There is a renewed focus on customer retention strategies among financial institutions.
Prioritising Existing Customers or Chasing New Corporates?
While the old adage “it costs five times more to acquire a new customer than to retain an existing one” may not be entirely accurate, there is a renewed focus on customer retention strategies among financial institutions.
Compressed resources, ultra-low interest rates, dampened revenue projections and uncertain default rates are spurring banks to seek out sustainable growth opportunities.
Intuitively, concentrating on share of wallet initiatives, (increasing the amount of business from each individual client) makes perfect business sense. New to bank customer acquisition is both expensive and complex, not to mention the need to jump through various KYC (Know Your Customer) and AML (anti-money laundering) hoops.
By contrast, deepening relationships with existing customers enhances loyalty, which in turn encourages clients to allocate more of their commercial banking spend to their primary bank instead of dispersing it across multiple providers. It also has the potential to flourish into positive advocacy via valuable word of mouth promotion and mind share development. Why Now More Than Ever?
The COVID-19 pandemic has led to a recurrence of “sticky” behaviour among large corporates according to the latest Global Insights analysis from East & Partners. Customer churn intentions are decelerating broadly across most transaction banking product lines except for trade and supply chain financing.
CFOs are delaying their decisions on new products or providers until the crisis has passed. Rapid moves to digitising transactional services are under-pinning these dynamics. In fact, three out of four corporates have not switched any of their banking relationships since the onset of the pandemic, and 71 percent do not plan to do so in the coming year.
East & Partners identifies this as an unprecedented opportunity for banks to strengthen and reinforce customer relationships by offering reliable guidance and support to navigate out of the crisis. It is the perfect moment for banks to demonstrate that they are listening to and addressing evolving customer needs.
At the same time, corporates are also allocating more business to their primary provider as a direct result of the coronavirus pandemic. On average, corporates around the globe are allocating 30 percent more of their lending/balance sheet wallet to their primary provider.
Similarly, but to a lesser extent, primary wallet shares for transaction banking and payments, as well as cash management and liquidity solutions have also increased by 16 percent and 15 percent, respectively.
Is your bank taking advantage of this opportunity to foster greater trust with existing customers?
Impact of Covid-19 on Primary Provider Wallet Share Allocation Average % Change Reported Source: East & Partners Global Insights Report on COVID’s Shake Up of Relationship Banking – H1 2021 Which Customer Segment to Focus On?
When it comes to deciding which customer segments to prioritise in order to present the best potential returns for the business, having greater granularity into existing customer behaviour is essential. Some invaluable insights banks use to identify “Next Best Action” include customer engagement across all lines of business, risk profile of loan portfolios, customer satisfaction, their needs and plans, buying triggers, churn intentions, mind share and dollar value of servicing business in each segment.
Within incumbent relationships, East & Partners research has demonstrated that the distinction between primary and secondary institutional banking relationships are blurring, with the latter representing an increasingly important revenue stream for transaction banks in Asia.
The wallet share for a typical secondary transaction banking provider in the region has grown three-fold since 2004 to reach 36 percent, highlighting intensifying competition as multibanking cash management, payment processing and transactional services becomes more prevalent.
Does your bank have a clear line of sight to your customers to build an effective segmentation and corresponding strategy?
Secondary Transaction Banking Provider Average Wallet Share % of Total Source: East & Partners Asian Transaction Banking Markets insights analysis – H2 2020
What Does This Mean For IB Teams Responding to RFPs?
Reviewing corporates’ Requests for Proposals (RFP) experience with the bank is a key place to start once an appropriate customer segmentation has been identified. We note that whilst RFP volumes have fallen somewhat during the pandemic, the average value of those RFPs has been resilient, making win or loss in RFP responsiveness even more critical for providers. Furthermore, three out of four RFPs received by banks are from existing customers.
"We’re getting concerned about the coronavirus’ effects
on our cross-border business operations and are working
on having explicit requests for responses to this
in future RFPs with our banks" - Corporate Treasurer, US$30 Billion Hong Kong Logistics Group
Yet oftentimes, corporates feel taken for granted in the way their main transaction bank responds to their new needs developing within the enterprise. Common challenges cited include slow response rates, unsatisfactory proposed solutions, and having to pay a “loyalty tax”.
East’s research reveals that one in five corporates across the globe have launched a new RFP process recently as a direct result of dissatisfaction with their current provider (22 percent). And this issue is particularly prominent in Hong Kong where 31 percent have nominated it as the key driver for initiating RFPs.
What is your bank’s RFP success rate?
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