The Royal Commission into the Australian financial industry has unearthed some nasty truths about the nation’s Big Four banks including revelations that they provided shoddy home loan, credit card and financing information, charged fees for no service, intentionally misled the regulator and lost customer data.
Unsurprisingly, this has led to a massive loss of trust. But as the Big Four (Commonwealth, NAB, ANZ and Westpac) take a well-deserved hit on their reputations, this leaves room for customer-owned, second tier and challenger banks to rise.
There is data to back up this shift in trust. According to an Essential Media survey commissioned by the Customer Owned Banking Association (COBA), almost half (47%) of all Australians have less trust in the big four due to the Royal Commission’s revelations. At the same time, almost a fifth said they have more trust in credit unions (18%), mutual banks (17%) or building societies (15%), the traditional alternatives to the Big Four.
You’d be forgiven for thinking the Big Four are the only banks on Earth, but the number of choices are quite staggering. COBA, which is the industry body that represents more than 100 credit unions, building societies and mutual banks, estimates that collectively customer-owned banks service over 4.5 million customers or members. Among the largest are CUA, Heritage Bank, Newcastle Permanent and People’s Choice Credit Union.
“We are not surprised to see trust in credit unions, mutual banks, and building societies on the rise in response to the stories coming out of the Royal Commission,” COBA CEO Michael Lawrence said in a statement last month. “Australians want a banking institution they can trust to put them first. Our model is solely customer focused because 100% of profits are used to benefit customers.”
Customer experience (CX) is a crucial component of bank selection. In this day and age, a sophisticated website, banking app and vast ATM or payments network are practically “musts”, which means that increasingly banks must differentiate at the level of CX. Recent research from Fifth Quadrant shows that banks are well aware of this as over three quarters (76%) of the financial services sector surveyed say they are focused on improving CX.
As we have discussed recently, trust is perhaps the most important single factor in CX. Advisory firm CEB, now a partner of Gartner, recently studied thousands of customers and found that customers ranked ‘transparency’ as the most important omnichannel factor (by a margin of over 40%).
This is good for smaller banks, because for them the classic differentiator has always been around trust. There is a persistent idea in the culture that big banks – by virtue of their size and raison d'être can only treat you as a number. The great selling point of the customer-owned banks is that you are an important member of a community which will be treated as an individual, and, presumably won't be ripped off in the process.
It isn’t just customer-owned banks that stand to gain from the Royal Commision’s exposure of the Big Four’s shortcomings. Second tier banks such as Bendigo and Adelaide Bank have seen the blood in the water and are looking to capitalise. This month, Bendigo and Adelaide Bank managing director told Fairfax that it will take time for the banking industry to regain trust as consumers begin to demand more from banks.
“You’re really seeing a flip now where customers are really affecting the character of the banks that they want to do business with,” Baker said. “I think that’s a really good thing.” Baker went on to point out that Bendigo’s stronger performance in customer satisfaction ratings and its status as a “community ban” (one you can trust), were reasons it might be able to win new customers.
Customer-owned banks and second tier banks are all well established. But in addition to them there are also “challenger” (or “neobank”) offerings appearing that they are looking to disrupt the sector. One such challenger is the oddly named 86 400, a new digital bank that has declared its intention to poach customers from the fallout of the Big Four’s shenanigans.
Named after the number of seconds in a day, 86 400 officially launched last month and is currently in the final stages of receiving its full banking license from APRA.
86 400 is led by Anthony Thomson, a neobank veteran who is the former chairman of Metro Bank, the first new large retail bank to open in the UK in over 100 years (called “high street banks” in the UK), and Atom Bank, the UK’s first digital bank.
"Banks have lost sight of the customer,” Thomson said at an event in Sydney recently. “They think they only exist to make money. I think there's an opportunity to create a bank that puts customers at the forefront of everything they do."
Thomson is joined on the leadership team by other heavy hitters including former ANZ Japan CEO Robert Bell and former Cuscal CIO Brian Parker. In a statement last month, 86 400 announced that it will launch in beta towards the end of 2018 and to the public in the first quarter of 2019.
“In order to compete with the big banks, we not only need to offer the full range of services, but we also need to do things differently,” Bell said. 86 400 will have a beautiful, intuitiave app, but that won’t be where it ends. We’ve invested a huge amount of energy into building a bank that is technology-led from the start.
We live in an age of disruption. In recent years we’ve seen Airbnb disrupt hotels, Amazon disrupt retail and Uber disrupt taxis to name a few. With the Big Four banks under increasing pressure to do better – which has resulted in many of them divesting the wealth management platforms that got them into trouble in the first place – there is room for smaller, nimbler players to grab a slice of the market share. Customer-owned banks, second-tier banks and neobanks all stand to gain from the Big Four’s losses as customers start to question what they really want from a bank. Providing great CX, largely based on transparency and trust, will be integral in grabbing that market share.
Fifth Quadrant conducts research that empower companies to improve their CX. A new case study based on a financial services organisation that included customer research, a multi-channel audit, CX benchmarking and a CX recommendation report is now available. To learn more or to get a copy of the case contact Fifth Quadrant today.