To witness the breadth of transformation that can result from seeking innovation beyond stale industry models, one need look no further than the Australian banking sector, which has struggled against a growing wave of foreign competition over the last several years. According to a report in Retail Banker International, profits rose 25 percent between 2000 and 2005 at the country’s four largest banks — ANZ Bank, Commonwealth Bank of Australia, National Australia Bank, and Westpac Bank — but because of foreign entrants like ING Bank that have used the Internet to draw consumers away from the country’s branch-focused lenders, market share in deposits and loans dropped considerably.
As a result, Commonwealth, ANZ, and Westpac have all launched high-interest Internet savings accounts. Commonwealth also introduced a three-year customer service and productivity improvement campaign, called “Which New Bank,” in 2003. The program included the introduction of a commission-only sales force, or “mortgage innovators.” The sales force also has the option of opening Commonwealth “mortgage innovation centers” to provide customers better access and a more personalized experience. According to Retail Banker International, Commonwealth saw an increase in revenue per staff within the first year of the program, and it has become a model for bank regeneration in the region.
“The Australian market is unbelievably competitive,” says Vanessa Wallace, a vice president with Booz Allen in Sydney. “Innovation is happening at every point along the system — customer interface, within product classes, as well as the reinvention of branches. There is also hidden innovation in processes, product architecture, and systems. It is a constant innovation game. It would be a mistake to sit still.”
Keeping It Simple
At its most basic level, some Booz Allen and Wharton experts suggest, successful bank innovation begins first by learning to look at things from the customer’s point of view and then trying to solve a problem. Like many companies, banks on the whole have been better product engineers than marketers, better at “solving financial problems than consumers’ problems,” says Booz Allen’s Mr. Kandybin. In the next few years, Mr. McKeon of Booz Allen believes that “keep-it-simple” offerings are likely to be the industry’s big winners, such as annuity-like products that will help baby boomers meet their retirement goals. Nothing complex, he says, just “very simple products that meet their fundamental needs.”
“I think that most offerings of the banks are too complex for the average consumer to understand,” Mr. Kandybin says. If you look at some consumer products where there is a complexity dimension, he says, such as a washing machine, typically the company will have a sales force to explain the different features. “Banks’ products are currently more like washing machines — really hard to sell.” But banks have no sales forces to deal with customers. “Nobody sells those products,” Mr. Kandybin says. “Nobody really tries to educate consumers.”
Even when a product can’t be simplified, helping clients deal with the offering’s complexity can create greater loyalty. Mr. McKeon cites his experience with Countrywide Financial Corporation. The bank, which holds a mortgage on Mr. McKeon’s home, asked every year for a copy of his flood insurance. “Why don’t you just get that directly from the insurance company?” Mr. McKeon recalls asking. A traditional bank might have told him that it was impossible, “but Countrywide said ‘fine.’” Good for him, but how did the bank profit? “Technically, I didn’t pay them for that,” says Mr. McKeon. “But it helped develop customer affinity.” Countrywide has clearly learned a small lesson with a big payoff: A customer’s good will is invaluable.