Bank profits linked to clients' digital needs
Banks which fail to adapt to consumer's changing digital needs could be risking as much as half of their net profits, according to a report by global business adviser McKinsey & Company.
The report which analysed digital banking in the Asian region, including New Zealand, describes a new generation of digitally savvy, wealthy young customers who prefer to engage with their bank outside the usual branch network.
"This will be the disruptive generation when it comes to banking trends."
McKinsey said digitisation of services could create or destroy significant value for banks, which have traditionally been slow-moving.
The size of the potential value destruction would depend on a bank's starting positions, and how well they responded to shifting consumer behaviour.
"Experience is showing that 30 to 50 per cent of net profit is at risk," the report says.
Those risks included existing and new competitors stealing market share, as well as continued margin erosion.
Potential benefits were new digital products, cost reductions and the possibility of increasing market share.
The report includes a case study on Westpac New Zealand, which is overhauling its online banking service to ensure it is consistent across all platforms.
Westpac head of digital Simon Pomeroy said the bank had gone from communicating with customers about 3.5 times a year on average in 2012, to nearly 11 times in 2013. "We are now speaking to more customers, more frequently, through more channels."
The recently introduced ability to apply for home loans online was already driving 15 per cent of applications.
Four in 10 applications were from other bank customers, and once approved, they received a phone call within two hours.
However, Pomeroy said at its heart banking was still about people and relationships. "We believe that customers are the drivers, technology is just the enabler."
McKinsey says banks might want to present customers with a service experience akin to Apple, the US-based tech giant. To do so they would need to offer intuitive interaction, and a culture of no defects and no customer-leakage.
Digital banking should be creative, with fun ways to engage younger customers like "gamifying" select parts of their online interaction with the bank, the report says.
McKinsey identified organisational options to help make the most of digital opportunities. Those included dedicated "digital SWAT teams" to drive and execute ideas quickly within banks' consumer divisions. Other options were to create a shared centre to oversee digital activities across the business, or an independent unit separate from the rest of the bank.