Intent to switch in 2022 notably higher than last year, especially for the mass affluent
FICO, confirmed that the pandemic has aggravated financial hardship for retail banking consumers in Indonesia, with more than 3 in 5 experiencing a drop in income. It has also revealed that many are motivated to search for better banking offers, and that the inclination to switch lenders has increased year over year.
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Disruptive impacts from the pandemic differed across the region.
While a considerable 23-30 percent of New Zealand and Australian respondents experienced a negative impact on income due to the pandemic, this number rose to 40 percent in Singapore and India, 50 percent in Malaysia and 63 percent in Indonesia. Respondents in Thailand suffered the biggest blow, with 70 percent saying their income had been reduced.
The report uncovered that more than 1 out of 4 consumers across the APAC region (27 percent) have deferred loan repayments, in line with 30 percent of Indonesian respondents. Consumers in some countries were also more likely to do so than others. While nearly 1 in 3 (31 percent) in India and nearly half in Thailand (47 percent) deferred loan repayments as a result of COVID-19, this was much less common in Singapore (12 percent), Australia (9 percent) and New Zealand (7 percent).
Despite the uncertain financial climate, the majority of Indonesian retail banking customers plan to maintain or boost their investments (84 percent). Most are looking to maintain or increase savings (87 percent), and many will consider changing banking providers this year.
Increase in customers’ intention to switch banking providers
Surprisingly, while the report indicates that most customers were highly satisfied with their main banking providers, up to 20 percent of APAC banking customers who responded said they plan to change banks in 2022. In contrast, only 10 percent said they changed banks in 2021.
This increased propensity to switch lenders is highest among the mass affluent (defined as the high end of the mass market or those with at least IDR500,000,000 total investable asset holdings).
In Indonesia, 8 percent of retail banking customers and 5 percent of mass affluent customers switched in 2021. That is set to more than double this year for the mass affluent, with 18 percent saying they are very likely to switch, while retail banking consumers rose only slightly to 9 percent.
Top reasons cited by Indonesian respondents include a feeling that banking with their main bank is inconvenient (39 percent), a change in personal circumstances (29 percent), a desire for access to better investment and wealth management products and services (24 percent) and changes in where their payroll is deposited (24 percent).
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Financial impacts felt by even the wealthiest of Indonesians
Amongst mass affluent banking customers in Indonesia, 42 percent experienced a decrease in income due to the pandemic, 21 percent less than the wider Indonesian retail banking market. Many (39 percent) of the country’s mass affluent deferred loan repayments as a result, 9 percent higher than Indonesia’s retail banking customers, overall.
This disruption to income has left 25 percent of affluent Indonesians saying they intend to reduce spending, just as 45 percent of Indonesia’s retail banking customers plan to do.
Across APAC, the mass affluent are more likely to step up their borrowing compared to the wider market (16 percent vs 8 percent). In Indonesia, the mass affluent are slightly more likely to increase their borrowing as compared to retail banking customers (9 and 5 percent, respectively).
The report further revealed that a significant 91 percent of Indonesia’s mass affluent are opting to maintain or boost their investment levels with banks, slightly higher than the country’s overall retail banking market (84 percent).
Impacts of the Pandemic on banking intentions
Consumers are changing their banking behaviors, in response to the financial impact of the pandemic.
More than 4 in 5 of Indonesia’s retail banking customers will either increase or maintain their savings (87 percent), second only in the APAC region to New Zealand at 94 percent.
Despite a dip in borrowing plans year over year, the level of borrowing for APAC retail banking customers still remains higher than pre-pandemic times as consumers deal with the lasting effects of the disruption.
“The pandemic has clearly exacerbated financial hardship for customers regardless of income class,” said Aashish Sharma, Senior Director of Decision Management Solutions for FICO in Asia Pacific. “As borrowing and spending habits contract, customers will be on the lookout for avenues to grow their wealth and boost their savings. Banks must be able to proactively identify customers’ needs, and pivot their approach to alleviate financial anxieties while ensuring their products suit customers’ affordability and funding requirements.”
Gravitating towards Digital
More than half of Indonesian respondents (54 percent) still consider the proximity of branches and ATMs as a top determinant for a main banking provider; however, the report highlighted the importance of providing digital services. As many as 72 percent of APAC retail banking customers chose a fintech product over the option to use their banks’ main services. This was highest in Malaysia (94 percent) and lowest in Australia (39 percent). Respondents did so as they wanted time and cost savings, ease-of-use, and easier application processes.
Comparing 2021 to 2019, APAC consumers are increasingly gravitating towards digital channels at every stage of their application journey: initial enquiries and research (up 14 percent), follow-up enquiries (up 15 percent), and banking applications (up 15 percent).
How Banks can Ensure the Customer is at the Center of Actions and Decisions
- Transform operations and data silos through the use of sophisticated analytics technology and centralized management platforms.
- Make data-driven decisions by predicting, analyzing and optimizing customer interactions in real time for an event-based, profile-driven approach to relationship management.
- Develop precise insights into optimal interactions and offers that would work best for customers
- Create a digital twin (a type of virtual model used for simulation purposes) to leverage this continuous learning and test out radical new approaches and strategies in a low-cost, low-risk environment.
- Deliver hyper-personalized offers and customer actions in a scalable way
“Banks must understand their customers’ needs on a deeper and more granular level, or risk losing them to competitors and alternative providers,” said Sharma. “Maintaining customer satisfaction alone will no longer suffice; customer experiences must be radically enhanced. Customer-centricity will be key to consistently delivering hyper-personalized experiences and retaining customers.”
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