David and the 'big 4'

The practices of both the major banks and their niche counterparts reveal beneficial lessons for each

BY Jeremy Barth

Share investments are a popular point of discussion with members of my extended family, and it was no different at a recent gathering. Unsurprisingly, the topic quickly veered from the bear market performance of bank shares to the venting of spleen about ‘big 4’ interest rates, fees and charges.

The spleen-venters were united in their adamant refusal to heed the advice of both the current and preceding Federal Treasurers to ‘shop around’ for better deals. Why? The obvious answer would be laziness – wanting to lash-out, without expending any effort on making a real, material change.

But instead all were united in their refusal to switch from a ‘big 4’ bank to a regional or online bank for two reasons - access and convenience. The distribution network of widespread branches, ATMs, online banking, mobile banking and telephone banking represents both the core competitive advantage of the ‘big 4,’ and the infrastructure hurdle their challengers must clear if they want to be more than just niche players.

In an environment of rising funding costs and margin pressure, the challenge for the ‘big 4’ becomes one of further monetising the transactional activity of these distribution networks without the punitive levying charges. For the regional and online players the challenge is deciding whether to accept niche status, or to diversify their channel offerings to more closely match the expectations of Australian consumers.

Australians love multi-channel banking
At the same time as banks are increasing branch numbers, and ramping-up the quality of the experience they offer customers in branches and over the phone, Australians have become some of the world’s most frequent visitors to banking and financial services websites in the English-speaking world.

According to Hitwise, in February this year visits to banking and financial services websites constituted 4.35 per cent of visits to all commercial websites in Australia. This was the highest of any commercial category, and significantly higher than either the United States or United Kingdom, at 3.59 per cent and 2.35 per cent respectively.

While the spread of resources by the ‘big 4’ across this multiplicity of channels allowed regional and online banks to mount niche challenges in community-focused banking and online savings, their lack of strong multi-channel offerings meant their customers never fully abandoned the ‘big 4’.

As things currently stand, the high fixed costs of the ‘big 4’ multi-channel platforms cannot be supported by transaction accounts alone, with large deposits heading off to online banks and mortgages leaking into the aggressive broker marketplace. Apart from a margin-shredding ‘price war,’ or hoping for a ‘flight to quality’ during uncertain times what else can the big banks do to win back business?

Three options include:

Offer individualised security add-ons (at a fair price). One of the strongest factors underpinning the value consumers place on the ‘big 4’ is the trust they have in the security of their channels. Can these intangible perceptions be monetised in the form of additional services that consumers would value and pay for, in an environment with rising fears of identity theft? In the United States a number of banks offer additional identity protection services for their transaction accounts – the ability to offer a similar service exists in Australia, but has not yet been grasped by a major bank.

Genuinely integrated multi-channel banking. The launch of online chat and click-to-call functionality on NAB’s mortgage web pages points towards another opportunity – the offer of a genuinely-integrated multi-channel experience. Leveraging the investment in all existing channels, the big banks could potentially offer the best of each, at any time the customer chooses to interact with them, whether through human-facilitated interactions via online chat or over the phone, as well as self-service via the web or mobile.

Show the community the money.  Rightly or wrongly, cynical Australian banking customers often see banks’ community engagement programs as little more than glorified PR exercises. Spanish bank Caja Navarra, however, takes a different approach where transparency trumps perceptions of PR spin.

The bank lets customers know how much money it earns through its custom, and allows customers to nominate a portion of bank profits towards social projects registered with the bank’s charitable foundation. The recipients of the funds then provide information to the customers indicating what the money they have allocated has been used for, thus creating a powerful ongoing interaction between customer, bank and community.

Versions of the above approaches would all be viable considerations which the ‘big 4’ could contemplate integrating into their distribution platforms, while representing infrastructure investments of a scale that would be difficult for regional or online players to contemplate.

For the regional and online banks the choice is more stark – maintain their current approaches and continue to succeed only within their chosen niches, or take the BankWest approach of building-out a national brand and distribution network to directly challenge the ‘big 4’.

Without large, multi-channel platforms it is unlikely that many regional and online banks will emulate the Western Australian bank, while other competitors, like comparison websites, don’t even come close to beginning to mount a challenge. In the end, in the Australian market, it’s there for the ‘big 4’ to lose.

As Caja Navarra clearly demonstrates, genuine engagement with, and use of bank platforms and assets need not be restricted solely to interactions which generate interest or punitive fee revenue: Innovative thinking about the broad scope of interactions customers have with their bank could yet yield rich rewards.

Jeremy Barth is a senior client advisor with customer experience consultancy Global Reviews.