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Despite living in Asia for three years (2009-2012), we never managed to make our way up to Japan, for business nor pleasure. Fortunately, earlier this month I had an opportunity to spend a week meeting with our local Capgemini team in Japan, as well as about 40 different banking, insurance, and wealth executives ranging from the large local incumbents to multi-nationals who continue to try to chip away at the stronghold the local players have held.
One of my objectives of the week was to get deeper insights into why customer experience levels (identified in our annual World Retail Banking Report , World Insurance Report , and World Wealth Report ) have been so much lower in Japan than the rest of the world.
Are Japanese customers impossible to please or are FSIs simply failing to deliver on expectations?
In the market research I have done over the past decade, Japan has always stood out as a bit of an anomaly. It’s a huge market, dominated by local players, who seem to have the least satisfied financial services clients across the globe. Every year, Japanese customers consistently fall in the bottom rankings of customer experience – whether it banking, insurance or wealth management.
Banking:
Insurance:
Wealth:
For years, we have partly chalked it up to cultural influence (recognizing customer experience is a combination of both what actual user experience is being delivered and what expectations customers bring with them into those experiences). Maybe Japanese customers simply never feel comfortable giving very high ratings when it comes to satisfaction and experience-related questions or have unrealistic expectations?
After this week’s visit to Tokyo, my conviction is that is really only one piece of the explanation. There was certainly general consensus over the impact culture had on our research results. Generally, the Japanese population is very demanding with high expectations. However, using that as an excuse to explain away the results of our research may be letting financial institutions in Japan off the hook a little too easily.
The reality is that despite the size and maturity of the Japanese financial services sector, the industry has done very little to evolve and digitally transform over the past two decades (even more so than the rest of the world). The industry overall is still heavily dependent on branches, agents, and advisers. Very little investment has been made in bringing the FS sector into the digital world, despite at the same time a Japanese population experiencing rapid adoption of digital in their day-to-day lives.
For years, Japanese firms have stood by the position that there is no need to make large investments in digital for the simple fact there is very little demand for it coming from their clients. Over the course of the week, I heard many executives explain the Japanese people are different. They value the personal relationship and the physical experience. The little investments they have made in digital have never resulted in very strong adoption rates.
The reality is, Japanese customers have been slower to pick up digital channels. Globally, nearly two-thirds (65.1%) of customers use Internet at least weekly to interact with their banks vs. only 39.3% in Japan. The contrast is greater for mobile channel with only 13.4% of Japanese interacting with their banks at least weekly vs. 30.5% globally. But the real question is this more due to a lack of demand or a poor supply of digital capabilities.
Now, to their defense, the Japanese population is experiencing a different demographic shift than many other regions. The population is shrinking and getting older (and doing so quickly). I've read some estimates have overall population in Japan dropping 30% by 2060. The demand and pressures coming from the younger generation simply hasn’t applied the same type of business imperative on the FS industry like it has in emerging markets, or even Europe and the Americas. I suppose to a certain extent they were not completely off-base. However, I do believe the likes of Amazon, Google, and Apple may change that.
Can Japanese banks and insurers learn from Swiss private bankers?
I do believe the tide is turning. My conversations this week brought me back to meetings I had when I was living in Paris running our Financial Services Lab 10 years ago. One study we did back in 2005 was looking at the role of digital in the Wealth Management space. At the time, U.S. firms were starting to make investments in the online channel to serve the high net worth segment (and the mass affluent). We published a white paper “Debunking 10 Myths of Why Wealth Management Will Not Adopt Digital”.
I still remember an interview I had with a senior executive at a Swiss private bank who called me out as an ignorant American who fundamentally doesn’t understand how the Swiss private banking industry works. He point blank told me that his high net worth clients will NEVER, EVER use the online channel to interact in any shape or form to manage their wealth (whether it is to check balances, make transfers, or search for investment advice). Of course, fast forward 10 years later and that same institution is making huge investments in their digital channels and have identified it as a critical priority over the next three years.
The reality is over half of high net worth individuals (over US$1 million in investable financial assets) across all regions, even Japan, believe most or all of their wealth management relationship is already digital in 2014.
My conversations this week in Japan had a very similar feel to the conversations I was having with Swiss private bankers back in 2005. Many simply couldn’t see a world where their clients (young or old) would want to interact through digital channels. It was also interesting to see how disconnected many were from what was happening in financial services outside of Japan. Almost all comparison and points of perspective came back to comparing themselves to other competitors in Japan. That being said, you could start to see some genuine interest/concern on what is happening outside of Japan (especially as we start to see local firms branch out of Japan for international acquisitions) . Even some of the traditional, conservative big banks and insurers of Japan were starting to leave open the possibility that they may need to start evolving digitally to meet the needs of the next generation.
Digital adoption for retail in Japan is very high, how has it not translated to FS?
As an American thinking of a stereotype of Japan, first that comes to mind is a technology rich, gadget-loving population. And when you look at the adoption of digital channels in the Japanese retail sector, there is no reason to believe otherwise. Amazon service, as impressive as it is in the U.S., is blown away by Japan. Orders on Amazon placed in the morning can often be received by noon the same day. Retail stores are becoming less and less visited as customers find it much more convenient to order online.
If that’s true, how has it not translated across to the financial services sector? One would think there would be a demand coming from customers. One would think customers would have pushed back and voiced their dissatisfaction. I think a big part of it is that customers simply don’t know what they don’t know. We saw similar results in our World Retail Banking Report a few years ago. Banking customers ranked the importance of the mobile channel for banking very, very low. However, as banks (and non-banks) have begun to advance the functionality of the mobile channel in banking, customers quickly realize the value. The importance rating has risen very quickly the last two years.
A challenge in Japan is the country is relatively sheltered in the world of financial services from what is happening outside of Japan. Many bank executives, never mind banking customers, have little awareness of how quickly new channels and services are evolving outside of Japan. However, the world is becoming smaller and the younger generation in Japan is starting to look for more – hence the very low (and declining) customer experience results.
The results coming from our Retail Banking and Insurance Customer Experience Indices show just how low Japan ranks in the world. It is becoming harder and harder for one to believe customers in Japan are really getting what they want from their banks and insurers. While executives in Japan may not see digital as a burning platform today, I believe there are those willing to make some calculated investments in delivering personalized customer experiences in the way their customers want to interact. On the banking side, we've even started to see an a significant increase in negative experiences. This is something we have not seen in other markets to-date.
Technology adoption in Japan happens very quickly. This may be just the opportunity multi-nationals have been looking for to crack the code to gain substantial market share in Japan. If they can leverage the experiences and lessons learned in their home markets (and markets across the globe), they can bring these leading practices to a Japanese market that is underserved. However, that timeline may not be long-lived. I believe the large, local institutions are slowly starting to acknowledge that change will be required given the evolving dynamics in Japan.
It will be interesting to see how things play out over the coming years. The FS environment in Japan certainly has its challenges, but with challenges comes great opportunity. In the meantime, I’ll enjoy a dram of the very nice single malt Japanese whiskey I discovered (and brought home) from the trip.
Side note - One area where Tokyo did not disappoint was the hotel's exec lounge airing my Red Sox (in Japanese) on a local channel as I had breakfast one morning.