To win and grow in Asia, financial Institutions should bank on customer needs

1. SINGAPORE, 7 JUNE 2006 – Up to 10% of customers voluntarily leave for the competition each year for better offerings and superior customer service, according to more than two-thirds of survey respondents across Asia’s financial institutions. Financial institutions in Asia therefore face a critical choice: court the customer closely or lose out as rivals do so. Yet, the poll finds that the responsibility for customer service quality is often widely dispersed across CEOs (33%), business unit heads (28%), marketing and sales heads (13%) and customer service heads (11%).

2. According to the report, the main drivers of customer churn in financial institutions in Asia are better competitor offerings (45% of respondents) and inferior customer service (36%). Elsewhere in the world, financial institutions lose customers mainly due to better offerings elsewhere and changing customer needs. Across the globe, financial institutions are focusing their efforts on products and services and paying too little attention to the needs of their customers.

3. “To win the battle for growth - particularly in Asia’s bankable population of 508 million, nearly twice the size of the US market - financial institutions need first and foremost to gear their cultures towards serving the customer. This means putting customers needs, not short-term profits, first,” says Dominic Nixon, PwC Asia Financial Services Leader.

4. The battle for revenue growth among banks, insurers and asset management companies in Asia and globally will be fought on three main fronts: improved technology, effective use of information and the ability to recruit, train and motivate customer-facing staff, says a new report from PricewaterhouseCoopers, carried out in association with the Economist Intelligence Unit (EIU).

5. Entitled ‘Winning the battle for growth: Building the customer-centric financial institution’, the report surveyed more than 250 senior executives in financial institutions worldwide, of which 85 are based in Asia, on the subject of customer-centric growth. Overall, the findings in Asia are broadly consistent with the global findings, although there are some minor differences.

6. A notable difference is that as a source of growth, mergers and acquisitions (M&A) are expected to be substantially more important in Asia than elsewhere in the world. No fewer than 58% of those questioned in Asia say M&A are likely to be critical or important in helping their organisations to meet growth targets, almost double the proportion of respondents outside the region. Yet organic growth is highlighted as most important to achieving growth targets by more than 50% of respondents across all territories, driven by selling new and existing products to existing customers.

7. Asked to identify obstacles of becoming more customer-centric, the top barrier cited is a poor IT infrastructure (38% of Asian respondents; 48% global); where many are unable to share customer data across products, business units or customer channels, thus lacking a single customer view. Other key barriers are that businesses structured around products rather than customers (35% of Asian respondents; 38% global); and they lack good information on customer satisfaction and expectations (32% of Asian respondents; 33% global).

8. Throughout the survey, respondents worldwide hail the quality of customer-facing staff as critical to achieving revenue growth. 59% of Asian respondents (65% global) cited well-trained, responsive staff will make their firm’s existing customers more likely to do business with them.

9. “The winners will be those firms which invest in their people and integrate their whole approach to human resources with the customer in mind,” says Jeremy Scott, Chairman, PwC Global Financial Services Leadership Team. He continues, “The quality of customer-facing staff is critical in fostering loyalty in customers, which will ultimately lead to revenue growth. Yet no more than a quarter of respondents rate the performance of these staff as ‘enabled and engaged’ to deal with customers both ‘efficiently and effectively’ as being of the highest quality”.

10. Interestingly, the report unveils that Asia places greater emphasis on human capital initiatives than elsewhere across the globe. Over the past three years, 54% of respondents in Asia (48% globally) invested most effort in products and services training for staff. Furthermore, over the next 12 months, to improve staff performance, Asian respondents will invest more than their global counterparts in product/service training (Asia: 45%, Global: 43%), staff performance (38% vs. 33%) and career development options (23% vs. 20%). In Asia, the focus is on talent retention versus recruitment of new staff over and above that of the global respondents (56% vs. 44%).

11. According to the report, financial institutions concentrate more on metrics measuring financial performance than they do on customer-related ones. Largely, Asian respondents are behind their foreign counterparts in collecting customer metrics. “Financial institutions are more likely to collect financial metrics, such as average revenue per customer, than non-financial ones, such as customer satisfaction and loyalty. They also prioritise financial metrics when setting development priorities for staff. Yet respondents also recognise that financial metrics are generally less effective than non-financial metrics in showing how customer-friendly organisations are. Measuring and rewarding performance on the basis of non-financial customer-related metrics will encourage better behaviour,” comments Karen Loon, partner, Banking and Capital Markets Industry Group, PwC Singapore.

12. Anticipating and addressing shifting customer needs require financial institutions to gather and analyse demographic data more effectively, to offer products that are tailored to personal circumstances and to view the customer’s future as well as current value. Such analysis is still rarely performed by businesses in Asia and data is more likely to be focused on customers’ product histories than on their future value to the organisation or their loyalty profile.

13. “Only by integrating information and procedures across channels with flexible technology and an open organisational culture can financial institutions satisfy today’s customers and only by aligning value with customers can they hope to grow their businesses in a sustainable way,” says Dominic Nixon. “Even in the fastest-growing markets, what is needed is a determination not to lose sight of the customer and to focus on what he or she wants over their life cycle,” Dominic Nixon concludes.

• Growth in Asia is ubiquitous . The overall “wallet” for spending on financial services of all forms in Asia (excluding Japan) is worth US$304 billion a year, a figure that is expanding at the rate of about 10% annually. Of that total, corporate and investment banking accounts for 46%; consumer banking, including credit cards, about 42%; and management services, including private banking, another 12%.

• Technology counts . Many younger institutions in Asia, unlike their global counterparts, are fortunate to escape the need to integrate incompatible legacy IT systems. In India, the ICICI Bank, a rising star among India’s crop of private-sector banks, started from scratch a decade ago and simply bought in the latest information technology. This gave the bank an immediate advantage over most of its competitors in the country’s public sector.

• Islamic finance to the fore . It is not just conventional banking and financial services that are growing at an enviable rate in Asia. Demand for Islamic finance is too. With the help of HSBC Amanah, which specialises in Islamic finance, the Kingdom of Brunei recently bypassed conventional capital markets altogether to raise Bru$150 million (US$95 million) through an issue of asset-backed securities that complied with Sharia law.

• For more information, please contact Lee Wan Ming (Direct line: (65) 6236 3973, wan.ming.lee@sg.pwc.com)