Last month, I decided to pull the plug on a 12-year relationship... with my bank, one of the market-dominating retail banks in Switzerland.
I made this decision the day my bank made a pathetic attempt to directly engage with me for the first and only time in 12 years.
The day before, I had transferred a not-insubstantial amount of money to my current account from an online investment broker. This money was simply passing through my current account on its way to a notary's escrow account as part of a home-buying process. But the event was significant enough to set off my bank's primitive relationship-management alarm bells.
So, I get a call from a retail banking advisor I've never heard of before. He begins: "Sir, please let me introduce myself and explain how we can help you..." My immediate thought is: "My bank takes me for a fool, and can't even be subtle about it!" And so I end the call rather abruptly, put off by the extreme naïveté of the approach.
And that's how a bank trying to engage with customers instead pushes them to leave.
So why did my bank wait for 12 years before trying to engage with me? What was it so busy doing? Where was it when I needed it?
During these 12 years, I really needed my bank in only two instances, two so-called "life events".
Both times my bank failed me.
I suspect the reasons it failed me so badly are that:
- it knew nothing about me or my life context;
- it could/did not readily exploit "derived market" intelligence (e.g. real-estate, education markets);
- it was busy preserving its retail banking margins the "easy way" - by opaquely raising fees - instead of trying to know their customers better and building an attractive proposition & experience.
The first time my bank failed me was when I needed a student loan to finance an MBA at INSEAD, before the 2008 crisis. Not exactly a high-risk bet for the bank, I would like to believe, as INSEAD's MBA has ranked among the top MBAs for years. Plus, already back then, 90% of INSEAD graduates were employed within 3 months of graduation, and the average alumni salary was close to $150,000.
My bank said no to the MBA loan, unless it was backed by an equivalent amount blocked in an escrow account. Go figure... Perhaps I should have asked for a shark loan to fund the escrow deposit? Anyway. I ended up getting a loan from family members, and paid it back over 5 years with a slightly-below-market interest rate.
The second time was when, more recently, I wanted to purchase a tiny holiday apartment well within my means. The apartment is located in an all-year-round mountain resort sustained by strong international demand since the 1930s and throughout the recent crises – so, not the same level of risk as buying a holiday pad in a seasonal seaside resort or a high-end home in a big city. Plus, I was proposing to pay a third of it upfront in equity and assume a mortgage repayment ratio far below the standard limit.
But I received a flat "no" from my bank, because the apartment is abroad... 50 miles away from Swiss territory, in France. Not exactly Mosul or Caracas... but anyway... Perhaps instead I should have asked my bank for a huge mortgage to buy a wildly overpriced home in sadly overpriced Geneva (where housing prices are thankfully starting to wobble as overpaid mid-career private bankers go extinct with the end of Swiss banking secrecy). Anyhow, I found another bank down the street that set up the loan in the space of 3 weeks.
Meanwhile, and especially since the 2008 crisis, the fees my bank was charging me were sneaking up and up. They also became much more opaque in 2013 with the introduction of retail banking "packages" or bundles.
So, not only was I seeing my basic banking fee rise to an incompressible CHF 15 per month (!), plus the CHF 1.50 charged every time I use my debit card for food shopping 2 miles away from home in neighboring France (effectively a suburb of Geneva)... but I also knew that I was paying for things I never used, such as the Savings Account which remunerated a mind-boggling 0.15% per annum.
So, why on earth did I not quit my bank sooner?
Simply because I am the typical admin-averse, inert banking consumer. On my weekends, I'd much rather ski, relax, socialize, etc. than deal with the hassle of switching banks.
And so this is how I unwittingly became a heavily-milked Swiss dairy cow over the 12 past years.
It gives me, however, great comfort to know that I was not the only heavily-milked dairy cow in Switzerland (not counting the half-million animal ones in our Alps). Indeed, research shows that Swiss retail banking customers could save up to 6.3 billion Swiss francs in banking fees every year if they switched to banks which offer lower fees and/or services that are better tailored to customers' actual needs (i.e. allowing customers to pay only for things they actually need and use).
Another piece of research shows that about 18% of banking consumers would switch banks "if switching were easier". But, oh come on, how complicated and costly can switching banks really be? Well, it depends of course on the complexity of one's financial portfolio and of one's banking relationship. Research shows that in Switzerland the cost of switching a model retail banking portfolio of average complexity (i.e. including a few publicly-traded stocks) ranges from CHF 1'000 down to CHF 252 (Swissquote online bank). So, yes, it can be a bit complicated and expensive... especially if you're stuck with a traditional incumbent bank.
But if you only have a current account, maybe a savings account, and a couple of cards... well, there's really no excuse. And now that I've actually decided to switch banks, I realize how un-complicated and un-costly switching really is. I wish I'd paid attention to this a few years ago.
According to E&Y, 92% of banks in Switzerland foresee a decrease in their margins. To be honest, I'm not awestruck by this foresight; interest rates are negative and there is intense price-competition everywhere you look - companies offering free current accounts, free credit cards (no hidden charges), custody fees as low as 0.1% p.a. (capped at max. CHF200 p.a. even for millions of francs), etc.
Moreover, many of these cost-efficient providers offer higher-quality customer experiences and interfaces - mainly though digital channels - than their incumbent competitors. In short, there are plenty of providers that no longer have to trade off between price and quality, and I can vouch for it because that's where I've headed to with my money.
Despite these developments, 64% of banks in Switzerland believe that the heart of their business will not change that much because they view digitization as being mostly about supplementing existing distribution channels. In other words, Swiss banks still view digitization in superficial terms, which is extremely shortsighted and, frankly, negligent.
Of course, true digitization is something much more complete and complex than this, and this is where I tie back in with the three reasons my bank failed me. Becoming a truly competitive digital services provider would require my (previous) bank to:
- know a lot about me and my life context;
- exploit all kinds of "derived market" intelligence i.e. integrate info about the real world in which my loans, savings and investments are being used/made (e.g. housing, education);
- consider margin expansion/preservation as a result of, not a reason for, digitization.
In other words, banks in Switzerland must stop milking their customers like passive dairy cows and instead re-design themselves entirely so as to capture structured and unstructured information on their customers and on the wider world. And they must be able to use it to engage with customers in a compelling way i.e. in a way that is subtly woven into their everyday lives.
Banks in Switzerland are not insensitive to the urgency of digital renovation as an absolute prerequisite to engaging with customers more intelligently. Indeed, two-thirds of them already see their position on the market at risk from new technologies, IT companies and non-bank providers. But time is running out fast. One can really feel the general disengagement, and readiness-to-switch away, from traditional banks. As always with services of all kinds, word-of-mouth based on personal experience is a powerful force for change, and I'm glad to be a part of it now.