By Heeyoung Hwang and Kenny Lam

Asian banking consumers are changing the way they do their business. Life is therefore getting more complicated—and more interesting—for the region’s financial institutions.

That is one of the key findings from McKinsey’s 2011 Asia PFS survey of 20,000 consumers in 13 countries. The survey seeks to understand how consumer behavior, as well as their banking relationships and product need, is changing. In six developed markets—Korea, Japan, Taiwan, Hong Kong, Australia and Singapore—McKinsey conducted additional research on how consumers make purchase decisions and what channels consumers are using to buy and use savings and basic investment products.

One of the most interesting findings of this work is that the use of branch offices is faltering across Asia—down 27% since 2007; this is the first recorded drop since McKinsey began doing the survey in 1998. Consumers in developed Asia deal with their banks about six times a month, the same as in the past. The difference is that they are now using new channels, such as Internet and mobile  more (3.2 times a month) than traditional channels such as branch visits and the telephone (2.57 times a month).

As new channels are being built, consumers are coming to them. In short, their behavior is changing. 

There are three distinct phases in how consumers buy and use financial products:

1. Pre-subscription: Consumers gather information on which bank to use and what products to buy.

2. Subscription: Consumers actually buy/ subscribe to a new product.

3. Post-subscription: After purchase, consumers make a transaction (e.g., deposit, withdrawal, money transfer) or receive a service (e.g., getting a bank statement, changing contract terms, etc.)

In each phase, there are multiple ways (or “channels”), through which consumers can do what they need to do, ranging from traditional forms such as branch visits, call centers and ATMs, to digital channels like websites and mobile technology, to third-party agents to non-paid touchpoints such as word of mouth and user reviews. As has already happened in North America and Western Europe, migration to new channels in Asia is occurring faster in transactions than in subscriptions. For example, in the six developed Asian markets, digital channel usage (51%) has already surpassed branch visits (44%) for transactions. Add ATMs to the mix, and total electronic channel usage reaches 65 across those six countries.

Intriguingly, this is not just a matter of tech-addicted younger people spurning old-fashioned ways. In Japan, consumers 55-and-older are actually more likely to use online banking for transactions and service than any other age group. Subscription is also beginning to migrate to digital channels. More than a quarter (27%) of consumers say they would prefer to subscribe through digital channels the next time they buy a savings or basic investment product, an increase of five percentage points. This rise comes at the expense of branch usage, where people say they are less likely to use that channel the next time (down six percentage points).

And to complicate things further, consumers have started to use multiple channels. The majority of respondents in the six developed Asian markets used at least five channels to research a new savings or basic investment product; 1.7 channels for making a transaction; and 1.8 channels for getting service. Across the three phases, only 21% stay within the same channel. (See the exhibit in the PDF for a schematic, using Korea as an example, that shows just how complicated consumer channel usage is becoming.)

These changes bring new challenges. Banks need to provide customers with a seamless experience across all channels: That will require investment. But there is opportunity, too. Done right, the institutions that create the right kind of experience will win tangible economic rewards through increased cross-selling and customer loyalty. There could also be substantially lower costs, for example by rationalizing the branch network.

Here are some questions banks need to ask as they prepare for action:

1. Where is the market today and where is it going?

2. What are the typical paths of multichannel usage?

3. What are the characteristics of customers who stay in different paths?

To read the answers to these questions, and the rest of the article, download the PDF.