Latest Edition Of The Quiet Revolution Shows Mobile First Strategy Now Essential

Digital Finance Analytics has today released the updated edition of our flagship household banking channel report, “The Quiet Revolution”, which is available free on request.

Quiet-Revolution-2016-CoverIn this report we examine the latest trends in banking channel use across our household segments. The move towards digital channels continues apace. We have reached a tipping point where “Mobile First” strategies should be the order of the day.

Digital Finance Analytics executes weekly omnibus surveys across a statistically representative set of households nationally. We collect data from 500 each week, and maintain a national database of 26,000 households. The data is then collated and analysed by segment. The channel aspects of the research look across the – search, apply, buy, transact and service – value chains. We also examine trends over time, and consumer device preferences. We rate channel preference using an algorithm which scores both what consumer has been doing in the last year, and an assessment of their desired future preference for channels and functionality.

The Quiet Revolution report contains a summary of the findings. Note that more detailed material, at a product level is available on a commercial basis.

Looking at channel usage on a segmented basis, compared with the last report from 2013-4, it is clear that online migration continues to deepen, and has spilled over into segments which traditionally were branch aligned. This is because of the rapid adoption of smart devices and “apps” which make online interaction easier. Banks are now providing a range of functionality on iOS, Android and Windows platforms. There is still a gap however between what is on offer and what is desired.

We find that younger households continue to be strongly aligned to online, whereas battlers and disadvantaged groups are more branch centric. Older wealthier groups prefer online, whereas older seniors and multicultural groups are still more branch orientated. There have been significant increases in time online between 2013 and 2016, especially among those segments will lower online penetration rates. Young consumers are connected on average for more than 110 hours each week, and nearly 85% of this time is spent with social media, video or other media and blogs. Web sites and internet banking only take a small amount of their time. Even battlers, who are spending less time online, still spend more than 75% of their time on social media and video sites.

We also examine trends across our digital segmentation, between those who are digital Natives (always used digital), Migrants (learning to use digital) and Luddites (not willing or able to use digital). The segments are distributed across the age ranges and shows the migration underway. Most younger households are natively digital, and the number of Luddites will continue to reduce, naturally. The financial footprints of these three segments are different. On average digital Natives have a  higher income than digital Migrants, who in turn have larger incomes than Luddites.

Digital Finance Analytics captures detailed financial footprint data in our surveys, and we are able to use this information to estimate a relative industry profit score by segment. We find that on average Luddites have a lower profit score compared with Natives and Migrants. Indeed, Migrants have the highest score. We found that the banking product mix varied by segment and in the report we explore the product mix in more detail.

High cost branches are being used more by lower profit customers. Given the migration underway we would expect to see a reduction in branch footprints. However, our analysis reveals this is not so for many of the major players. We conclude that so far many banks are not responding to the digital revolution by closing branches, although some have reconfigured them into smaller and more efficient units. In terms of closures, ANZ stands out as leading the way.

We also examined the prospective impact of Robo-Advice from a household perspective using data from our household surveys. We have found that currently those who have received financial advice already, and who are most digitally aware would readily consider Robo-Advice services. Our conclusion is that rather than growing and extending advice to more Australian households, the first impact of Robo-Advice will be to cannibalise existing advisor relationships.

Also, there are many different potential offerings which should be constructed on a Robo-Advice basis, as the needs of young affluent, are very different from say exclusive professionals. So effective segmentation of the offers will be essential, and different personas will need to be incorporated into the systems being developed.

So, in summary, The Quiet Revolution highlights that existing players need to be thinking about how they will deploy appropriate services through digital channels, as their customers are rapidly migrating there. We see this migration to digital more advanced amongst higher income households but momentum continues to spread. So players which are slow to catch the wave will be left with potentially less valuable customers longer term. Players need to adapt more quickly to the digital world. We are way past an omni-channel (let them choose a channel) strategy. We need to adopt a “mobile-first” strategy. Such digital migration needs to become central strategy because the winners will be those with the technical capability, customer sense and flexibility to reinvent banking in the digital age. The bank branch has limited life expectancy. Banks should be planning accordingly.

Request the report [31 pages] using the form below. You should get confirmation your message was sent immediately and you will receive an email with the report attached after a short delay.

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The previous edition is still available, in which we discuss the digital branding of incumbents and challengers, using our thought experiment.

Author: Martin North

Martin North is the Principal of Digital Finance Analytics