Mumbai: For commercial banks, gaining customer loyalty is becoming tough.

Customers demand instant redressal of their grievances and personalization of services at a cost lower than the next bank’s.

And if the bank fails to do so, customers think nothing of closing their account and moving on. The closure rate of savings accounts with Indian branches of foreign banks is as high as 18% but it is about 9% at domestic private sector banks, according to a 31 March report by brokerage Prabhudas Lilladher Pvt Ltd.

While some accounts are closed by banks because they are dormant or do not have the minimum required balance, many are closed due to banks failing to promptly address customer demands.

Then there are customers who move their primary account to another bank without closing the existing one.

“There are broadly 3-4 reasons for a customer to close a savings account—change in job, change in location of stay and unhappiness with customer service,” said Rajiv Anand, group executive (retail banking), Axis Bank Ltd.

According to a report by The Boston Consulting Group (BCG) on digital banking published in September 2014, in a digital environment, marketshare shifts will be rapid as customers will find it much easier to switch.

Banks, meanwhile, are increasingly focusing on the digital space to pre-empt and deliver the needs of the customers in a bid to retain them, and acquire new ones.

“You need to understand that now the consumers have a choice. Now that he has choice, banks need to move from a product-centric model to a customer-centric model. If you understand it, plan for it in advance and be at the forefront in catering to their needs, then this is the best of times. If you have not, then it is the worst of times because then the consumer moves away from you,” said Aditya Puri, managing director of private-sector lender and India’s most valued bank HDFC Bank Ltd in a 10 June interview.

About 85% of transactions at HDFC Bank are now through non-branch channels, with digital channels such as mobile or Internet contributing 55%.

Digital transactions lead to a higher current and savings balances in accounts by as much as 20%, says the BCG report.

So are banks in a race to implement their new-age products?

“Being the first to implement new products is not important. The key factor is that whatever product you launch should address your customers’ needs,” said Anand of Axis Bank.

Last month, the bank launched a mobile app, Ping Pay, that allows customers to send, ask for and receive money via Twitter, Facebook, WhatsApp, email and SMS.

With the addition of more and more new-generation customers, banks are not shy of using technology or social media.

Around 35% of India’s population is between 15 and 35 years of age.

“People want convenience. Now the trend is ‘I want what I want where I want—on phone, while driving, at house and after work’. As we change demographically, I also have to provide my customers logistical and geographical convenience. The youngsters don’t know how to deal with anything else. The customers also want everything at once,” said Puri.

According to a June Citi Research report titled, Digital Finance in Asia, HDFC Bank has been one of the earliest and fastest adopters of digital banking.

Staying ahead of the curve, the bank on Monday will launch a mobile phone app, PayZapp, that allows its customers to make payments, send money and manage their cards.

Foreign banks, too, are seeing customer adoption through digital channels. “Around 64% of our active customers bank with us digitally and about 85% of all financial transactions is through digital channels. Meanwhile, 40% of all person-to-person payments are done using IMPS (immediate payment service), one of the highest in the industry. Digital is a powerful acquisition channel, too, with around one-third of new customers being acquired through this mode,” said Kartik Kaushik, country business manager, Citibank India.

Banks such as ICICI Bank Ltd, Axis Bank and Kotak Mahindra Bank Ltd have already launched payments solutions for social networks, which allow customers to transfer small payments to friends and followers through Twitter and Facebook, looking to acquire younger customers.

Among the many reasons cited in the report by Prabhudas Lilladher for customers closing their savings accounts are banks insisting on a higher minimum balance and steep charges in case of non-maintenance.

For instance, public sector banks have a minimum monthly or quarterly balance maintenance requirement of Rs.500-1,000 for a regular savings account, compared with Rs.2,000-10,000 for private banks.

When it comes to charges for non-maintenance of minimum balance, public sector banks charge in the range of Rs.50-100, whereas private banks charge Rs.150-750.

“The customers now want everything at a good price because they will shop. Hence, price premium is also disappearing,” said Puri of HDFC.

Besides costs, resolving complaints can play a key reason for shifting to another bank. In 2013-14, 76,573 complaints were recorded by the banking ombudsman, up 8.55% compared with the previous year.

There were more complaints against public sector banks but the exception was the country’s largest lender, State Bank of India (SBI), and its associates. Its share in the total banking complaints have dipped from 35% in 2011-12 to 32% in 2013-14, while private banks contribute a steady 22%.

Immersed in the new digital experience provided to them by technology firms Google and Apple, the BCG report says, customer expectation from banks, too, have risen.

“The time taken to deliver service and products will be a key component to retain a customer. Earlier it used to take a number of days to open a bank account, now it’s possible in hours. Similarly, loan products such as personal loan and credit cards are available within minutes,” said Anand of Axis Bank.

For instance, HDFC Bank has been using digital banking in disbursing personal loans by automating the process of targeting customers, doing credit checks and disbursing the money. Another example is ICICI Bank that allows banks’ representatives to visit customers at their home or office and open bank accounts using a tablet PC. Documents are scanned on tablets, the KYC (know your customer) form is completed instantly and accounts are opened within a day.

As of now, most banks have launched mobile apps where the customers get an incentive to transact. Though India is still a heavily cash-dominated economy, payments through digital banking is becoming more popular. It is expected that the current demography will take the lead in adopting digital banking.

Right now there are over 10 mobile wallet firms operating in India which seek to address the small-value payments space. A number of banks are also targeting the wallet space, hoping to ensure that their transactions businesses (National Electronic Fund Transfer, or NEFT; Real Time Gross Settlement, or RTGS, and cards) are not captured by the m-wallet providers.

“When you do what your customer wants, your competition changes. For instance, now my competition is loan portals as well as prepaid payment issuers. My prospective competition could be telecom companies, insurance companies and mutual funds,” said Puri of HDFC Bank.