If the trend towards the unbundling of financial services is to be reversed, then banks need to make it beneficial for consumers to have a relationship with just one institution.
Loyal customers spend more and retention typically costs less than acquiring new customers. But customer retention is hard. If it was easy, wouldn’t everyone be doing it?
Historically, banking was a sector that had it easier than most when it comes to customer retention. While banks may still, for the most part, be holding on to their customers they no longer have a firm grip on loyalty. There is a growing trend towards unbundling financial services, using multiple providers and mobile apps to manage money. Rather than switching, customers are opening additional accounts.
This change in consumer behaviour comes from a lack of trust following the 2008 financial crisis and the increased quality of life experiences. This has raised expectation levels of banking experiences and if it’s not up to standard, there’s plenty of incentives from competitors to jump ship. Even traditional banks such as HSBC offer temptations like a night away from a choice of 50 luxury hotels as a reward for switching to their Premier account.
And now with the added challenge so many brands face with Covid-19 potentially having a life changing impact on physical interactions, including banking, how can people’s experiences and expectations be understood, met and if possible, exceeded to ensure customer retention?
Use your data wisely – it’s often gathered, rarely utilised
As customers begin to understand the power of their data, you must ask yourself if it’s possible to add value by augmenting the customer data you hold. Banks hold enormous amounts of customer data and it’s often gathered but not utilised for the customers’ benefit.
Focus on leveraging the existing, and new data sets, to gain customer understanding, and therefore a competitive advantage. If you understand your customers’ needs, you can work towards meeting them. For example, AIG in Singapore used their customer driving data to reward good drivers with up to 15% discount on their insurance premium.
However, the ultimate goal is to use data not just to meet your customers’ needs but also exceed them, much like Finnish insurer LähiTapiola, whose app can reveal the user’s blood pressure, fat percentage and life expectancy from a selfie. The AI technology provides a positive direction for consumers to think about their health. The use of data must be done responsibly though, with complete transparency and security for all consumers. Privacy is key for those who use technology, especially for apps and this must be at the forefront of a brand’s mind.
While banks have been good at using data to improve their security, fraud prevention and compliance, they need a greater focus on the data that provides insight into the customer. This will allow them to identify how to personalise their experience, find where is best to reach them and answer the important question of who are the customers that can and should be retained.
Create a long-term partnership – could financial planning become a loss leader?
The need to form a long-term partnership with consumers is paramount. Specifics may change dramatically but if the fundamental life stages stay the same, for example the financial stresses and strains which remain fairly constant through life (“Should I saddle myself with the debt of higher education? Should I rent or buy? How much will I need to retire?”) there will always be a demand.
Wealth management and financial planning have been a revenue stream seen only from wealthy clients given the high costs of onboarding and servicing. Could we see it be a loss leading service through the financial life of the customer to build deeper relationships? Indeed, with technology like AI making robo-advice possible they may still be able to make it a profitable way of adding value to customers and creating loyalty and trust.
Have a purpose – CSR & ethics can act as differentiator
Financial Service firms need to have a purpose and be prepared to articulate this to the world, so that their customers can feel a connection in their relationship that extends beyond the transactional.
Consumers are increasingly looking at a company’s ethical and moral stance both locally and globally. As businesses look for ways to increase loyalty, a brand’s corporate social responsibility or a product’s ethical origins can act as a differentiator or even a deal breaker. However, it is vital that this is authentic and it must exist in everything you do, from the products you create, like Doconomy’s credit card that cuts off spending when you reach a carbon limit rather than a financial limit, and in the way you communicate, like Tandem who use Google search listings not to talk products and services but to articulate their mission to “free you from money misery”.
If the trend towards the unbundling of financial services is to be reversed, then banks need to make it beneficial for consumers to have a relationship with just one institution. This goes for all businesses. To do this, firms will need to use data to provide truly differentiated, cutting-edge experiences, potentially beyond traditional products and services. They need to not only deliver excellence, simplicity and convenience, but also prove that they add superior value.
For more on banking, visit Econsultancy’s financial services hub page