Customer acquisition in the digital world is getting more complex but opens more opportunities. One of the biggest field experts, McKinsey, investigated the root causes impacting customer acquisition and retention in the banking industry. Their extensive research points to critical elements that we will examine in the context of their relevance to banks within Malaysia. We will also study cases where Malaysian banks fall behind non-financial institutions in terms of applying the knowledge referenced in this research.
But before we take a deeper dive, let’s set the scene, if you will, for this discussion. Let us take a look at the VIPs (very important points) of the banking industry: customers, banks, and relationship status.
Customers are individuals, small businesses, large corporations, and any other entities in the need for financial services. The largest segment is direct consumers in the form of individuals, small, and medium businesses.
When choosing a bank, customers look for one that matches, as close as possible, their needs. Smart customers will research and make a list of the banks they recognise and begin to evaluate each one of these banks based on offer, expectations, ease of access, and other parameters of preferences.
Customer preferences are changing drastically as they get access to better tools like advanced technology. Customers today prefer faster service, easier interactions, and more personalisation. Banks around the world are innovating their approach to customer experience. It is a race!
Banks are profit-oriented financial institutions. There are different types of banks around the world serving various purposes. According to TheStreet.com, the majority of banks are retail banks as their primary target is customers in need of the bank’s services for personal finances, investments, small business loans, mortgages, etc. Retail banks do not offer large business loans or corporate financing; this is a segment handled by commercial banks, another type of bank. Central banks, on the other hand, are a type of bank that are non-profit-oriented because they serve as the stabilisers of their national economy. Of course, there are more types of banks, but that is for a different discussion. For this discussion, we will focus on Malaysian retail banks and their respective market segments.
The early relationship
A regular relationship between a bank and its customers is a contract or a formal agreement stating the duties, responsibilities, expectations, and outcomes of a short-term or a long-term engagement between a customer and a bank.
For customer acquisition, the initial steps prior to the relationship are as crucial as the relationship itself, to determine the position and ability of a financial institution to acquire their customers.
Now that our ground is laid out, let’s get to the meat.
Navigating the concerns with customer acquisition
What are the concerns with customer acquisition?
To understand the problem, we need to examine the banking experience, customer preferences, and a bank’s ability to acquire customers.
a. The experience with banks is still old school
In the old school experience, customers open a new bank account when they go to the local branch of a bank, meet with a bank officer, and submit the required document. The bank conducts the basic investigation and some background checks with eKYC, and makes a decision to approve the account or not. If approved, a customer will get a bank account within minutes, hours, or days – depending on regulatory policies and the bank’s locality/territory. In hindsight, this experience works and provides a certain level of trust and confidence.
The problem is: customer experience is not static. It is an ever-changing exercise with diverse and unpredictable factors influencing different customers.
Customers these days are accustomed to fast and straightforward digital transactions. If customer experience is outdated or inadequate, financial institutions will suffer the consequences in the form of higher abandonment and missed revenue opportunities. According to a report published by MoneyWeb, even with digital banking experience, the abandonment rate is high:
- 89% abandonment of current account applications
- 93% abandonment of credit card applications
- 85% abandonment of loan applications
Those numbers are in the context of US banks. However, it doesn’t take a genius to figure that a complex experience will only increase these numbers.
An argument that could be made is that digitisation might not be suitable for all users. Let’s talk about understanding customers.
b. Customer preferences keep changing
Banks, through their experience dealing with customers, understand that customers are different, and it is critical to understand what customers need and want. It is essential to make a distinction between traditional customers and digital/tech-savvy customers.
Traditional customers still prefer in-person interactions with a bank. However, evidence suggests that this segment is shrinking. Digital customers, on the other hand, are the most significant and the most-growing segment in the global market. Researchers found that as of 2019, 64% of the global population are people born after 1980. This segment of customers is the most tech-savvy and digitally engaged segment.
In Malaysia, 70% of the population is between the age of 15 and 64 years. 90% of Malaysian households have internet access and nearly 100% access to mobile phones. According to Internet Users Survey 2018 (Malaysia), 85% of the population have internet usage experience of over three (3) years. Over 90% of users spend a minimum of 1 hour and a maximum of 18 hours on various online activities.
Malaysian users’ online activities as of 2018 include nearly everything from texting to trading. However, online banking and activities associated with online transactions stand out:
- Online banking: 54%
- Online entertainment: 78%
- Online shopping and booking: 53%
- Music streaming: 46%
- Government services: 44%
- Online gaming: 35%
- Selling goods and services: 17%
93% of Malaysians have done all these activities at least once a month. This data is an indication of three (3) things:
Majority of Malaysian customers are tech-savvy digital customers.
On par with the rest of the world, it is reasonable to assume that Malaysian customers are accustomed to simple user experiences like the ones offered by Netflix, Spotify, and the like.
It is reasonable to assume that customers are more open and willing to adapt to more sophisticated digital financial services.
Based on the research, retail banks need to take into consideration the definite increase in the number of digitally savvy customers in the coming years.
Before we look at the solution and examples of real applications, it is important to consider the size of the bank (hold on to that thought). Let’s examine the competition.
c. Competition is strong and the cost is high
According to Bank Negara Malaysia, there are around 56 licenced banks in the country owned by both local and foreign entities. While that number doesn’t seem so big, the competition is intense and gives customers more banking options. Hence, customer acquisition gets harder, complicated, and needs to be more creative.
A difficult acquisition can bloat the cost. Malaysian banks need to spend more money than expected to attract and acquire customers. Due to the operational cost, it is expensive to attract customers by traditional means. Adopting digital strategies to improve acquisition has become a staple of the banking industry in Malaysia.
With intense competition, higher marketing spending, higher operational cost, and external politics, among other issues, banks’ financials don’t look so hot. In 2019, Malaysian banks have been performing below expectations. It is imperative that these institutions manage their cost and change their ways to attract more customers and improve profitability.
So, where is the size of the bank in this puzzle?
The size of the bank matters
We need to consider something when we talk about banks: size matters. Banks are segmented based on size (in terms of assets) and operational market. According to McKinsey, the following attributes can define the bank’s size:
- Have large capital assets (more than US$1 trillion),
- Operate globally,
- Have a diverse product portfolio,
- Have a large marketing spending, and
- Have a large physical presence.
- Have a smaller asset value,
- Work regionally or at local/smaller communities,
- Have selective product offerings,
- Have a limited marketing spending, and
- Have a limited physical presence.
But why does size matter?
It matters because there is a clear gap between regional banks with limited capabilities and megabanks with deep pockets. And the numbers do speak for themselves. In 2018, Extractable reported that there are around 44,000 banks and credit unions around the world.
Only 28 of those banks have over US$1 trillion in assets and serve audiences globally. The vast majority of the 44,000 financial institutions are smaller and focus on catering financial products to small communities in both rural and urban localities. The gap provides a unique advantage to megabanks, for apparent reasons.
There are exceptions. For example, Maybank is a market leader in Malaysia and is among the top 5 banks in Southeast Asia with an international network of 2,200 branches and offices in 20 countries. This doesn’t make Maybank a megabank (by assets), but it also doesn’t make it a small bank either.
|Top Malaysian banks||Top foreign banks in Malaysia|
|Bank||Asset (RM)||Bank||Asset (US$)|
|1. Maybank||765.3 billion||Industrial and Commercial Bank of China||4,027 billion|
|2. CIMB Bank||596.0 billion||China Construction Bank||3,651 billion|
|3. Public Bank||395.28 billion||Bank of China||3,470 billion|
|4. RHB Bank||236.7 billion||JP Morgan Chase||3,213 billion|
|5. Hong Leong Bank||164.82 billion||Bank of America||2,160 billion|
Source: Google and Investopedia
In order for Malaysian banks to compete with megabanks, if necessary, they need to innovate. With new technologies and digitisation of manual processes, Malaysian banks can follow in the footsteps of successful international banks and establish:
- A smaller physical branch.
- An expanded digital presence with digital marketing and analytics.
- Digital capabilities that will drive good ROI versus marketing spending.
- Digital capabilities that will enable Malaysian banks to reach more customers locally and regionally.
- Digital value proposition offered directly to their customers.
The above helps Malaysian banks play a bigger regional role and compete with megabanks.
So, what’s the solution to the customer acquisition problem?
Solving the acquisition problem
In a detailed article published on McKinsey.com, to encourage greater engagement between a bank and its customers, the bank needs to examine the combination of products, services, functions, and access. There are four (4) factors that will have a long-lasting impact on customer acquisition:
1. Going digital in the face of shrinking physical branches:
While branches are still essential for banks, their impact seems to have lessened over the years. The scale of a bank’s physical branch is no longer an indicator of the effectiveness of that bank. Additionally, the coronavirus situation forced banks to temporarily close their branches nationwide.
This is not a threat. Most Malaysian banks don’t have a large number of branches. For instance:
- Maybank has 402 branches in Malaysia (2,200 in 20 countries).
- CIMB Bank has 234 branches across the country.
- Public Bank has 259 branches.
- RHB Bank has 278 branches.
- Hong Leong Bank has 300 branches.
The opportunity here is that in the face of uncertainty, going digital is going to be the way for sustainable growth.
2. Digital maturity of Malaysian banks:
Most, if not all, banks in Malaysia have deployed one form or another of digital banking services and shifted a large portion of their marketing spending on digital advertising. However, digital onboarding and digital account opening are perhaps one of the biggest hurdles. You see, what’s the point of seeing an ad online if the customer still needs to go to or call the bank for further action? It has to be instantaneous. I see the ad, I click it, I get the offer.
Bank Negara Malaysia (BNM) earlier this year published guidelines on Electronic Know-Your-Customer (e-KYC) and how it will accelerate acquisition and improve competition. The opportunity here is that banks in Malaysia can finally employ their digital experience to implement innovative solutions and increase their digital footprint.
Malaysian banks are working on catching up to both regulations from BNM and technology advancements. For example, non-financial institutions like Grab are ahead of the game with their eKYC capabilities for their e-wallet and ride-hailing services.
3. Advertising and marketing spending
If you ask people on the street “Where do you see bank advertisements the most?” the answer would likely be online. However, researches from S&P Global Ratings found that banks in Malaysia are underspending on technology and innovation. This may include technologies that would drastically improve marketing spending and ROI.
The bottom line here is that for more effective and efficient marketing spending and ROIs, Malaysian banks need to invest in solutions and have the right approach to their adoption of technology to get the most out of digital marketing efforts.
4. Creating the right customer experience
Digital onboarding and digital marketing spending are an integral part of the banking experience. For Malaysia, creating customer experience to reduce in-person interactions and enable acquisition at a greater rate, is critical. A superior customer experience addresses the various demands through personalisation, automated services, and self-service. These efforts increase the likelihood of acquiring new customers and retaining existing ones.
Key takeaways: customer acquisition is a long-term battle
For Malaysian banks: to have a healthy competition, improve the chances of growth, reach more customers, and provide the right offers, they need to keep the following in mind:
- Understanding the customer is critical to acquisition and growth.
- The current banking experience has some digital elements like online banking. However, it is nowhere near a truly digital experience. The situation needs to change quickly.
- Malaysian banks need to accelerate their digital presence by selecting technology partners that would provide the needed support and innovations.
- If Malaysian banks neglect change, they risk losing to disruptors like digital/virtual banks.
As technology evolves, the cost of new solutions decreases and solutions that were once expensive and unappealing for small banks, like the ones we have in Malaysia, are now more affordable.
Malaysian banks are finally able to invest in their growth initiatives and close the gap with big banks. JurisTech can and will enable Malaysian banks to make the needed changes, adopt new technologies, and acquire the customers they need to play the long game and compete with megabanks.
Juris Access is a customer digital onboarding platform. The purpose of Juris Access is to create the digital channel(s) for customers to engage with the financial institutions, as well as reduce the cost of operations by digitising and transforming user acquisition journeys.
Additionally, financial services marketing is the transformation Malaysian banks need, to achieve the following mission:
- Instantaneous acquisition process
- Customer sees the ad
- Customer clicks it
- Customer gets the offer.
- We can help Malaysian banks put less focus on physical branches.
- Juris Access and iMoney’s solutions help boost Malaysian banks’ digital maturity.
- We provide digital capabilities that would improve marketing efforts and ROI visibility.
- We create a truly digital experience that Malaysian customers deserve.