Corporates growing impulse to “multibank” is emerging as the greatest threat to incumbent relationship banking leaders because of the increased likelihood of customer churn and reduced primary wallet share. Banks are constantly pushing to position themselves as the sole preferred choice for business banking services across all product lines. Nevertheless, this concept has been placed under considerable pressure in today’s evolving market due to the rise of financial technology (fintech) companies winning share away from even the most ingrained banks.
Customer churn has been at an all-time high in widely traded Business Foreign Exchange (BFX) products. According to East & Partners’ United Kingdom (UK) BFX research program, approximately 30 percent of British Spot FX customers changed their primary provider in the past six months. Multi-banking has gradually proliferated in FX Options also where the number of providers used by customers has increased steadily since 2018. Notwithstanding this trend, FX Forwards continue to remain a predominantly “home banked” product because it is transacted over-the-counter (OTC) on a contractual basis. If financial and regulatory technology companies are able to standardise and regulate this product on a large scale, then we could see this product also following the same trends as Spot FX and FX Options.
East & Partners research confirms a similar tendency towards banking in a more holistic way for lending and cash management products, particularly since the onset of the COVID-19 pandemic in early 2020. Both areas are extremely important to keep business’ afloat during times of economic uncertainty. In this instance, it is important for corporates to work closely with their primary bank.
Primary Provider Wallet Share – Since COVID-19
Average % Change
Source: East & Partners, Covid’s Shake Up of Relationship Banking, 2021
Since the COVID-19 pandemic, lending (25.9 percent), payments (16.0 percent) and cash management (16.4 percent) have each recorded improved customer retention levels for banks. However, cross-border trade (-14.1 percent) and deposits/investments (-5.8 percent) are each characterised by a high level of “leakage” taking place as customers increasingly spread their “wallet” across multiple providers.
Post COVID, if new entrants continue to disrupt the market, then we could see wallet share becoming fragmented across the board. To prevent such trends from occurring, banks must be ahead of the game in customer satisfaction and experience, particularly if banks are seeking to obtain complete exclusivity in primary corporate banking relationships. High street banks are by no means taking the challenge lightly, seeking to enhance their offering and ensure nimble new entrants must fight to get their foot in the door as secondary providers of business banking services for one-off or infrequent needs only.
East & Partners’ research outlines the four main factors that can decrease the likelihood of customer multi-banking, strengthen customer loyalty, and enhance wallet share.
1. Seamless Onboarding
The onboarding process is the first opportunity for banks to establish long-lasting relationships with clients. This is the moment where corporates expect to see banks at their best. It precludes relationship share dilution and strengthens customer satisfaction. However, East & Partners’ research reveals that the UK’s top 100 revenue ranked corporates have a significantly poor onboarding experience across all major product lines.
Using an inverse rating scale between 1 – 5 (where 1 is excellent and 5 is poor), corporates rated their onboarding experience an average of 3.42 across payments, cash management, FX/cross-border payments and trade/supply chain. These extremely poor customer outcomes are eye opening and for many CFOs a perennial paint point as they undertake frustratingly slow and over complicated onboarding processes.
If banks are struggling to deliver a seamless onboarding experience for their most valued customers, then it could prove difficult for banks to prevent customers from looking for alternatives, with East research showing 16.3 percent of global top 100 businesses walked away from a preferred provider due to their onboarding process.
2. Efficient Product and Service Delivery
The delivery of business banking products is fast becoming as important as the products themselves. There has been a significant shift in delivering solutions through digital platforms and Distributed Ledger Technology (DLT). Implementing appropriate technology and digital interfaces creates an efficient user experience and increases the likelihood of customer retention and loyalty.
With the existence of COVID-19, this digital standpoint has become an essential part of what customers expect from their banking provider. According to East’s research, digitisation and visibility were keenly noted by 35.8 percent of enterprises as the main benefits banks could offer to win more business in the current COVID crisis.
Areas such as e-sign and e-documentation have become expected from business of all sizes with the pandemic a catalyst in the roll out of such capabilities.
3. Value for Money
Fintech’s growing presence in financial services has meant that banks must be more competitive on pricing and deliver ‘above and beyond’ corporates’ expectations. Price and quality of service are the two building blocks in which corporates evaluate whether it is worth banking with one provider over another.
While price can often devolve into a race to the bottom, value-add services such as competitive customer benchmarking and position analytics can be used as tools to increase the value of a service. Interestingly, 20 percent of the UK’s top 100 corporates view this as a critically important value add to their business.
4. Flexibly Product Range
Whether it is for cash management, FX, lending, or trade finance; UK corporates need flexible working solutions to navigate changing markets and cater to increasingly complex needs. Banks who do not have the infrastructure to increase their product range can often achieve this by partnering with other institutions. Having a comprehensive range of products to offer corporates positions a bank as a one-stop-shop for customers.
According to East research, 86 percent of businesses are not delaying new product decisions for trade or supply chain even in the current COVID-19 pandemic. Similarly, 77.9 percent of businesses also are not delaying new product decisions for deposits and investments.
Competitive Banking Battleground Taking Shape
The trade-off between multi-banking and relationship banking has been an ongoing phenomenon. Multi-banking has clearly been the prevailing trend in banking products such as FX and deposits, with relationship banking traditionally more prominent in products such as cash management and lending.
As customer satisfaction dwindles, multi banking increases. An unhappy customer will not switch to another provider immediately but will instead start to rely on their secondary and tertiary providers more, slowly chipping away at the incumbent’s wallet share until they fade from their primary position. To stop this wallet share leak and shore up revenue, providers would do well to look to their customer experience and ensure satisfaction levels are as robust as possible. While it is not always possible, nor desirable, to be a corporates one-and-only banking partner, for those that do want to address the leaking wallet brought about by multi banking, a focus on old fashioned relationship banking and ensuring happy customers is a good place to start.
The COVID-19 pandemic has irreversibly impacted how corporates bank, with customers returning to the safe havens of traditional banks. However, unless incumbents can materially improve their value proposition and overarching experience, in the long run a greater incidence of multi-banking is likely to unfold.