Competition in Business Banking heats up: East
East's second six-monthly survey of Australia's Commercial Treasury Markets shows that 14.7 percent of the corporates surveyed saw themselves as "definitely" or "probably" changing their primary banker in the next six months - a 25 percent acceleration of predicted churn rates since the last survey.
A further 10.9 percent said there was a "possibility" they could change bank.
East interviewed chief financial officers or their equivalents at 651 companies turning over between A$20-100 million a year. The research, completed during December 2002 and January 2003, represents around 10 percent of the 6000-7000 companies within this business sector.
The sector is becoming increasingly important to the banks, and is shaping as a major battle ground and growth area for those banks that can get it right in 2003.
Commercial customers are starting to experience an explosion of interest for their business as banks look to move down the "feeding chain" with products and service built originally for the "top of town."
East's research shows that the banks have an enormous opportunity to develop new business with more sophisticated offerings than most business customers have been using up until now.
All but one of the 23 product areas surveyed have shown an increased uptake over the past six months (Forward Rate Agreements being the single exception).
The report also shows:
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That this mid-market segment view their primary banking relationships to be with their transaction banker. From this platform, banks are looking to leverage their relationships and introduce new and more sophisticated products.
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The dominance of the Big Four banks in this mid-sized sector is slipping. The Big Four banks had a combined 82.9 percent share of primary transaction banking relationships in the current survey, down from 83.8 percent in the last research round.
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In terms of poaching business, competitors are targeting the ANZ and Westpac. 6.0 percent of ANZ customers have been approached to change banker in the past six months, with 5.5 percent of Westpac's customers also receiving an approach.
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On Call Accounts, Term Cash Deposits and Overdraft facilities remain the three most important product areas for Australian businesses. The three least important are Commodities, Floating Rate Notes (Investments), and Foreign Currency Term Loans.
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Of 13 relationship service factors surveyed, the three most important were Quality of (Bank) People, Loyalty to the Relationship, and Understanding (Customer's) Business Needs.
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These mid-ranked businesses are dissatisfied with their banks' performance in A$ term loans. This is the fourth most commonly engaged product, and was rated sixth most important out of 23 products. Despite this, businesses rated it as the bank offering they were most dissatisfied with.
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At the same time, business customers are showing an increased appetite for debt products such as, leases, overdraft facilities and A$ term loans. This is good news for the large domestic banks looking to compensate for softer demand in housing debt in the retail market, but customer dissatisfaction with term debt offerings may act as something of a brake on demand growth unless suppliers can deliver.
Commenting on the report, East and Partners principal analyst Paul Dowling said: "This commercial sector represents a very fertile hunting ground for service providers looking to extend their account base, but not all of them are getting it right.
"The fact that a product like A$ term loans is rated by mid-sized businesses (the real powerhouse of the Australian economy) as the product they are most unhappy with is extremely concerning, and points to a wider problem.
"It illustrates the anecdotal feedback we receive frequently during interview programs, that customers don't think their banks are getting the simple things right, and yet the banks are starting to talk about new, more sophisticated services.
"That the survey also indicates a growing demand for debt in this commercial sector, is good news for those banks who do get it right in 2003."