By Kenny Lam and Jatin Pant with McKinsey
Banks doing business in Asia face rapidly changing consumer behavior, with big consequences for both local and multinational institutions. Consumers increasingly prefer local banks over multinationals, and they are less loyal to existing banking relationships, much more cautious about borrowing, and more open to Internet and mobile banking.
These shifts in the nature of banking relationships, product and service needs and channels are reflected in a 2011 McKinsey survey of 20,000 consumers in 13 Asian markets.
Almost 81 percent of consumers in emerging Asian markets and 63 percent of consumers in developed Asian markets consider it important to deal with a local institution.
In mainland China, this percentage jumped by 12 points, from 75 percent in 2007 to 87 percent in 2011; in Hong Kong, by 21 points to 76 percent; and in Taiwan, by 17 points to 68 percent. Indian customers showed the highest preference for dealing with a local institution: 95 percent ― 20 percentage points higher than in 2007. The preference for banking with local institutions is especially pronounced in the upper-mass-market and mass-affluent segments across Asia.
We speculate that these changes reflect Asian consumers’ anxiety over the safety of foreign banks in the aftermath of the financial crisis. So multinationals face a clear challenge in repositioning their brands: they will need to invest in much deeper localization of products, services and the overall customer experience.
One way to do so is to shift from a reliance on expatriate managers and embrace local professionals who should be better able to develop and execute a more relevant frontline, customer-centric model.
Despite high satisfaction levels, banks across Asia have seen a dramatic drop in customer loyalty since the 2008 crisis, with an average fall of 11 percentage points since 2007. In China, the percentage of respondents who said they “would recommend their financial institution to a friend or colleague” declined from 57 percent in 2007 to 47 percent in 2011. The Philippines (72 percent) and Thailand (71 percent) had the highest loyalty levels, while Japan is the least loyal market in Asia (13 percent).
An immediate outcome of this reduced loyalty is a marked increase in the number of banking relationships across pan Asia ― up by 22 percent in 2011. In some segments, the increase was even higher among mass-affluent customers in developed Asian markets.
Paradoxically, even as Asian consumers engage with a broader variety of financial institutions, they say they would still like to consolidate their banking relationships.
The results also indicate that seven out of the top 10 drivers of loyalty reflect the quality of the customer experience and services a bank offers. Consumers value banks that are more personal, flexible, proactive, and ― most important ― where employees go out of their way to help resolve issues.
These factors were more valued than other metrics such as branch location, better products, or pricing, which are the focus of most retail banks.
Consumers across Asia say they are far more reluctant to borrow since the onset of the global financial crisis. The number of respondents across Asia who agree that “borrowing is always risky” jumped to 70 percent in 2011 from the 43 percent of consumers who agreed with this statement in 2007.
In several major markets, the increase in the number of respondents who agreed that borrowing is always risky was even more striking: it more than doubled in China and Hong Kong as well as in Taiwan. From the perspective of credit products, despite the relative aversion to borrowing, the high-growth economies of developing Asia will continue to offer opportunities for consumer finance, especially mortgages and automobile loans.
Asian consumers are being weaned from brick-and-mortar branches: for the first time since McKinsey began conducting the survey, 13 years ago, bank branch usage has dropped, plunging by 27 percent on average across Asia between 2007 and 2011.
This drop has been matched by an uptick in Internet and mobile banking, a trend particularly pronounced in developed Asian markets such as Hong Kong, South Korea and Taiwan. There, consumers now use new channels such as the Internet and mobile devices, for their banking more often than traditional ones such as telephones and branches.
That shift arises largely from the increased penetration of remote channels. A growing number of customers across income segments are getting accustomed to and comfortable with them for both sales and service. The multichannel environment has thus become a reality: our research highlights the fact that, on average, Asian consumers are using as many as five channels for research and up to two channels for maintenance.
To win in the multichannel environment, players need to identify what role each channel will play, given technology trends and shifts in user behavior. The branch network, for example, should be oriented to a sales and advisory role, while the bulk of routine transactions shift to next-generation ATMs and mobile banking. Call centers could focus primarily on service maintenance; the Internet would play a more central role in acquiring customers and in cross-selling.
Kenny Lam is a principal in McKinsey’s Hong Kong office, and Jatin Pant is an associate principal in the Mumbai office. The article was published in the recent issue of McKinsey Quarterly. “Emerging Asia” refers to China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam; “developed Asia” to Australia, Hong Kong, Japan, Singapore, South Korea, and Taiwan.