How can banks retain customers?

I used to be an HDFC Bank customer. Some 5 years ago, the staff at my HDFC Bank branch were so lousy that I severed all my ties with HDFC Bank and went to Kotak Mahindra Bank. Back in 2019, Kotak was a much better experience than HDFC, especially with their much improved net and mobile banking interfaces.

I was a happy Kotak Mahindra Bank customer. But other than a bank account, there was little else that Kotak Mahindra Bank had for me. I didn’t know this back then, but now I see that this is a vulnerable position for the bank.

Each customer wants a different set of functionalities from their banks. My banking needs today include:

1. Basic banking operations, such as receiving and sending money, supported by good net and mobile banking apps.
2. A good set of credit cards that pay meaningful rewards.
3. A way to optimally manage my safety buffer cash (aka emergency fund).
4. Ability to hold small savings accounts, such as PPF and SSY accounts.
5. Not strictly necessary, but nice to have: automatic bill payments.

Of these, Kotak Mahindra offers #1 and #3. I was a happy Kotak Mahindra customer until I learnt that HDFC Bank offered an unbeatable forex conversion rate to Google employees. I have to regularly convert USD into INR. To reduce my forex conversion cost, I decided to open an HDFC Bank account. I didn’t intend to make HDFC my primary bank, though. I thought I’d transfer all the cash to my Kotak Mahindra account and transact from there.

But within a few months, I got pulled deep into the HDFC Bank ecosystem. I got their top-of-the-line credit card that pays incredible rewards. HDFC’s SmartBuy became my primary shopping destination. HDFC SmartPay started tracking all my bills and paying them automatically.

I opened an HDFC Bank account with the intention of not using it for any transaction. Within a few months, I am in a situation where most of my transactions happen through that account!

Partner discounts and automatic bill payments are not unique to HDFC Bank—almost every bank offers it. But HDFC Bank does them so much better that I actually want to use those features. Credit cards are not unique to HDFC Bank. I am a Kotak Privy League customer, and they have given me their Zen credit card for free. But I barely ever use the Zen card because the rewards aren’t attractive. HDFC Bank’s offerings are simply more practical.

Within a year since opening the HDFC Bank account, I am considering closing off my Kotak Mahindra Bank account. This is shocking even to myself since I like Kotak Mahindra and this had been my primary bank account since 2019!

How can a bank like Kotak Mahindra not lose customers to a bank like HDFC? I think they should think more holistically and build products that work together to deliver value. HDFC’s bank accounts, credit cards, SmartBuy, SmartPay, etc work so well together that customers would often want to use those products. Competing banks need to have a vision, a viable strategy for building a good ecosystem of products, and execute well towards that vision. Such a task is so difficult that most banks would never accomplish it.

PS: I sound like an HDFC Bank fanboy, don’t I? 😅 But I am not affiliated with any bank. I am just writing down my observations and thoughts.