CUSTOMER LOYALTY IN RETAIL BANKING: GLOBAL EDITION 2013 What it takes to make loyalty pay off

Contents Executive summary: What it takes to make loyalty pay off... 2 1. Loyalty trends around the world... 9 2. Leaders and laggards in the shift to omnichannel... 15 3. Mobile banking expands its mainstream appeal... 21 4. The battle for scarce new customers... 27 5. Cross-selling: The golden opportunity.... 33 6. Five ways to realize the fruits of loyalty... 39 Page i

What it takes to make loyalty pay off How exactly does customer loyalty translate into better financial results for a retail bank? And how much value is at stake? For many bankers, the link between loyalty and financial results is somewhat unclear. This year s report, based on Bain s proprietary research with 190,200 consumers in 27 countries, sheds light on how banks are using (or failing to use) loyalty to improve the economics of the business. The research was conducted online in July and August 2013 through market research firms Research Now and GMI. In some countries, banks made progress in earning customers loyalty during 2013, as indicated by a rising Net Promoter Score SM (NPS ). But Bain analysis shows that they are far from exploiting the full potential of that loyalty. With new customers more scarce, loyalty is half the battle In all 27 countries surveyed, banks formed new relationships customers switching their primary bank plus customers altogether new to banking at an average rate of about 3% in developed markets and 6% in developing ones over the past year. Earning high levels of customer loyalty definitely helps the cause: On average, a bank s relative NPS explains roughly half of the variation in its relative win rate a metric that shows whether a bank is winning more or less than its fair share of customers. Relatively strong NPS among existing customers thus allows banks such as DKB in Germany and Bankinter in Spain to win more than their fair share of new customers. Other factors that influence win rate vary by market, but the factors that customers cite most often include the level of fees, the convenience of the branch network and the ease of opening an account. Winning new relationships provides a lifetime of opportunity to sell people more banking products and earn their advocacy. Given the low rate of new relationship formation, however, this route alone will not be sufficient as a growth strategy. The missing payoff from existing customers Most banks currently miss a significant opportunity for cross-selling to their existing customer base. The steady expansion of the middle class in emerging markets, combined with digital channels making it easier to purchase products, has created a huge opportunity to cross-sell, but it has also become easier to buy from a bank other than your primary provider. About half of customers in developed countries and 84% in emerging countries opened a new banking product over the past year. And customers purchased fully one-third of those products, on average, from a bank other than the customer s primary bank. Loyalty matters in cross-selling: For almost every product and in every country, customers who gave their primary bank a high NPS both own and purchase more products from that bank than customers who gave a low NPS. Page 2

The unbundling of financial products has spread through some countries faster than others. In the competitive Hong Kong market, for instance, 77% of customers took a new product, but only 52% chose their primary bank. It s a different story in Denmark, which has a highly-concentrated banking sector. There, 38% of customers took a new product, and fully 81% stayed with their primary bank. Competitive forces likely will increase over time, giving customers even more bank options. Yet unbundling does not necessarily limit a bank to only a certain share of its customers financial purchases. Product win rates the share of products bought by respondents at their primary bank vary even more by bank than by country. In the US, the rates range from 38% to 63%, with Huntington National Bank leading overall. Several years ago, Huntington (which had high NPS to begin with) began to consolidate customer data and build a unified view across all locations and business units. It replaced its manual sales process with an automated one that made it easier for employees to manage cross-selling and upselling opportunities. Huntington has gradually grown the number of products held by customers. Loyalty plays a key role. The difference in product take-up between customers who are promoters of their primary bank (those who give an NPS of 9 or 10) and customers who are detractors (those giving an NPS of zero to 6) is a healthy 14 percentage points on average for developed countries and 10 points in developing countries. The winning model: Loyalty plus five capabilities Our research and client work show that loyalty needs to join up with five specific capabilities in order to spur existing customers to buy more from their primary bank, attract new customers and reduce costs without damaging customer relationships. 1. Decide where you must win and where you re willing to lose Banks in many countries have a long history of egalitarian treatment of customers, regardless of how much their marketers segment the customer base. But catering to the average means catering to no one in particular. Each customer segment has different priorities, expectations and lifetime value for a bank. Our US survey finds, for instance, that older customers care more about branch location and quality of branch staff, while younger customers place greater value on mobile device interactions and rely heavily on recommendations from family, friends and colleagues. Leading banks not only know such preferences and behaviors well, they act on that knowledge by taking distinctly differentiated tacks for each segment. Some loyalty leaders, for instance, have improved offerings for affluent, high-value customers and wrapped them in premium services. That s how Citibank has become Asia s largest wealth manager under the Citigold brand. Others have created entirely separate models for young adults. In Singapore, OCBC s FRANK by OCBC branches could pass for a hip clothing store. They offer edgy images on debit cards and a simple savings account. What you don t find at FRANK are tellers or cash. And some banks profitably serve segments such as pensioners or lower-income customers with good-enough products and service through light-branch formats. In Malaysia, Maybank serves a mass market with self-service kiosks open for extended hours. The kiosks allow customers to open an account with just their identification in 10 minutes, for seven product categories. Page 3

2. Design products that pop Retail banks find it difficult to keep their products distinctive, as product features get copied quickly. At a minimum, banks must at least keep up with the latest features that customers value. Banks also can differentiate products at the margin through innovative pricing or by bundling several products together in appealing ways. Customers obviously care about product features like interest rates and fees, rewards, ease of transaction and, for more complex products like wealth management, the quality of advice. Banks show a wide variation in how customers perceive their product performance. Among US banks, the share of customers who say their primary bank performs well or extremely well on home mortgages ranges from 62% for the lowest bank to 97% for USAA. In Australia, Westpac has differentiated its BT Super for Life superannuation account by allowing customers to apply online and to see the account online alongside their current account. St.George links its home equity line of credit to various interest offset accounts, making it easier for customers to manage taxes and investments. Whether with a current account, credit card or mortgage, the key is to strike the right price-value balance for the target customer. And there s a minimum menu of offerings necessary just to have credibility in a category. 3. Accelerate the digital transformation As digital banking spreads, banks increasingly have opportunities to excel at moments of truth in the customer experience, such as resolving fraudulent account activity or giving expert advice. They can also use technologies to delight customers through transactions such as remote deposit capture. Conversely, slow or confusing digital interfaces will quickly annoy customers. Banks have made significant progress in the shift from a mostly analog world to an omnichannel world, where customers expect to be able to use the channel of their choice when and where it suits them. Yet we re still in early days with a long way to go. More than half of customers interactions on average took place through online or mobile channels, ranging from 75% in Norway to 38% in Mexico. But many banks could make more of the technology or steer customers to adopt it. Globally, fewer than half of respondents in developing countries and just over one-third of those in developed countries used smartphones or tablets for their banking. The cross-country variation ranges from 60% in China to 17% in Belgium. In South Korea, fully 56% of customers engage in mobile banking. Hana Bank has consistently focused on digital innovations, such as the ability to withdraw cash from ATMs via smartphone, with only the phone number required, not an account number. Parents can also send money to their children via their smartphones, and the digital currency works at many Korean retail outlets. Mobile usage also varies within most national markets. Lagging banks and countries should be concerned, because mobility continues to spur customers to recommend their bank. Mobile users give an NPS 25 points higher on average than people who don t use mobile devices, and that premium rises in countries such as China and Thailand. As banking moves to an omnichannel world, the future of the physical branch remains an open question. But two things have become clear. Page 4

First, too many routine interactions, like making a deposit, take place in the branch in many countries. Banks can no longer afford the cost structure that supports such interactions, which could go through lower-cost, selfservice digital channels. Globally, some two-thirds of branch interactions consist of the routine, with only onethird being sales or service. Second, branches in every market remain the dominant channel for starting relationships. Roughly three-quarters of new account openings happen in branches. During this omnichannel transition, success hinges on making digital channels convenient and defect-free, and on converting branches to more sales-oriented purposes. Nordea, one of the largest Scandinavian banks, has shrunk and modified its branch network so that only 45% of branches now manually handle cash, down from 85% in 2009, and they focus instead on advice and sales. 4. Loyalty gives you the right to win more business but you do have to ask for the sale Banks with strong customer loyalty have an open door to win more of their customers business. For every financial product and in every country market we have analyzed, we find that promoters buy more products with their primary bank than detractors do. That doesn t mean the business comes effortlessly banks have to ask for it. For example, about one-third of banking products in the US are sold, not bought. That is, customers did not plan to buy a particular product, but they received an offer and then decided to get it. Returning to Maybank in Malaysia, the bank has chosen to bundle products in a way that make it easy to sell them. Customers apply once for all products and provide all necessary information at that time; they then can activate and access products as needed, through the channel of their choice. In Australia, Hong Kong and India, Citibank excels in onboarding and then cross-selling to customers, particularly in wealth management. Citibank mandates that every relationship manager raises his or her customers share of wallet each quarter. Some banks that are loyalty leaders score low on the sales metric, but the good news is that their customers accept the right kind of sales overtures. Other banks have high selling scores but lag on NPS. These players will want to concentrate on adjusting the tone of their selling and delivering a better experience after the sale. 5. Build branding that delivers more trust, less buzz The brand interacts with the other elements discussed here and either enhances or degrades each one. In fact, a bank s NPS tends to be highly correlated with its brand strength. Banks standing among regulators, legislators and the broad public took a hit in the years following the financial crisis. In response, many banks have increased their advertising and other forms of explicit marketing over the past few years, with the hope of restoring their image. Although building awareness can be useful, a new brand campaign by itself merely applies a fresh coat of paint on a rusty ship, rather than repairing the engine and hull. Rebuilding trust involves a slow, steady process. Credibility comes by telling the story of what a bank has to offer, not what it wishes to be. And that story also gets shaped by the daily interactions with customers. Page 5

Hang Seng in Hong Kong, for example, promotes the attributes of a friendly, service-oriented local bank. Hang Seng reinforces these brand attributes not only through activities with local neighborhoods and universities, but also through convenient branch locations in the local transit system and through staff training. A customer-led, not marketing-led, perspective on the brand leads bank managers to spend their time differently. Instead of asking brand questions ( Should we rebrand? What logo and tagline should we use? ), managers will find it more effective to start with customer questions ( What do our best customers say about us? How can we amplify that? ). A few large incumbent banks have made meaningful progress on several of the five elements. Consider JPMorgan Chase in the US. Of all the national banks, Chase posted the biggest NPS gains in 2013, moving from the third quartile to the second quartile and opening a lead over other national banks. That s due to such factors as select investments in mobile technology, a concerted effort to improve the customer experience and effective marketing to tell people how the bank can simplify their financial lives. Those factors also combined to help Chase perform well above average in winning new relationships and cross-selling to existing customers. Every bank can benchmark against competitors in its home market and the best performers globally. This report introduces the relevant framework and metrics to do so, with an eye toward making focused investments that will generate superior growth, and make loyalty pay. Page 6

1. Loyalty trends around the world In some countries, customer loyalty as measured by NPS improved in 2013 from the year earlier, as the financial crisis recedes and some banks have devoted more effort to addressing customers priorities. The continued surge in mobile banking no doubt contributed to higher scores, because mobile tools have a strong, positive effect on customer advocacy. NPS varies by country and is generally higher in developing countries. But what matters most to an individual bank is how it performs relative to its peer group. Within national markets, NPS varies widely from bank to bank. In Australia, for instance, top-performer Bendigo has an NPS 45 points higher than the worst performer and 32 points above the country average. For the first time in a US region, a national bank leads the traditional banks in NPS, with Chase out front in the South. In 2011, Chase started a deliberate effort to become more customer-centered rather than product-centered, and that shift has paid off with gains in loyalty, new relationships and share of wallet. Wealthier customers have a high economic value when banks earn their advocacy. Banks in developing markets, like China and India, generally do better in targeting and serving affluent customers, which is reflected in their NPS scores from the affluent. Banks in Canada, the US, the UK, Australia and France still struggle in this regard. Direct banks such as ING and First Direct have been the NPS leaders in many countries for several years. They often target self-directed, digital-savvy customers with a simple proposition around low cost, high rates and fast processes.

Within each country, there s a wide range of Net Promoter Scores Primary bank Net Promoter Scores -80-60 -40-20 0 20 40 60 80 100% Canada TD Canada Trust President s Choice Financial Mexico Banorte Americas US-Northeast US-Midwest M&T, TD Huntington USAA USAA US-South US-West BB&T, JPMorgan Chase Bank of the West USAA USAA Australia Bendigo Bank China China Merchants Asia-Pacific Hong Kong Japan Singapore South Korea Standard Chartered Japan Post Bank Standard Chartered Kookmin Thailand SCB Belgium Argenta Spaarbank France Credit Mutuel Germany Sparda-Bank DKB Europe Italy Banca Nazionale del Lavoro Fineco Poland Alior Bank Spain Bankinter ING UK Nationwide First Direct Lowest bank Average Highest traditional bank Highest direct bank Notes: Excludes markets with insufficient number of banks (n 200); country averages include all banks; highest and lowest banks include only banks where n 200 Sources: Bain/Research Now NPS surveys, 2013 Page 10

Banks average Net Promoter Scores improved in a number of countries in 2013 Percentage point difference between 2013 and 2012 Net Promoter Scores 10 8 5 6 5 4 4 3 2 0-5 0 0-1 -2-3 -4-6 -10 Singapore China UK France South Korea Mexico US Australia Thailand India Spain Hong Kong Canada Germany Developed countries Developing countries Note: 2012 survey was conducted in 14 countries Sources: Bain/Research Now and Bain/GMI NPS surveys, 2012 and 2013 Banks in developing countries fare better with affluent customers Percentage point difference between affluent respondents Net Promoter Score and overall country average 40 36 30 30 26 20 10 0 19 18 16 15 15 13 10 9 7 7 7 4 4 3 1 1-1 -2-10 -20-8 -9-11 -12-14 China Hong Kong India Indonesia Norway South Korea Russia Mexico Denmark Sweden Japan Italy Singapore Spain Chile Germany Belgium Finland Poland Thailand Netherlands Canada US UK Australia France Notes: Excludes markets with insufficient sample size for affluent respondents Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Developed countries 2013 (4%) Developing countries 2013 (18%) Page 11

US direct banks still lead in loyalty, yet only national banks improved their positions in 2013 Net Promoter Score by bank type, US 80% 66 62 60 46 40 20 19 9 0 Direct banks Credit unions Community banks Regional banks National banks 2012 NPS Sources: Bain/Research Now US NPS surveys, 2012 and 2013 Direct banks have a commanding lead over traditional models in many countries Percentage point difference between Net Promoter Scores for direct banks and traditional retail banks 100 80 81 79 77 60 69 66 64 58 55 40 35 20 23 18 0 Spain Belgium UK Italy Germany Australia France US Canada Japan Poland Note: Excludes markets with insufficient sample size for direct banks Sources: Bain/Research Now NPS surveys, 2013 Page 12

2. Leaders and laggards in the shift to omnichannel Banks everywhere are expanding digital channels, but the pace of engagement varies dramatically. The Nordic countries lead in the share of digital banking interactions, while a number of Asian countries lag. Generational differences in digital usage persist. For example, some 18% of US customers under age 35 opened an account online, twice as many as customers over age 55. Countries vary in the pace of their evolution to deploy each type of channel to advantage. Some countries, particularly the Nordic countries, have made significant progress in steering routine transactions out of the branch and into lower-cost, selfservice digital channels, including smart ATMs. Within most countries, individual banks vary widely in their progress to move the routine to digital channels and refocus the branch on sales and high-value service. In Spain, for instance, Bankinter leads the least digital bank by 25 percentage points. When it comes to account opening, direct banks excel in handling the task online. Yet among other banks, account opening still occurs mostly in the branch, though that s shifting to the phone in the UK, Germany and the Netherlands. Experiments with branch features and layout abound. Raiffeisen s flagship branch in Zurich offers advanced technologies such as a robotic retrieval system for round-the-clock access to safety deposit boxes. Other banks have launched branches that resemble lounges or cafes, either to complement a strong direct bank presence or to encourage high-value relationships. ATMs play an outsize role in Japan, Indonesia, Russia and Singapore. In a few places like Singapore, more versatile ATMs make customers lives easier by allowing them to buy airline tickets or pay parking fines.

On the path to an omnichannel world, some countries are lagging in digital banking Percentage of interactions by channel in the last quarter 100% 80 60 40 20 0 Developing countries still rely more on branches, on average, while the Nordic countries are eliminating routine transactions from their branches Number of branch interactions per respondent in the last quarter 8 Sales/service 6 4 2 7 7 7 Routine 7 6 6 6 5 5 5 5 4 4 4 4 3 3 3 3 3 2 2 2 1 1 1 1 0 Thailand Mexico China India Chile Argentina South Korea Spain Hong Kong Indonesia US Canada Italy Russia UK Germany France Australia Singapore Belgium Poland Japan Denmark Sweden Norway Finland Netherlands Norway Denmark Sweden Australia Netherlands US Germany South Korea Belgium Poland France Canada UK Chile China Spain Argentina Singapore Italy Russia Hong Kong Indonesia India Japan Thailand Mexico Online Smartphone/tablet ATM Branch Phone Other Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Percentage of respondents using branch for routine interaction at least once 86 81 88 82 73 71 66 65 73 80 69 71 64 66 64 48 60 62 59 47 40 39 39 27 22 29 20 Developed countries Developing countries Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Page 16

Customers everywhere still open new accounts mainly in branches Percentage of channels used to open primary bank account 100% 80 60 40 20 0 Indonesia Thailand Finland Canada Mexico China Belgium France South Korea Italy Spain US Russia Argentina Hong Kong India Singapore Sweden Japan Poland Norway Australia Chile UK Denmark Germany Netherlands Branch Started online or by phone, but completed in branch Online Phone Other Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Page 17

Within countries, there s a wide variation among banks in the extent to which customers use branches Percentage of respondents who visited a branch for routine transactions in the last quarter 0 20 40 60 80 100% Americas Canada Mexico CIBC Banorte US Bank of America Australia Bankwest India Citibank Asia-Pacific Japan Singapore Sumitomo Mitsui Post Office Savings Bank South Korea Standard Chartered First Bank Thailand Bangkok Bank Belgium KBC Banque France La Banque Postale Germany TargoBank Europe Italy Poland Banca Nazionale del Lavoro Bank Pekao Spain Bankinter UK Co-operative Bank Lowest bank Average Highest bank Notes: Excludes markets with insufficient number of banks (n 200); country averages include all banks except direct banks; highest and lowest banks include only banks where n 200 Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Page 18

3. Mobile banking expands its mainstream appeal Across the globe, mobile banking continues to spread. Customers have embraced banking on their smartphones and tablets when banks offer applications that are both useful and easy to navigate. Commonwealth Bank of Australia, for example, offers a versatile mobile platform that allows customers to trade stocks, pay third parties using their mobile number or email, and explore visual and written details of homes for sale. China, Chile, South Korea and India have leapfrogged other countries that lag in mobility, like Belgium, Japan and Canada. In general, the developing countries have forged further ahead, and several have more than half of their respondents using mobile channels. They show an especially big lead in mobile payments, with almost twice the level of activity as developed countries. Within a given country, however, there s a wide dispersion in mobile uptake. And not all of the mobile leaders are direct banks. Citibank in India has a higher mobile penetration than Comdirect in Germany and Fineco in Italy. In the US, Chase leads among traditional banks. It invested heavily in mobile technology such as smartphone payments, and its recent advertising highlights how the technology simplifies people s lives. Regardless of bank model, frequent mobile users consistently report higher NPS than non-users. The greatest gap in NPS between the two groups occurs in China, Japan and Thailand, while the narrowest gap is found in Belgium, France and the Netherlands. Mobile banking has risen among all age groups and income levels. But younger customers rank as the most avid users, especially in Australia, the US, India and Sweden.

49 48 45 Customer loyalty in retail banking: Global edition 2013 Bain & Company, Inc. Mobile banking adoption varies widely across countries Percentage of respondents who used smartphone/tablet apps or bank websites on smartphones/tablets in the last quarter 60% 60 57 56 55 54 53 52 40 43 40 38 38 38 37 37 36 35 33 32 31 27 27 26 20 22 17 0 5 8 10 5 4 5 5 9 4 8 8 7 5 7 4 3 8 4 5 6 5 4 5 5 4 2 3 Developed countries (38%) Developing countries (46%) Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Mobile payment has caught on fastest in developing countries Percentage of respondents who used smartphone/tablet to make payments in the last quarter 50% 49 40 40 40 35 34 32 30 28 26 23 21 21 21 20 19 19 19 18 20 17 17 15 14 13 13 12 10 10 7 6 0 China India Chile South Korea Indonesia Singapore Hong Kong Russia Australia Spain Argentina Thailand Mexico Norway Sweden US Denmark Italy Netherlands Finland Poland UK Germany Canada France Belgium Japan China Chile South Korea India Singapore Hong Kong Indonesia Spain Thailand US Australia Norway Poland Sweden Mexico Russia France Italy Germany UK Finland Argentina Denmark Netherlands Canada Japan Belgium Average interactions per respondent in last quarter Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Developed countries (19%) Developing countries (30%) Page 22

Within many countries, mobile banking uptake varies widely by bank Percentage of respondents who used smartphone/tablet apps or bank websites on smartphones/tablets in the last quarter 0 20 40 60 80 100% Americas Canada Mexico US TD Canada Trust BBVA Bancomer JPMorgan Chase USAA Australia National Australia Bank (NAB) India Citibank Asia-Pacific Japan Singapore Sumitomo Mitsui Banking Corp. Citibank South Korea Industrial Bank of Korea Thailand KBANK Belgium ING Belgique France Société Générale Germany Deutsche Bank Comdirect Europe Italy Unicredit Fineco Poland AliorBank Spain Bankinter UK NatWest First Direct Lowest bank Average Highest traditional bank Highest direct bank Notes: Excludes markets with insufficient number of banks (n 200); country averages include all banks; highest and lowest only include banks where n 200 Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Page 23

Younger customers have embraced mobility Percentage point difference in usage of banking smartphone/tablet app or bank website on smartphone/tablet between respondents under 35 and those over 55 50 46 40 40 36 36 34 31 30 26 24 23 23 23 20 19 18 10 9 0 Australia US India Sweden UK Canada France Spain Mexico Italy Netherlands Germany Belgium Japan Note: Excluded markets where n<100 for either age category Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Frequent mobile banking users give much higher loyalty scores than other customers Percentage point difference in Net Promoter Scores between frequent mobile banking users and nonusers 50 40 42 36 36 34 33 33 30 20 10 28 28 27 27 26 24 23 22 21 20 17 14 10 10 8 6 5 0 China Japan Thailand Italy Hong Kong Singapore Russia Poland Indonesia Spain Sweden Chile India Mexico South Korea Germany UK US Australia Canada Netherlands France Belgium Developed countries Developing countries Notes: Mobile banking includes use of smartphone/tablet apps and bank websites via smartphone/tablet; frequent users are defined as those in the top quartile for the number of bank interactions using smartphone/tablet apps and bank websites via mobile devices; markets where n 100 for any category were excluded Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Page 24

4. The battle for scarce new customers New banking relationships people either new to banking or switching their primary relationships from another bank are hard to come by. Only 0.7% of respondents were new to banking in the developed world, with another 2.5% switching from their primary bank. Still, winning an outsize proportion of primary relationships, anchored on the basic checking or current account, remains an important goal because of the annuity value of cross-selling other products. Our survey finds that respondents hold roughly three other products with their primary bank besides the basic account. A bank s current NPS strongly predicts its success in winning these new relationships. NPS explains about half of the variance among banks in relative win rate (a bank s win of switchers plus first-time joiners, relative to its share of primary customers). New customers can be won in many ways. ING in Spain does it largely by developing strong product packages, targeted to particular segments such as university students. Besides loyalty, what it takes to win new relationships differs by country. Respondents who chose a new bank most commonly cited fees, ease of account opening and branch locations as the reasons. Interest rates also were a major factor in several markets, including the UK, Sweden and Singapore. And ATM locations ranked high in Argentina, Hong Kong, Indonesia and Japan. Preventing attrition arguably outweighs winning new relationships, given the slow rate of new account formation. In the US, banks could have headed off most of the switching, because three-fifths of customers cited factors such as high fees and poor service. Less than one-fifth of switching resulted from customers taking better offers from other banks.

New banking relationships are hard to find, especially in the developed world Percentage of respondents forming new primary relationships with banks in the last year 8% 7.3 6.8 6.7 6.5 6.5 6.4 6.4 6 Switchers 5.4 4.6 4.5 4.3 4 3.6 3.6 3.4 2 First-time joiners 0 2.7 2.7 2.7 2.6 2.6 2.5 2.5 2.4 2.3 2.2 1.8 1.7 1.0 Mexico Indonesia India Poland Italy Argentina Russia Thailand Spain Chile Singapore US Denmark Finland South Korea Belgium Hong Kong France Norway Germany Australia UK China Sweden Japan Canada Netherlands Developed countries Developing countries Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 In the US, Net Promoter Score helps explain about half the variation among banks in winning new relationships Relationship win index (bank s win of switchers plus first-time joiners relative to its share of primary customers) 3.0 2.5 R²= 0.48 Huntington (Midwest) 2.0 TD (Northeast) BB&T (South) 1.5 1.0 M&T (Northeast) JPMC (South) 0.5 0.0-80 -60-40 -20 0 20 40% Bank relative NPS Notes: Banks with relationship win index greater than 1 are winning more than their fair share of new relationships; excludes direct banks, community banks and credit unions; only includes banks where n 200 Source: Bain/Research Now US NPS survey, 2013 Page 28

In Europe and Asia, Net Promoter Score helps explain about half the variation among banks in winning new relationships Relationship win index Germany Relationship win index Japan 3.0 4.0 comdirect bank DKB R²= 0.44 2.5 3.5 Online banks R²= 0.76 ING-DiBa 3.0 2.0 2.5 1.5 2.0 1.0 Sparda-Bank 1.5 Japan Post Bank 0.5 1.0 0.5 0.0 0.0-120 -80-40 0 40 80% -120-80 -40 0 40 80% Bank s relative NPS Bank s relative NPS Relationship win index Spain 3.0 R²= 0.43 2.5 2.0 1.5 Bankinter ING 1.0 0.5 0.0-120 -80-40 0 40 80% Bank s relative NPS Relationship win index UK 3.0 R²= 0.58 2.5 Nationwide 2.0 1.5 First Direct 1.0 0.5 0.0-120 -80-40 0 40 80% Bank s relative NPS Notes: Banks with relationship win index greater than 1 are winning more than their fair share of new relationships; excludes direct banks, community banks and credit unions; only includes banks where n 200 Sources: Bain/Research Now NPS surveys, 2013 High fees and poor service push customers away, while incentives, interest rates and the right product lure them Why did you switch from your previous primary bank? Percentage of responses, US 100% 80 Pull factors Neutral factors Other Rates Bank process Brand reputation Products Emotional Family/personal Other Convenience Service Size/scale 60 Branches Proximity 40 Service Relocation Products Push factors 20 Fees Incentives/ interest rates/ fees 0 All factors Push factors: Dissatisfied with previous bank Neutral factors: Personal circumstances Pull factors: Better proposition at new bank Source: Bain/Research Now US NPS survey, 2013 Page 29

Reasons for choosing a new bank differ across countries, though fees and ease of account opening often lead the list Respondents ranking of importance of factors for choosing a new bank Countries Fees Ease of opening account Branch locations Online service Product features ATM locations Branch staff Interest rates Company brand Family recommendations Branch hours Ability to get credit Financial advisor Mobile payments Phone service Mobile/tablet app Prior relationship with bank Social media recommendations Americas Argentina 12 3 5 7 7 1 2 11 3 5 18 7 10 16 14 15 13 17 Canada 2 5 4 8 1 9 3 6 6 10 10 13 12 15 14 16 17 18 Chile 2 1 3 5 9 5 9 7 4 7 18 14 9 12 15 17 16 13 Mexico 3 2 1 12 8 5 6 11 4 14 7 9 10 15 13 17 16 18 US 1 5 2 6 3 4 7 11 8 9 10 15 17 12 14 13 16 18 Asia-Pacific Australia 2 4 5 7 3 9 8 1 6 11 12 10 12 15 15 14 17 18 China 2 6 1 4 9 2 6 11 4 14 8 14 14 9 11 11 17 18 Hong Kong 2 9 3 3 9 1 5 5 8 9 5 9 14 17 14 16 13 18 India 12 1 6 1 4 5 6 8 3 11 13 15 14 16 10 8 17 18 Indonesia 9 2 3 7 12 1 8 11 5 15 3 14 16 4 13 10 18 17 Japan 2 6 3 4 12 1 9 5 6 9 6 13 16 9 16 15 14 18 Singapore 3 6 4 8 7 2 9 1 4 9 9 12 14 16 18 15 12 16 South Korea 1 8 2 11 3 3 7 5 6 8 8 14 14 11 16 16 11 18 Thailand 6 4 3 8 7 1 5 12 15 16 2 13 9 13 9 9 17 18 Europe Belgium 2 1 6 8 7 9 4 3 5 11 12 10 15 17 14 16 12 18 Denmark 1 6 11 5 4 11 3 2 9 8 15 11 7 11 10 15 15 18 Finland 1 4 6 3 5 17 9 2 11 15 7 8 10 13 11 15 13 17 France 1 6 10 3 4 18 5 2 9 11 12 7 8 16 13 14 15 17 Germany 1 2 5 4 8 3 9 7 13 11 15 16 12 6 14 17 10 18 Italy 1 2 6 4 8 2 5 9 10 7 12 13 11 16 14 15 18 17 Netherlands 8 1 3 3 2 5 5 13 5 15 9 16 11 11 9 14 18 17 Norway 1 3 17 3 5 14 6 1 7 10 17 10 8 10 17 14 8 16 Poland 1 5 9 2 3 3 6 11 10 12 14 15 13 7 16 8 18 17 Russia 2 3 4 7 11 1 9 5 6 10 13 7 14 15 16 17 12 18 Spain 1 5 9 4 3 6 7 8 2 9 11 15 13 16 14 12 17 18 Sweden 3 2 7 3 3 9 6 1 8 10 10 13 12 15 17 14 15 18 UK 5 3 8 4 2 12 7 1 6 9 11 16 17 15 10 14 13 18 Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Page 30

5. Cross-selling: The golden opportunity A surprisingly large opportunity exists to sell new products such as credit cards to existing customers. In the developing countries, 83% of respondents purchased a new product over the past year; in the developed countries, 50% did. While the primary bank captures most of these new products, on average, 35% of new product sales go to a competitor. The competitors share ranges from 19% in Denmark, which has a very concentrated banking sector, to a remarkable 60% in the UK and 54% in Germany, where the global trend to unbundle product holding has gone further. The UK and German markets have many specialized challenger banks, as well as customers who have a low regard for large banks after the crisis and, in Germany, who are highly price sensitive. Cross-selling performance varies even more by bank within countries. In Canada, for instance, RBC has a win rate of more than two times the least effective bank, and Santander has a similar lead in the UK. While many factors account for this difference in performance, customer loyalty has a big influence on a bank s current cross-selling performance and its future potential. Customers who are promoters of their primary bank buy more from that bank than detractors do. In developing countries, the NPS gap between the two groups of customers amounts to 9 percentage points; in developed countries, the difference is 14 points. Consider banking products in China. Some 61% of promoters have bought an auto loan from their primary bank, vs. just 31% of detractors. The spread is similar for life insurance and wealth and investment products. The higher cross-sell rates that result from stronger loyalty lead to broader product holdings with the primary bank as well. Promoters hold on average 68% of products with their primary bank vs. 60% for detractors.

85 85 80 77 77 76 51 49 46 43 43 Customer loyalty in retail banking: Global edition 2013 Bain & Company, Inc. A huge share of customers in most countries are buying new banking products Percentage of respondents who purchased at least one new product in the last year 100% 96 92 80 75 71 71 60 63 61 59 55 40 41 40 39 38 36 36 33 20 0 Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Roughly 65% of new product sales, on average, are won by customers primary banks, but the share is lower in some of the more competitive countries Percentage of new products purchased at primary banks 100% 81 78 76 75 75 75 71 71 70 70 70 69 68 68 66 65 62 61 60 58 58 57 57 53 52 50 50 46 40 25 0 Denmark Italy Finland Russia France Spain Argentina Sweden Mexico Poland Norway Chile China Japan Australia India Indonesia Belgium Thailand Canada Netherlands South Korea Singapore Hong Kong US Germany UK China Thailand Russia India Indonesia Hong Kong Mexico South Korea Chile Argentina Singapore Poland Spain Italy Germany Norway UK France Sweden Finland US Australia Belgium Denmark Canada Japan Netherlands Developed countries (52%) Developing countries (84%) Developed countries (63%) Developing countries (66%) Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Page 34

Within countries, banks vary widely in their cross-selling performance Percentage of products purchased by respondents at their primary banks 0 20 40 60 80 100% Americas Canada Mexico US RBC Royal Bank Banamex Huntington National Bank Australia Commonwealth Bank Asia-Pacific Japan Singapore South Korea United Overseas Bank Kookmin Bank Japan Mizuho Bank Thailand Bank of Ayudhya Belgium ING Belgique France CréditMutuel Germany Sparkassen Europe Italy BancoPopolare Poland AliorBank Spain La Caixa UK Santander Lowest bank Average Highest traditional bank Notes: Excludes markets with insufficient number of banks (n 200); country averages include all banks; highest and lowest only include banks where n 200 Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Page 35

Throughout the world, customers who are promoters of their primary banks buy more from their banks than detractors do Percentage point difference in the share of products purchased at primary bank between promoters and detractors 25 22 22 21 20 15 18 17 17 17 15 15 14 14 14 12 12 11 11 10 5 10 9 9 9 9 8 7 6 4 0 Hong Kong Australia Belgium Netherlands Canada Spain Sweden Poland Germany Denmark France UK Mexico US Russia China Italy Argentina Chile South Korea India Thailand Indonesia Singapore Japan Developed countries (14%) Developing countries (10%) Note: Markets where n >100 for any category are excluded; promoters give NPS of 9 or 10; detractors give NPS of 0 to 6. Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 And across all products, promoters buy more from their primary banks than detractors do Percentage of products purchased at respondents primary banks (China, 2013) Savings account Debit card Credit card Home mortgage Wealth/investments 77 73 74 72 68 67 68 64 57 55 49 75 61 45 30 Mutual funds 71 59 48 Private banking 87 83 75 61 Auto loan 49 31 Life insurance 63 44 36 66 Small business 48 48 Primary bank NPS category Promoter Passive Detractor Source: Bain/GMI China NPS survey, 2013 Page 36

Promoters also own more products than detractors do, throughout the world Percentage point difference in the share of products held at primary bank between promoters and detractors 15% 11 11 11 11 11 10 10 10 10 10 9 9 9 9 9 9 8 5 8 8 8 8 7 7 7 6 6 3 0 Canada Sweden Russia Hong Kong Mexico China Netherlands Germany Belgium India France Argentina Australia Denmark Poland South Korea US Chile UK Italy Indonesia Thailand Singapore Spain Finland Japan Note: Markets where n=greater than 100 for any category are excluded Sources: Bain/Research Now and Bain/GMI NPS surveys, 2013 Developed countries (8%) Developing countries (9%) And across all products, promoters own more at their primary banks than detractors do Percentage of products held at respondents primary banks (China, 2013) Savings account Debit card Credit card Home mortgage Wealth/investments 71 68 70 68 66 65 66 62 56 57 44 71 58 43 30 Mutual funds 68 56 48 Private banking 83 78 71 63 Auto loan 51 34 Life insurance 59 40 35 65 Small business 46 45 Primary bank NPS category Promoter Passive Detractor Source: Bain/GMI China NPS survey, 2013 Page 37

6. Five ways to realize the fruits of loyalty Winning new customers, limiting attrition and seizing the cross-sell opportunity all start with a bank s ability to earn loyalty. But the experiences of leading banks show that five other elements are required in order to generate outsize growth. These start with insightful and practical customer segmentation schemes. In the US, younger customers place far more importance on recommendations from others and on mobile tools than older customers, who care relatively more about branch location and helpful staff. Banks must also ensure that they have a competitive suite of products. In the US, no traditional bank ranked highest on more than one product, so they clearly have room to improve. Selling capabilities are critical. In the US, roughly one-third of products get sold, not bought. The leading bank performs two to five times better than the laggard, depending on the product category. Service stands as the dominant cause of loyalty in most markets. To delight customers these days, the banking experience must be consistent and seamless in person, online, on mobile and on the phone, because customers increasingly hop among channels to complete a task. Finally, these four capabilities should reinforce and be supported by the bank s brand and reputation. USAA has one of the strongest brands in banking despite its modest investment in advertising, in part because it serves such a specific, homogeneous group of customers the military, veterans and their families and consistently delivers on the brand promise. In general, loyalty leaders outperform on both win rates for new relationships and cross-selling to existing customers. Banks that have advanced on several of the five elements thus have started to translate loyalty to better economics.

Making loyalty pay to its full potential requires mastering five elements Reinforce the brand Segment and target customers Transform customer experience Making loyalty pay Enhance product proposition Improve sales capabilities Source: Bain & Company In the US, older customers put relatively more value on branch location, while younger customers care more about mobile applications and recommendations Percentage of respondents age 55 and over who said specific factors were a major influence on their decision to switch banks (US, 2013) 60% More important to those 55 and over Branch locations 40 Branch staff 20 Positive recommendations from family, friends or coworkers Ability to make mobile payments Smartphone/tablet app 0 More important to those 35 and under 0 20 40 60% Percentage of respondents age 35 and under indicating specific factors were a major influence to switch banks Note: The data was indexed for frequency of major influence for both 35 and under and 55 and over segments Source: Bain/Research Now US NPS survey, 2013 Page 40

Individual banks perform quite differently on the various factors that influence a new account Percentage of US respondents who said specific factors were a major influence on their decision to open a savings account 80% Bank performance (respondents average rating, on a scale of 1 5) 5.0 60 62 4.5 40 48 46 46 45 43 40 40 33 4.0 20 24 22 11 3.5 0 Fees Branch locations Company brand Application process Product features Online service Interest rates Branch staff Branch hours Smartphone/ tablet app 3.0 Phone Social service media recommendations Source: Bain US Banking Product survey, 2013 Direct bank A National bank B A bank s ability to attract certain segments can be gauged by the attributes of its new customers Percentage of US respondents with a new primary relationship in the last year 0 20 40 60% Age <35 Fifth Third Ally Age >55 Ally Fifth Third Assets >$100K Huntington Capital One Assets >$500K TD SunTrust Mobile payment has major influence Branch location/hours have major influence Community USAA USAA TD Self-reported as "self-directed" M&T Bank Capital One 360 Lowest bank Average Highest bank Note: Excluded banks that had fewer than 30 new relationship formations or new product wins Sources: Bain/Research Now US NPS survey, 2013; Bain US Banking Product survey, 2013 Page 41

In the US, banks vary widely in their performance on product features Thinking about the product you purchased, how well do you think your bank performed on the dimension of product features? Percentage of respondents who rated their banks a 4 or 5 1 is not well at all and 5 is extremely well 50 60 70 80 90 100% TD Savings account Capital One 360 Credit card (primary) Citibank USAA Home mortgage U.S. Bank USAA Home equity line of credit Wealth management/ investment products PNC Bank JPMorgan Chase USAA Lowest bank Average Highest direct bank Highest traditional bank Note: Excluded banks with fewer than 30 new product wins, except for home equity line of credit, which excluded banks with fewer than 15 new product wins Source: Bain US Banking Product survey, 2013 Roughly one-third of products are sold, not bought Which of the following statements best describes why you got a specific product? Percentage of US respondents who said, I was not initially planning to get it, but received an offer and decided to get it 0 10 20 30 40 50 60 70 80% Savings account Capital One Credit card (primary) Citibank Home mortgage JPMorgan Chase Home equity line of credit Wells Fargo Wealth management/ investment products Bank of America Lowest bank Average Highest bank Note: Excluded banks with fewer than 30 new product wins, except for home equity line of credit, which excluded banks with fewer than 15 new product wins Source: Bain US Banking Product survey, 2013 Page 42

Across countries, services and fees/rates usually have the biggest effect on loyalty Mentions per 100 responses 125 120 100 75 50 25 0 93 19 7 7 7 14 33 Positive 21 7 Negative 82 6 6 8 9 12 38 Positive 18 5 6 Negative 85 19 7 7 10 33 Positive 29 7 6 9 Negative 22 6 9 13 31 36 Positive 20 7 7 Negative 100 19 6 7 10 20 34 Positive 18 5 6 Negative US Canada UK Germany Australia Service Fees/rates Products Branch Emotional Online Other Note: Excludes responses where no rationale was given Sources: Bain/Research Now NPS surveys, 2013 Brand strength varies significantly, but a few banks are showing strong performance across product categories Percentage of US respondents who rated their banks a 4 or 5 How well do you think your bank performed on the dimension of brand? 50 60 70 80 90 100% Savings account Credit card (primary) Home mortgage Citibank JPMorgan Chase JPMorgan Chase USAA USAA USAA Home equity line of credit Wealth management/ investment products JPMorgan Chase JPMorgan Chase USAA Lowest bank Average Highest direct bank Highest traditional bank Note: Excluded banks with fewer than 30 new product wins, except for home equity line of credit, which excluded banks with fewer than 15 new product wins Source: Bain US Banking Product survey, 2013 Page 43

Loyalty leaders are more likely to win new customers and cross-sell to current customers Percentage of products purchased by US respondents at their primary banks in past year 65% Huntington JPMorgan Chase Ally Citibank Capital One Bank of America BB&T Wells Fargo U.S. Bank 50 TD TD USAA Direct bank Direct bank 35 0.0 0.5 1.0 1.5 2.0 Relationship win index NPS quartile Top Second Third Bottom 10,000 respondents Notes: Banks where n<200 are not shown; for national and regional banks, NPS quartiles were determined using regional respondent-weighted-average relative Net Promoter Scores; all listed direct banks included in top quartile Source: Bain/Research Now US NPS survey, 2013 Page 44

USAA s progress on the five dimensions has helped it excel in many product areas Average number of deposit products (excluding checking) owned at primary bank per US respondent 1.3 1.0 0.8 0.5 0.3 0.0 USAA Citibank CapitalOne 360 Sovereign Wells Fargo Citizen s Bank of America M&T Bank Fifth Third PNC U.S. Bank SunTrust BB&T CapitalOne JPMorgan Chase TD Bank Regions Average number of credit cards owned at primary bank per US respondent 1.0 0.8 0.6 0.4 0.2 0.0 USAA Citibank JPMorgan Chase CapitalOne Bank of America U.S. Bank Fifth Third Wells Fargo Citizen s BB&T M&T Bank PNC SunTrust Sovereign Regions CapitalOne 360 TD Bank Average number of lending products owned at primary bank per US respondent 0.5 0.4 0.3 0.2 0.1 0.0 Fifth Third USAA SunTrust Wells Fargo U.S. Bank BB&T Sovereign M&T Bank Citizen s Citibank JPMorgan Chase Bank of America PNC Regions CapitalOne TD Bank CapitalOne 360 Average number of wealth management products at primary bank per US respondent 0.3 0.2 0.1 0.0 USAA CapitalOne 360 Wells Fargo M&T Bank Citibank Fifth Third JPMorgan Chase BB&T Sovereign Bank of America SunTrust PNC Citizen s CapitalOne U.S. Bank Regions TD Bank Note: Results based on a standard set of 11 products Source: Bain/Research Now US NPS survey, 2013 National Regional Direct Page 45

Appendix: Methodology Bain & Company partnered with Research Now, the online global market research organization, to survey consumer panels in Argentina, Australia, Belgium, Chile, Canada, Denmark, Finland, France, Germany, Italy, Japan, Mexico, the Netherlands, Norway, Poland, Russia, Spain, Sweden, the UK and the US. The survey s purpose was to gauge customers loyalty to their principal bank and the underlying reasons they hold the views they do. Conducted in the summer of 2013, the survey polled 177,937 customers of national branch network banks, regional banks, private banks, direct banks, community banks and credit unions in these countries. We included in the individual bank analysis only those banks for which we received at least 200 valid responses, though in many countries, sample sizes exceeded 200 for each bank included. Bain worked with GMI to survey a further 12,251 account holders in China, Hong Kong, India, Indonesia, Singapore, South Korea and Thailand. Similarly, individual bank Net Promoter Scores are based on the responses of at least 200 participants. Survey questions Respondents were first asked to identify their primary bank, after which they were asked the following three questions to assess their loyalty to that institution: On a scale of zero to 10, where zero represents not at all likely and 10 represents extremely likely, how likely are you to recommend your primary bank to a friend or relative? Tell us why you gave your primary bank the score you did. How long have you used this bank as your primary bank? If respondents had been with their current primary institution for less than a year, they were asked to identify whether they were new to banking or if they had switched from another institution. We subsequently asked about their prior primary banking relationship, why they switched banks, what influenced them in their choice of a new bank and which channel they used to open their new account. For all survey respondents, we asked what major products they hold with their primary bank and other banks, and which of these products were purchased in the last year. We also asked which channels they use to do their banking. The remaining questions elicited demographic profile information on household income, investable assets and region of residence. We followed up with 5,200 US respondents to ask more detailed questions about their purchase of specific products, including their product NPS, the methods they used to research their purchases, the channel they used to purchase the product, the major factors that influenced them in the purchase of the product and how the bank performed on those factors. For those people who did not purchase from their primary bank, we asked reasons for purchasing elsewhere. On the question of statistical significance, the results of our data analysis are robust both for the measurement of bank NPS by country and for respondent NPS for each demographic category. The NPS measured for each bank Page 46

included in the US regional rankings is statistically significant to an 80% confidence level, with a two-tailed test of the confidence interval ranging from plus or minus 1.5% (n=4,500) to plus or minus 6.8% (n=201). In countries where sample sizes were smaller, confidence intervals are wider, with a maximum of plus or minus 7.5%. Countries classified as developed are based on the World Bank s high-income category; the developing countries are based on its middle- and low-income categories. Net Promoter and NPS are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. Net Promoter System SM and Net Promoter Score SM are trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. Page 47

Key contacts in Bain s Global Financial Services practice Global: Philippe De Backer in Dubai (philippe.debacker@bain.com) Edmund Lin in Singapore (edmund.lin@bain.com) Americas: Mike Baxter in New York (mike.baxter@bain.com) Europe, Middle East and Africa: Henrik Naujoks in Düsseldorf (henrik.naujoks@bain.com) Asia-Pacific: Gary Turner in Sydney (gary.turner@bain.com) Acknowledgments This report was prepared by Gerard du Toit and Maureen Burns, partners in Bain s Financial Services practice, and a team led by Christy de Gooyer, a practice area manager. The authors thank Bain partners in each of the countries covered in the report for their valuable input and John Campbell for his editorial support. Page 48

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