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Brett King

Brett King - Moven

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Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

I'm more likely to leave my bank than iTunes...

25 March 2011  |  8780 views  |  0

There's a much quoted line in the UK banking market that you are more likely to get divorced than change current accounts. This comes from the statistic that around 75% of customers have never closed a current account, but that approximately 45% of marriages end in divorce. But this is misleading. The fact is that banks don't record churn or switching in the same way that other industries do, and customers don't have the same incentive to detach themselves from a bank completely as with say a mobile phone or cable provider.

Closing your account is hard work - you generally have to jump through major hoops to make it happen. In fact, sometimes even when you ask a bank to close down your account they don't and there's a battle royal that goes on for months after. Often the account is not really closed because the bank has to hold the account open in case of future charges or debits against the account, fees accumulate, the account holder refuses to pay charges and fees after giving instructions to close the account, any small remaining balance gets slowly eaten away. It's probably not surprising that in reality many people choose just to shift their primary banking activity to an alternative bank and let the old account die a slow natural death, or sometimes simply choose to keep the original bank account as a secondary account with a minimum balance. This is not exactly a major victory for those same banks that are proudly telling us 75% of their customers have never changed their account. It is, by any normal measure - churn.

In the UK alone, there is almost a billion pounds in unclaimed funds sitting in inactive bank accounts. If we were to accurately measure customers who shift their primary operating account from one bank to another, inactive accounts, and customers who dramatically reduce activity, I suspect we're looking at a number well under the UK divorce rate and that old chestnut of a quote would quickly go out the window as mostly irrelevant.

Are bank accounts sticky?
It's not that I'm saying that bank accounts aren't sticky - because they are. They just aren't as stick as we think they are, and it's highly probable that they are getting less sticky. For example, how many customers choose an alternative mortgage provider instead of simply choosing the same bank where their current account is held? In this instance, the fact that your maintaining a current account with a bank, but the biggest product most customers are likely ever to take is not a given, is indicative of the fact that even a sticky current account doesn't mean that you only bank with one financial institution.

So a sticky current account doesn't mean a loyal customer. It means you keep a low value, low margin bank relationship because sometimes it's not worth the hassle to change. Doesn't sound that exciting when you put it that way...

Are iTunes accounts sticky?
American Express thinks so. They offer 5 free iTunes song downloads just for linking your American Express card with your iTunes account. You have to also register the card on a separate Amex site.

In 2007 Forrester estimated that individuals users spend on average $76 per year on the iTunes store. In 2009 Admob estimated that figure to be closer to $115 per user/year on apps alone. According to industry analysis firm Asymco, over 60 apps and tunes have been downloaded on average for every iOS device sold in the market.

You might be tempted to think that as Apple's devices become ubiquitous, that iTunes store activity should be flattening out.

“The amazing story of this chart is not that apps are running at above 30 million download per day, but that the figure is growing. Growth like this is hard to get one’s mind around. Not only are downloads increasing, but the rate of increase is increasing.” - source: Asymco

The thing is, that even if they change their mobile number, increasingly customers are staying with the iPhone as a platform so they keep their Apps and content. The cost of switching, because of the myriad of Apps that the customer is attached to, is too high - so they migrate from one Apple device to another.

Apple has delivered more than 10 Billion Apps since the iTunes store opened. The average selling price of Apps on the store is somewhere around 29-33cents according to various estimates. We know Apple charges 30% to developers as their commission. We also know Apple has remitted more than $2Bn to developers since the store was opened. That translates to around $3Bn in revenue from the iTunes store today. However, estimates now suggest that Apple is likely to lift this to $2B in App store gross revenue in 2011 alone. So the stickiness is paying off...

What can banks learn from this?
Resting on your laurels and quoting figures around current account numbers is not stickiness. Inactive customers with multiple bank relationships, isn't evidence of loyalty. Having a bank license, branches and a legacy system bank transaction platform might enable you to have customers, but a transaction platform is not a platform for greater, deeper, more profitable relationships.

The challenge here is that increasingly others will provide stickier platforms for the interface to the bank. They'll have the bundling, personalization and messaging opportunities that banks need to get access to customers. The problem for banks is that they'll have to start engaging the likes of Apple and Google to get access to customers. Why? Because banks aren't sticky enough to keep me coming back - I'll have to take the bank to you, when and where it matters the most - on the move.

Yep, my phone - it turns out - is way more stickier than a bank account.

TagsMobile & onlineRetail banking

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