Traditionally the big Four banks in Australia have had a stranglehold on the industry. With their significant budget and IT resources, they have been able to invest in platform solutions enabling them to deliver unified platforms of business, channels and data, giving their customers digital banking experience meeting their expectations of ease of use. Historically, smaller banks have not had the resources to deliver the same level of customer experience.
However, this is changing with changes in technological infrastructure. Cloud technology has levelled the playing field. The cloud allows banks of all sizes to achieve faster deployment across all their business units and territories while platform-as-a-service capabilities (PaaS) have allowed smaller banks to use engagement banking engines that deliver customer experience that’s comparable or even better than Tier 1 banks and a level of engagement that’s easier on the budget.
There is a significant opportunity for mid-tier banks, credit unions, and mutuals to challenge their competition, regardless of size, by investing in digital experience that enables customer service and engagement and product innovation.
The Backbase E-book Banking Disruption: Australians' Shift in Focus Towards Credit Unions, Mutuals, and Second Tier Banks shows while 63% of respondents have been customers of their primary bank for over 10 years, this legacy is starting to shift. The research suggests that banking customers are ready to change and perhaps shift their focus to credit unions, mutuals and Second Tier banks.
The Backbase research reveals that one in five (19%) consumers now claim they are considering switching from their primary bank with 4% moving to a credit union or second tier bank and 10% who are switching but have not decided on the bank to switch to.
This is despite more than half (54%) of consumers saying they are confident their primary bank of choice is pricing their products and services, including interest rates, fairly.
The research suggests however that this could change. The Backbase research shows the most popular features of the new payment platforms and banking apps are financial insights, savings plans, fast payment, loyalty-based rewards and personalised interfaces.
More than a third of respondents said a good digital experience was enough for them to join or stay with a bank and one in five said the digital experience was one of the key features they assessed when choosing a bank.
In other words, one in five consumers might not be switching banks because of pricing of services and products but because the new technological infrastructure provides greater engagement.
This is further borne out by the research showing that over one third (35%) of consumers claim they haven’t visited a physical branch in the last six months. There is growing competition to meet digital customer experience expectations with consumers increasingly resorting to mobile-first and digital-first ways of managing their finances.
The Backbase research supports this with 74% of consumers comfortable with opening a savings account digitally without having human interaction and 27% comfortable with subscribing to term deposits using self-serve digital apps. Similarly for personal loans, 20% of consumers are comfortable with subscribing to new loans digitally without human intervention, while 24% value financial insights on their banking app.
Backbase has designed the Engagement Banking Platform to focus on the full digital customer lifecycle, across all lines of business, from customer onboarding, customer transaction, customer servicing, customer loyalty and loan origination on one codebase and one single architecture.
Organisations like Netflix, Amazon, Spotify, Airbnb and Uber have used platform-centric technology to deliver a higher level of customer experience. Backbase is doing the same with its EBP which is designed only for banks.
Iman Ghodosi, the managing director for Backbase ANZ said it’s significant that one in five consumers are considering switching their primary bank. It was, he said, an opportunity for mid-tier banks, credit unions, and mutuals.
“It allows them to effectively compete for that 20%” he said.