Change is one thing you can bank on.
Leon Gettler
March 19, 2008
THE way people bank may look different 50 years from now. True, our basic needs of depositing and saving won't change. But there are forces likely to change the face of banking.
For example, there is the prospect of more retailers setting up banks. Britain's Tesco has a banking business. Last year, in the US, Wal-Mart withdrew an application to open a specialty bank following claims the world's biggest retailer would overwhelm small-town competitors.
This year, in Mexico, it opened Banco Wal-Mart, offering no-frills savings accounts and loans to buy products in the company's stores.
Then there is the growth of banking via mobile phones, something that has been described as a bank in every pocket. Customers can deposit and withdraw cash through a mobile phone operator's agents, and send money to other people via text messages that can be exchanged for cash later at an agent.
In Japan, shoppers have bought $US83 billion ($A89.6 billion) worth of goods online through their mobile phones. And mobile phone companies there are already moving into the banking space. NTT DoCoMo, for example, offers credit because it knows its customers' names, addresses and bank account details.
There is also peer-to-peer lending. Kiva, a web-based nonprofit that helps individuals make loans to small businesses in developing countries, might be the shape of things to come.
This is another reason why these are challenging times for the world's second-oldest profession. And how it manages the change, and connects with its customers, will be fascinating to watch.
Forced by rising costs to increase interest rates beyond the Reserve Bank's official cash rate rise, Australia's money lenders aren't winning many friends. True, they have been more transparent than usual in explaining the costs that have driven up rates by more than the RBA's increases, but the Australian Consumers Association's Christopher Zinn says they have got some explaining to do.
"What exactly are the added costs, by what percentage and over what months?" Mr Zinn says. "They say they are carrying some of the load for customers and expect them to be grateful. But is that 1% of the load, or 50%? It's very hard to know how grateful we should be for their benevolence."
Still, that hasn't stopped the banks rolling out campaigns and efforts to connect with the community. ANZ, recognising debt as a big issue, has introduced a credit card that rewards customers with points for every dollar they repay off their balance.
Commonwealth Bank has its controversial $50 million advertising campaign, "Determined To Be Different".
But National Australia Bank seems to have cottoned on to the problem: Australians don't like banks. It has launched the StarBank brand to capture online customers. StarBank's relationship with NAB will be like Jetstar's links with Qantas - just don't talk about the parent company.
These campaigns seek to create an emotional connection with customers. But they are unlikely to solve the problem.
Melbourne Business School research in 2006 found that Australian banks were poor performers on the customer satisfaction scale developed by Bain consultant Fred Reichheld.
Under the so-called net promoter score, customers are asked a simple question: how likely are you to recommend us to a friend or colleague?
The answer is then plotted from 0 (not at all likely) to 10 (extremely likely). The customers are divided into three distinct groups.
Those who rank a company nine to 10 are classified as "promoters". Those who rank it seven to eight are "passives" - satisfied but unenthusiastic consumers who can be snaffled by the competition. Those who rank the company from one to six are "detractors", trapped in a bad relationship with the company.
Subtract the passives and detractors from the promoters and you get the net promoter score.
Associate Professor Mark Ritson found that Australian banks all pulled up negative scores: CBA, -54; NAB, -42; Westpac, -39; BankWest, -33; St George, -30; ANZ, -24 and HSBC, -8.
In other words, the banks, unlike most businesses, had a majority of customers that disliked them. For example, almost two-thirds of Commonwealth Bank's customers were detractors. While the bank might comfort itself that it has the biggest mortgage market in Australia, most of its customers would not recommend it.
One good reason for this might be that banks are among the most notorious for what Reichheld called "bad profits", the earnings that come from fees when you exceed a credit limit, overdraw the account, pay a credit card one day late, stop a cheque or fail to have enough funds in your account. Bad profits are a huge money-spinner for banks. According to Choice magazine and the Consumer Action Law Centre, banks and credit unions charged households more than $4 billion in fees in 2006. Gouging customers is good business. The only bank that pulled up a remotely positive score in Ritson's study was Bendigo, the self-styled community bank, that scored 7, which was very low compared with BMW's 59 and Singapore Airlines' 39.
To their credit, Australian banks are aware of these issues and are trying to fix them. But they have some way to go and bank insiders say the biggest problem is the culture.
Tim Riches, the managing director of Futurebrand, the outfit behind the rebranding of ANZ under John McFarlane, says retailers have a good platform to open banks because of their ability to package the offering.
Retailers are also better equipped than banks to tap into customers through electronic identification systems and fly-buys. This puts them in a good position to offer services such as basic insurance, credit cards, term deposits and transaction accounts.
And the banks, says Riches, are at a disadvantage because they no longer have an emotional attachment with customers and because Australian banks do not have a history of innovation, apart from perhaps internet banking.
"There would be lots of Australians out there who would be happy to take their business elsewhere if it was easy for them," Riches says.
The likelihood of any threat is diminished by the fact that Australian retailers, when compared with their overseas counterparts, are so appalling.
Players are also unlikely to move into the banking space in this market. That, and inertia.
The banks are only too aware of this. Banking strategists say retailers and mobile phone companies would not be equipped to manage banking's complexities, not to mention wealth management.
They are probably right. But banks will need to rethink their relationships with customers, and become more user-friendly to deal with the changes. Whether they can do it given their culture remains to be seen.
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