Is customer loyalty dead in banking?

Banks face increasing pressure, not only to retain their existing customer base, but also to attract new customers

In an age of increasingly high consumer expectations, driven by ever increasing customer choice, the term “customer experience” has become more than a simple buzzword. Used as a key brand differentiator for all types of industries, it has emerged as a crucial tool in driving customer loyalty in the long-term.

Irrespective of whether you are buying a coffee, a gift or a loan, all customers today demand a convenient, simple and personalised experience.

Financial services customers today have more choice than ever before. With the government focused on enhancing competition within the industry, the subsequent rise of challenger banks, new market entrants and fintech start-ups driving innovation, there has been a dramatic increase in the number of banking services on offer. Consumers are also being actively encouraged to shop around for alternatives with the introduction of switching services on many primary banking accounts. As a result, traditional banks face increasing pressure, not only to retain their existing customer base, but also to attract new customers.

Creating a seamless journey from online to in-branch
In response to the increasing demands of today’s “always connected” consumer, businesses are under pressure to not only continually redefine their online experiences but also to redefine the in-store experience to align with the shift in consumer behaviour. While many customers now prefer to bank online, this doesn’t mean the demise of the traditional high street branch. Instead, customer’s expectations of in-branch services are higher than ever and need to be fully integrated with their online experience.

As in the retail world, the branch will remain a key channel for banks. Research shows that even when customers use digital platforms as an initial point of contact for basic services and information, human face-to-face interaction is still a key engagement driver. According to the World Retail Banking Report 2015, over 60% of customers prefer in-person advice.

However, branch designs and processes do need to adapt so that they closely align with the customer’s digital experience to avoid a disconnection between services. The challenge for banks is creating a unique in-branch experience that enables them to differentiate their offering over competitors and keep customers engaged, while maintaining cost efficiencies.

Banks are increasingly turning to virtual technologies as a way to envision the branch of the future, to test out innovative ways to differentiate their brand and services, and ultimately improve core journeys. By envisaging and remodelling in-branch journeys from scratch, banks can experiment, not only with new customer journeys but also adapt and develop the most effective staff journeys.

Importantly, this also gives financial institutions opportunities to consider how to optimise in-branch processes to improve the cost efficiency of the branch; ensuring branches can remain a viable part of the channel mix. Banks in Europe have successfully demonstrated how cash recycling not only reduces costs but also delivers operational efficiencies, highlighting the need to focus on the journey of cash as one of the core elements of an effective branch model.

Opening the doors to new market entrants
Thinking about the emergence of digitally native financial institutions, what can traditional retail banks learn from new market entrants about customer loyalty? New entrants – such as Atom Bank, which offers primarily app-based interaction – are starting to redefine the banking experience as-we-know-it, putting customers at the heart of their strategy. Others are a hybrid of old and new. For example, Metro Bank has centred its strategy on branch banking but placed the consumer as the focal point of its service, maintaining the digital mantra of fast, effective, customer focused services.

Alongside alternative challenger banks, in the past few years, there has also been a sharp rise in new payment technologies. In turn this trend has spiked a significant change in customer habits, and has started to dis-intermediate banks in key elements of the payment process.

In this context, customers are starting to utilise peripheral services outside of their designated bank. Many banks are integrating payments services into their ecosystems to ensure they meet consumer demand and retain a degree of ownership over the customer journey. However, there are other services like the Starbucks mobile app which, created to drive loyalty, is also a convenient financial instrument. Certainly these types of third-party services are proving increasingly popular, but it’s important to remember they only form part of the overall mix.

Nevertheless, almost two-in-three banks globally are smartly upping their investment in fintech this year to help drive innovation, meet customer need and ward off the likelihood of disintermediation. Recognising the need to embed innovative new services into their wider customer offering, banks are leveraging these third-party services to complement and enhance the overall experience for the customer, encourage loyalty and remain relevant.

Keeping hold of customers
With changing regulation encouraging greater competition and consumers continuing to actively consider their choices, the pressure is on financial institutions to strengthen their customer strategies to drive loyalty.

While there is currently no significant churn in the banking market, banks need to be wary of the dangers future digitisation will pose on consumer behaviour, and begin to prepare both online and in-branch customer journeys accordingly.

Taking into account the legacy technology that still permeates many banks today, this represents a massive shift for some organisations but is crucial to achieve long-term customer loyalty.

By Richard Broadbent, general manager, banking – UK & Ireland, Wincor Nixdorf