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Banking Newsletter - October 2013

A review of key banking markets, culture change, BEPS, lean technology, conduct risk, stress testing and recovery planning, and behavioural economics.

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Banking Newsletter - October 2013

Change the channel 

Why banks need behavioural economics to better target their ‘sticky base’

There’s no doubt our built-in biases directly influence our decisions; whether it’s the car we want, how much to save for retirement, or which bank we use – and selecting the various channels and services our bank offers.

Behavioural economics is an innovative tool that can help banks better understand the underlying decision making processes of their customers – specifically why some (the ‘sticky base’) make certain channel choices.


People often do what social scientists call ‘narrow framing’ – where they only consider the benefits and costs of immediate decisions. Ideally, banks need to provide customers with the ability to make ‘broad framing’ decisions – where they take into account both the immediate and long-term benefits and costs of their decisions.


To achieve this you need to fully understand the behavioural drivers of your customers and what realistically shapes their decisions; which is especially important because of the changing nature of banking channels – particularly to support low value/high volume transactions.


One size doesn’t fit all

While the rise of tablets, faster communications speeds, improved security and the penetration of the smart phone have all contributed towards the migration away from traditional channels, the move has plateaued in some segments. Today we’re seeing the modest but material sticky base less inclined to use these more efficient, cost-effective channels.


By understanding ‘why’ they are reluctant to move, banks can target them with far more precision (both in how to approach them, what to offer, and how to deal with their inertia); providing more channel choice while achieving ‘lower-cost-to-serve’.  This is particularly interesting for banks dealing with the big three cost areas: avoidable branch visits, avoidable calls to the contact centre and paper-based statements.


A number of banks have developed a ‘one size fits all’ solution to channel migration. While a broad-brush approach has traditionally worked for most, we are increasingly seeing that the principle of ‘if we build it they will come’ (in regards to new channels and customer adoption) simply does not work for everyone.


Ultimately, the channels chosen have a significant impact on both their customer’s levels of satisfaction and, naturally, on the bank’s financial performance. So it’s important to get it right.


Multiple solutions, tailored to fit

Our experience has shown that dealing with this sticky base requires a broad mix of solutions implemented with surgical precision.


For example, what is it that makes a certain group contact a call centre multiple times each day? Circular routing may reduce cost-to-serve but not address the underlying issue.
There can be no ‘one, simple’ solution to any given issue.


The challenge for banks is defining the optimal channels in such a way as to maximise their own revenue and cross-sell opportunities, while ensuring their customers retain satisfaction and/or engagement.


A major European bank using behavioural economics tools and techniques found that some of the greatest benefit was to be found from working with customers who: habitually used non-digital channels for simple transactions such as account enquiries despite being an active internet banker; customers who failed to register for internet banking despite being an active internet shopper; and customers who became dormant following internet banking registrations.


By looking at the underlying drivers of behaviour (e.g. ‘novice behaviour’, fear of failure, lack of awareness, perceived ease, etc), banks can have a more profound, positive and lasting impact on customer behaviour, whilst also aiding channel simplification to ensure the right channel for the right customer and the right time and ultimately, their own bottom line.


Helping late adopters to change channels doesn’t have to be a hard sell and can deliver material value for customers and banks.

Daniel Knoll

Partner and Retail Banking Centre of Excellence Leader

+61 2 9455 9148

danielknoll@kpmg.com.au

Peter Harmston

Manager, Operational Improvement Services

+61 2 9346 5528

pharmston1@kpmg.com.au

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