Page 2 Evolving the Customer Experience in Banking | Bain & Company, Inc.

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.

Figure 2 Many customers feel banks’ current digital channels fall short, even as new technologies take hold UK respondents who agree US respondents who agree

Lets me do all I need Is easy to use Use voice assistants Use voice assistants on phone at home

only only 45% 44% of online customers and of online customers and

already already 25% 34% 27% 18% of mobile customers of mobile customers of customers of customers

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Page 3 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 3 Strong digital tools create a virtuous circle of higher adoption and digital-first habits, contributing to greater loyalty

Customer behavior with US banks

Start with In 87%/59% of digital interactions, people start with digital Contributing Adopt 95%/78% of people to a higher Net digital reported using digital Promoter Score 76/37

Succeed When people try digital, in digital they are successful Data in red for digital leader 90%/87% of the time Data in black for digital laggard

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

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

Page 4 Evolving the Customer Experience in Banking | Bain & Company, Inc.

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.

Figure 4 Customer episodes for “Open an account” at one retail bank

Move and Join and Pay for Own a Resolve manage Borrow Invest things home an issue onboard money

Open an account Get a credit card Manage my profile and preferences

• Evaluate my options • Get ready to use my account • Apply to open an account • Register for and receive digital access • Receive approval or rejection • Receive and activate my debit card

Source: Bain & Company client

Page 5 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 5 Banks should consider more, and more targeted, marketing and sales pitches

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

The lesson: Ask for the sale.

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

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.

Page 6 Evolving the Customer Experience in Banking | Bain & Company, Inc.

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.

Page 7

• Customers are surprisingly amenable to trying financial products offered by technology firms, especially large, established firms . While some 1. consumers express willingness to try such products from start-ups, there’s a 10- to 40-percentage- point gap across countries between large firms Consumers to and start-ups . technology firms: • Younger customers show the greatest willingness to try such offerings, but a large share of older Bring on the customers in all countries also are comfortable with the idea . Credit cards get the highest expres- financial products 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 . Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 6 Many customers would consider buying financial products from technology firms they already use

Percentage of respondents who would be open to a new financial offering from an established technology firm

100%

80

60

40

20

0 India Brazil Mexico Hong Kong US South Korea Australia Netherlands Switzerland China Chile Argentina Poland Japan Germany UK Canada Belgium France

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 7 Customers are more open to buying from technology firms in countries where banks underserve digitally

Percentage of respondents expecting to buy a financial product from an established technology firm

100% India China

Hong Brazil Mexico Chile Kong 80 Singapore Malaysia Argentina Poland

60 Germany Spain UK Japan US South Netherlands Korea Canada 40 Australia France Switzerland Belgium 20

0510 15 20 25%

Percentage of interactions occurring through branch or call-center staff

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Page 10 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 8 Interest in technology firms’ financial products is highest among young people

Percentage of respondents who would be open to trying a new financial offering from an established technology company

US China

100% 100% 90 88 80 73 80 74 61 60 60 42 40 40 20 20 0 0 18‒34 35‒54 55 or older 18‒34 35‒54 55 or older

Netherlands Mexico

100% 100% 87 80 80 79 61 60 57 60 40 40 40 25 20 20 0 0 18‒34 35‒54 55 or older 18‒34 35‒54 55 or older

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 9 Asian customers are actively using mobile payment apps from technology firms

Percentage of respondents using a third-party payment app such as Average number of third-party payments per user in the past week WeChat and Alipay in the past week

100% 10 91 9.1

80 8

66 6.3 60 56 6

40 4 34 3.6 2.7

20 2

0 0 China Hong Kong South Korea Malaysia China Hong Kong South Korea Malaysia

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Page 11 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 10 Customers rank certain technology firms almost as high as traditional banks for trustworthiness

Average user ranking on a scale of 1 to 9, with 1 indicating highest trust

US UK

More trust Primary bank 1.7 Primary bank 1.7

Banks in general 3.3 Banks in general 3.1

PayPal 4.0 PayPal 3.4

Amazon 4.3 Amazon 4.6

Apple 5.1 Apple 5.4

Google 5.4 Google 5.5

Microsoft 5.5 Microsoft 5.7

Facebook 7.4 Facebook 7.5

Less trust Snapchat 8.3 Snapchat 8.2

1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 11 Half of US consumers would consider obtaining a credit card from technology companies

Percentage of US respondents who would consider buying these products, if offered by their favorite technology company

60%

52

40

32 30

21 20

0 Credit card Bank account Investment Mortgage or home loan

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Page 12 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 12 Customers in developing countries are more likely to favor digital purchasing

Purchase-channel Net Promoter Scores, indexed to human-channel score of zero

15 Digital favored over human channels Human favored over digital channels

10

5

Human channel 0

–5

–10

–15 IndiaChina Spain Singapore Mexico Germany Brazil Australia US UK Netherlands Canada

Share of purchases 42% 50% 31% 37% 14% 49% 28% 47% 42% 63% 57% 35% made digitally 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

Page 13

• 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 2. 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 Banks still lag in digital requiring employees . basics, especially • Yet banks in most countries still have a long way with mobile 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 . Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 13 Many banks have made progress in moving interactions out of the branch…

Average number of interactions per respondent conducted through human channels in the past quarter

India Mexico Brazil China Spain Hong Kong Malaysia France Belgium US South Korea Canada UK Germany Poland Singapore Australia Japan Netherlands 12 9 6 3 0

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 14 …But in most countries, banks have far to go in shifting to digital channels

Average number of interactions per respondent in the past quarter

45 Heavy interaction Self-serve 40 Chile Poland Netherlands

35 Belgium South Australia Brazil Korea France India UK 30 Spain Argentina Interactions 25 Canada conducted Mexico US Germany digitally 20 Hong Kong China Switzerland Singapore 15 Malaysia

10 Japan

5 Branch and phone dependent Low interaction 0 9 8 7 6 5 4 3 2 1 0

Interactions conducted through human channels

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

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Figure 15 Many people continue to make deposits through tellers rather than digital channels

Percentage of respondents who made deposits in the past quarter, by channel

100%

81 80

Digital 63 60 53 ATM

40

20 Branch

0 US UK Australia

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 16 Migrating routine interactions to digital channels earns higher loyalty and reduces costs in the UK

UK respondents’ Net Promoter Scores for routine interactions, by channel UK banks’ approximate cost per interaction, by channel

3.00 40 £3 35

30

2

20 20

1

10

0.15 0 0 Human Digital Human Digital

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017; Bain analysis

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Figure 17 Some banks have managed to accelerate the migration to digital

Percentage of US respondents who made deposits in the past quarter, Estimated average cost per US customer for a deposit transaction in the by channel past quarter

100% $3

85 2.50 80 77

2 Digital 60

40 ATM 1.10 1

20

Branch

0 0 Leader Laggard Leader Laggard () (Bank of America)

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017; Bain analysis

Figure 18 Mexico’s largest banks could eliminate more than $500 million in cost from branches and call centers

Estimated total addressable labor cost base, $ millions

Incremental change in cost base by meeting benchmark’s mix of branch and call-center interactions $800

619 600

400 −257

200 90 −272 0 Total for top five Domestic benchmark International benchmark Full potential Mexican banks (Chile) (Netherlands)

Sources: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2107; SNL Financial; Bain analysis

Page 18 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 19 Mobile channels have mainly reduced online interactions in the UK

Average interactions per UK respondent in the past quarter, by channel

50 Change in average interactions per respondent, 2013–17

40 Branch –1.2 Phone –0.7

ATM –2.6 30

Online –5.3 20

10 Mobile 7.8

0 2013 14 15 16 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

Page 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 3. 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 AI-based consumer for banks’ mobile apps . technologies go • Turning to newer technologies, a large share of mainstream 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 . Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 20 Many UK customers find their bank’s digital tools disappointing

Percentage of mentions of UK respondents who strongly agree

"Lets me do everything I need" "Easy to use"

50% 50% 49 47 46 43 44 42 43 40 40 36 35

30 30 25 24 20 20 16

10 10

0 0 18–35 35–54 55 or older 18–35 35–54 55 or older

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

Figure 21 Voice assistants are coming on strong in the US

Percentage of US respondents who reply “yes,” by age

“Do you regularly use a voice assistant on your “Do you have a voice assistant device at home smartphone (e.g., Siri, Google Assistant, Bixby)?” (e.g., Amazon Echo/Alexa, Google Home)?”

40% 40% 37

30 30 26 Average 26

20 20 19 Average 17

12 10 10

0 0 18–34 35–54 55 or older 18–34 35–54 55 or older

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

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Figure 22 The share of customers using voice assistants for banking could grow sharply

Current and future use of voice assistants for banking

US UK Australia

30% 30% 30% 27

22 21 20 20 20

10 10 10 6 6 5

0 0 0 Currently using Open to using Currently using Open to using Currently using Open to using in the future in the future in the future

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 23 Not all technologies catch fire with US customers

Average number of online chat and videoconferencing banking interactions per US respondent in the past quarter

0.4

0.3

0.2

0.1

0 2013 14 15 16 17

Sources: Bain/Research Now Customer Loyalty in Retail Banking Surveys, 2013–17

Page 23

• Consumers encounter many episodes during their banking, from routine bill payment to resolving a stolen credit card, and different types of episodes 4. 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- Different strokes for drawal, by contrast, might be less emotional, but different customer occur frequently . Banks can earn greater loyalty by reducing the volumes of unnecessary transac- episodes 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 . Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 24 An emotive episode affects loyalty more than a routine episode

US respondents

Create detractors Dispute fee Moments of truth High

Apply for Address Resolve mortgage declined complaint purchase Potential to Check account activity Discuss Refinance/ annoy renew Deposit money Replace lost/ unrecognized mortgage stolen card transactions Resolve login Open checking problem Withdraw Transfer account This bubble Pay bill money money size equals 50% Register for of respondents Low online account completing the Routine Create promoters episode

Low High Potential to delight

Episodes: Routine Resolve Sale Dispute

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 25 US customers prefer digital channels for routine episodes, employee channels for emotive episodes

Emotive Routine Resolve Sale Dispute

Average Net Promoter Scores for episode

Deposit Pay User ID or Unrecognized Open new Mortgage Resolve Dispute money bill password problem transaction account application complaint fee 60

40

20

0

–20

Digital channels Human channels

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Page 26 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 26 For emotive episodes, young customers in the US use digital channels much more often than older customers

Emotive Routine Resolve Sale Dispute

Share of episodes that US customers started on digital channels, by age

80%

60

40

20

0 Under 25 55 or Under 25 55 or Under 25 55 or Under 25 55 or older older older older

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

Figure 27 Many routine and most emotive episodes in the US involve human channels

Share of recent episodes, US repondents

100%

Started and finished with human channels

80 Started digital, finished human

60

40 Succeeded on self-serve

20

0 16,000 routine episodes 8,000 emotive episodes

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

Page 27 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 28 US customers get annoyed when they have to switch from digital to complete a routine interaction

Percentage of routine episodes, US respondents Net Promoter Scores for routine episodes that started digitally and switched to human

100% 60 –14

50 –36 80 80 Started digital, 45 switched to human 40 60 36

Succeeded 40 Succeeded on self-serve 20 Switched to human 20 9

0 0 Mobile Online Starting channel

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

Figure 29 Customers often switch to a human channel for an emotive episode, and are annoyed when they started online

Percentage of emotive episodes, US respondents Net Promoter Score for emotive episodes that started digitally, US respondents

50 13 50% 40 38

40 13 –13 Switched to human 30 26 25 30

20 Switched to human 20 13 Succeeded Succeeded on self-serve 10 10

0 0 Mobile Online Starting channel

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

Page 28 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 30 Leading US banks have mastered dispute resolution…

When they do have disputes, Top US banks have fewer disputes overall They also use digital channels more they get it right the first time

Disputes as a share of total episodes Percentage of dispute episodes not resolved Percentage of dispute episodes resolved in first contact using digital

8% 30% 30% 29 7 26

6 5 20 20

4

10 10 2 7 4

0 0 0 Top three banks Bottom three banks Top three banks Bottom three banks Top three banks Bottom three banks

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 31 …As a result, leaders spend half as much as laggards to resolve disputes

US banks’ dispute-resolution cost, indexed

Incremental change in cost base by meeting top performer’s benchmarks 100 100

80

−22 60 −14 44 40 −20

20

0 Bottom performer Reduce dispute Improve first-contact Migrate to digital Top performer volumes resolution

Sources: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017; Bain analysis

Page 29

• Banks continue to lose many product purchases to competitors . Across countries, 25% to 51% of customers (in Brazil and the UK, respectively) 5. 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 Hidden customer channels, particularly for credit cards . Digital defection runs purchasing is most prevalent in the UK, the Netherlands, Germany and Australia . It is least rampant, with prevalent in Mexico, Chile and Malaysia . banks neglecting to • Stemming this tide could be more straightforward ask for the sale 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 . Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 32 Primary banks lose one-half to one-fourth of product purchases to competing banks

Purchases from primary bank as a percentage of all purchases in the previous 12 months 100%

80

60

40

20

0 Brazil Argentina China Mexico Netherlands South Korea Germany Malaysia US France India Australia Spain Canada Japan Hong Kong Singapore UK

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 33 In most countries, consumers are more likely to make digital purchases from competing banks than from their primary bank

Percentage of respondents using a digital channel for their most recent purchase in the past 12 months, by type of bank

UK Netherlands Germany Australia US China France Canada India Japan Singapore South Korea Spain Hong Kong Brazil Argentina Malaysia Mexico

0 20 40 60 80%

Primary bank Competing bank

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Page 32 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 34 Credit cards are especially prone to digital purchases at competing banks

Percentage of most recent purchases that German respondents made digitally in the past 12 months, by type of bank

Credit cards

Deposits

Investments

Loans

0204060 80%

Primary bank Competing bank

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 35 Most customers were not actively researching a product when they decided to buy

Percentage of "hidden defectors" who learned about a competitor's product through active research

50% 50

40

30 25 21 20

10

0 US Australia UK

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Page 33 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 36 Many defectors were responding to competitors’ advertising or offers

Hidden defectors’ reasons for buying from a competitor

50%

42

40 36 Advertisement from competing bank 31 30

20

Competing bank reached 10 out with offer

0 US Australia UK

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 37 Most defectors would be willing to buy more from their primary bank, if it made a personalized offer

“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?”

100% No, I wouldn't have purchased from my primary bank 80

I don't know

60

40

Yes, I would have purchased from my 20 primary bank

0 US Australia UK

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Page 34 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 6. 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 Movement on the to clinch the No . 2 position among traditional loyalty leader boards 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 . Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 38 In the Americas, there is a large gap between loyalty leaders and laggards

Primary banks’ Net Promoter Scores relative to loyalty leader, indexed to zero, 2017

Banco Macro, Argentina Banco Galicia

Brazil Itaú Unibanco Royal Bank of Canada, Canada Tangerine TD Canada Trust

Chile BCI Scotiabank, Santander, Mexico BBVA Bancomer Huntington National Bank US–Midwest USAA TD Bank US–Northeast USAA USAA, US–South Frost Bank Umpqua Bank, US–West USAA Union Bank –100 –80 –60 –40–20 0

Highest-rated traditional bank Lowest-rated bank Highest-rated direct bank

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 39 The same holds true in most Asia-Pacific markets…

Primary banks’ Net Promoter Scores relative to loyalty leader, indexed to zero, 2017

Bendigo Bank Australia ING Direct

China

Hong Kong

India Citibank

Japan Shinsei Bank

Malaysia

Singapore Citibank

Shinhan Bank, South Korea Kookmin Bank –100 –80 –60 –40–20 0

Highest-rated traditional bank Lowest-rated bank Highest-rated direct bank

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Page 38 Evolving the Customer Experience in Banking | Bain & Company, Inc.

Figure 40 …And in Europe as well

Primary banks’ Net Promoter Scores relative to loyalty leader, indexed to zero, 2017

Belgium Argenta Banque

Credit Mutuel France ING Direct, Boursorama

Sparda-Bank Germany DKB, ING DiBa

Netherlands Difference in scores too close to call

Bank Millennium, Poland ING Bank BBVA, Spain ING Direct Bankinter

Switzerland Raiffeisen

Nationwide UK First Direct

–125 –100 –75 –50–25 0

Highest-rated traditional bank Lowest-rated bank Highest-rated direct bank

Source: Bain/Research Now Customer Loyalty in Retail Banking Survey, 2017

Figure 41 BBVA Bancomer has steadily improved its customer loyalty position

Net Promoter Scores relative to the Mexican loyalty leader

2012 2013 2014 2015 2016 2017

Net Promoter Score of leader 54 56 51 50 54 53

No. 2 −7 −2 −4 −4 −4 −1 BBVA Bancomer

No. 3 −10 −7 −7 −8 −6 −2

No. 4 −11 −8 −7 −11 −6 −6

No. 5 −15 −14 −10 −13 −7 −6

No. 6 −21 −14 −19 −17 −13 −10

Source: Bain/Research Now Retail Banking NPS Surveys 2012–17

Page 39 Evolving the Customer Experience in Banking | Bain & Company, Inc.

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%.

Page 40 Key contacts in Bain’s Global Financial Services practice

Global Edmund Lin in Singapore ([email protected])

Americas Mike Baxter in New York ([email protected]) Maureen Burns in Boston ([email protected]) Gerard du Toit in Boston ([email protected])

Asia-Pacific Peter Stumbles in Sydney ([email protected])

Europe, Middle East and Africa Henrik Naujoks in Zurich ([email protected]) Shared Ambition, True Results

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