Digital threat to bank brand value

Australia’s rapid adoption of all things digital is attacking the brand value of the big four banks, which is already very low compared with global peers.

According to research by JP Morgan and Digital Finance Analytics (DFA) published on Wednesday, Australian retail bank customers conduct more than 60 per cent of their banking interactions online or with smartphones and tablets. Only Scandinavians do more of their banking through these digital channels.

For the purposes of the research, customers were categorised as digital natives, digital luddites and digital migrants, those who are moving to digital.

Digital natives, particularly the young, are way ahead of where the banks are, said Martin North, DFA principal. “Some segments are already dissatisfied with the lack of adventure by banks.”

DFA conducted a thought experiment to understand how customers view existing and emerging brands in the context of digital banking. North was surprised to discover that even digital migrants view technology companies such as Microsoft, Google and Apple higher than the major banks.

Brand value versus enterprise value


Unsurprisingly, only Luddites rated the major banks highly. They’ll become a smaller and smaller proportion of households over the next 10 to 20 years.

The message for banks is clear. Banks that fail to invest significantly in digital risk losing today’s under-35s who will be tomorrow’s sophisticated customers requiring lending and complex wealth advice.

That isn’t a message for tomorrow but for today because the banks’ brands are currently relatively low value.

In conjunction with Brandirectory, JP Morgan’s analyst Scott Manning measured brand value relative to enterprise value. Brand value of the four major Australian banks was around eight per cent of enterprise value, less than half the 17 per cent average of 24 global peers in developed economies.

Yet Australian banks’ returns are among the highest in the world.

Multiple branding doesn’t work


Manning believes the driver of their low brand value “appears to be the fact that the market capitalisation of the major Australian banks is more a function of their current oligopoly structure and their relatively higher returns on tangible equity rather than brand.”

He noted that around the world most banks use one brand in their primary geography for a particular product and those with the largest global retail distribution footprints – Wells Fargo, Chase, Citi, Bank of America, HSBC and Santander – all run one brand.

Manning highlighted that Scotiabank, which like Westpac has a multiple-brand strategy and operates as part of an oligopoly, also has relatively low brand value.

Also noteworthy was ANZ, that largely runs one brand across multiple geographies to enhance ‘connectivity’ benefits, has around the same brand value as the Westpac group which has a ‘house of brands’ strategy with five brands for domestic banking and 11 more brands for wealth management.

Manning’s analysis further indicated that the brand value of the banks’ wealth management arms is much lower than that of the bank brand. For example, the brand value of MLC is considerably less than that of National Australia Bank.

It led him to conclude that the banks that paid "huge amounts" for wealth management brands a few years ago "didn’t get value".

Categories
Banking, Technology, Wealth,
Tags:
JP Morgan, Digital Finance Analytics, DFA, technology, smartphones, research, Microsoft, Google, Apple,
Author:
Marion Williams, mwilliams@financialpublications.com.au
Article Posted:
April 03, 2014

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