(Australia) – The goal posts are shifting in Australia's sub-A$100M turnover enterprise market as 2 of the Big 4 lose market share and the targeted players and internationals continue to lift their act.
This first demand analysis interrogating the Australian market's mid-corporate use of and satisfaction with Transaction Banking services has established several important performance benchmarks. The primary goals in executing this 6 monthly assessment of individual bank performance in Transaction Banking are:
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Provide bank clients with a clear, sustainable view of what the Australian mid-corporate markets expect in Transaction Banking – what is important to them, how do the key delivery issues relate to each other, what are these factors and how do they contribute to a profitable relationship.
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Provide reliable measures of market share and "share of wallet" by key transaction product.
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Deliver rigorous, quantitative measures of performance against these same factors on both a market-wide basis and for individual banks.
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Enable bank clients of these benchmarks to reliably and comprehensively track their individual performance in the eyes of their key corporate customers against the market as a whole and specific competitors.
Competitive market share positioning is a central metric in bankers both assessing their performance in the marketplace and, where appropriate, an often used indicator with corporate customers of the bank's value proposition and therefore a key reason for an individual customer doing business with the bank. Equally, market share is also referred to by customer CFOs and Treasurers in evaluating potential relationships with service providers as a proxy for actual performance.
The focus many banks are placing on cross-sell ratios being achieved into their corporate account base as a major source of growth and profit has made accurate, meaningful market share monitoring critical to overall bank performance management. This is especially the case in this mid-corporate market which, as a result of its large numbers of enterprises, has always been a challenging segment for a bank to “get right” in terms of a product marketing and relationship development balance.
Real measurement of market share can be problematical. At a macro level and using broad measures of transaction performance such as OTC volumes, it is relatively straightforward. At a product level, this is not the case. Often corporates cannot clearly identify the cost of their product banking services, reporting transaction volumes can be difficult and, in panel-banked services, the task of identifying trades by bank over time periods is often beyond the installed reporting systems. The two types of measure we have used for this market segment are, as a result, focussed on account relationships and estimated share of business executed in volume terms with transaction banks by the mid-scale corporate.
Transaction Customer Value = Product or Relationship or Both?
Historically CFOs, Treasurers and Boards tended to view their primary banking relationship as existing with the bank to which they had greatest debt exposure. This, during much of the 90's changed to be the banker delivering Corporate Advisory support – the bringer of deals and equity. The circle continues to turn further and is rapidly reverting to the corporate's core Transaction Banker (TB). Just as the banks are continuously looking to build value and margin into their relationships, the corporate is chasing something unique that differentiates a bank from its competitors in ways which connect with that corporate's needs. These trends are particularly evident in the mid-corporate market as banks look to move down the “feeding ladder” with product and service built originally for the “top of town”.
Just what products are being taken up by mid-corporate customers?
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It's Just as Tough in the Mid-Corporate Transaction Banking Markets as Anywhere
Fully 6 of the 7 transaction banking product groups and all 6 relationship factors are rated as being of above average importance to the mid-corporate. It is historically a conservative marketplace, one that has often been in the past relationship driven from the transaction banker's branch network and management.
Values such as Innovation have not held significant influence over customer behaviour relative to “getting the basics right” and “being loyal”. This is all changing as banks implicitly challenge these customer assumptions by presenting fresh reasons for doing business. In particular the promotion of e-banking products into the segment over the past 5-6 years has lifted expectations regarding service levels in the minds of mid-corporate customers at the same time as highlighting deficiencies inherent in such proprietary solutions. This is reflected in the importance attached to the provision of internet (open platform, browser based) e-banking solutions by customers in the analysis below.
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How are Transaction Banks Performing in Australia's Mid-Corporate Markets?
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Transaction bank customers report modest satisfaction with transaction product performance, and although none of the 7 core product groups are rated at worse than “average”, (2.5 on the reversed 1-5 performance rating scale used) none are seen as outstanding either.
Substantial variation in individual bank performance is evident in the ratings being accorded to each from their customer bases however. In a marketplace under aggressive development by transaction banks, retention and deepening of an individual bank's existing base is critical. Significantly differences are also plain dependent upon the relationship with the mid-corporate being a Primary or Secondary one.
The best 3 rated transaction bank service factors have been identified by customers as:
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Quality of People
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Understanding of your Business Needs
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Loyalty to the Relationship
Although differently ordered, these match with the 3 most important service issues for mid-corporates, indicating banks are doing a good job in focussing on factors in the relationship the customer is looking to have demonstrated and delivered.
Which Transaction Banks Have Most to Lose and Most to Gain?
Expectedly, the “Big 4” domestic players have a dominant 84.1 percent collective share of primary relationships in this important mid-corporate market.
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Big differences in account share by product line exist and in secondary relationship positioning between the banks. Not so pronounced perhaps, substantial variation between banks is also seen in the proportion of business volume within a particular product line being enjoyed by the principal transaction banker.
The Need for Banks to Lift their Performance to Mid-Corporates?
The market is experiencing a rapid escalation in account churn with 14.5% of all mid scale corporates actively considering a change in their transaction banker within the coming 6 months. Were this all to eventuate, it equates to an annualised churn rate of nearly a third (29.0%) of all accounts moving transaction banker. The product lines particularly driving this anticipated change are:
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Cash Management
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Integrated e-Banking Service (reflecting a move to internet based solutions)
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Trade Finance
The two banks bearing much of the brunt of this likely change are:
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Westpac Banking Corporation
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National Australia Bank
The lowest levels of nascent account churn are currently enjoyed by the Commonwealth Bank of Australia and ANZ Bank, less than 10 percent of whose account bases are considering a move.
The really big things mid-corporates want to see from their transaction banks going forward (of the 10 areas analysed) – initiatives that "would make a difference" are:
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Better / closer understanding of client's needs
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Clearer presentation of bank fees and charges
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Reduction of bank fees and charges
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Local branch authorities returned / improved
Notably, only 4 percent of all mid-corporates saw no need for any improvements in their transaction banking arrangements or service levels.
We look forward to exploring the detailed findings of this research and analysis with clients over the coming weeks and record here our appreciation to all participants in the research for the quality of their input to the start of this ongoing 6 monthly program of performance measurement in Australia's Mid-Corporate Transaction Banking market.