When it comes to customer attrition, banking institutions may be more comfortable than they should be.
A study by management consulting firm Accenture found that average annual customer attrition rates rest around 11%, with higher rates among first-year customers, who churn out at a rate of 20%-25%. It’s a reasonable benchmark that customer acquisition professionals have been able to account for in their efforts to keep growth initiatives ROI positive, but research suggests there may be very little standing between manageable churn and a disruptive exodus.
In their yearly report on customer loyalty in retail banking, management consulting firm Bain & Company found that “Many consumers—about 29% globally on average—said they would switch their primary bank if it were easy to do so.” Switching costs are widely cited as one of the great stabilizers of the banking industry. The time and effort required to redirect recurring bill payments, transfer funds, and learn a new set of customer incentive programs have helped keep attrition rates as low as they are, but there are efforts underway to change that.
In an aggressive play to capture market share, many banks have started offering customers cash incentives to take the leap and switch financial service providers. It’s become such a common tactic that customers are happily gaming the system, with one particular UK banking customer netting “£800 in free cash and vouchers after opening six bank accounts in just over two years.” As competition heats up and switching costs are actively innovated against, modern banks need a comprehensive understanding of what drives loyalty in customers, especially amidst a rapidly changing digital services landscape. Recent studies suggest the following four factors are among the most important to driving customer loyalty and reducing churn.
In the age of social media and information overload, banks that make concision part of their product strategy are pulling ahead. In their yearly loyalty report, Bain & Company notes that “Tangerine Bank, the loyalty leader in Canada, offers just one type of checking account online, compared with four to six at the major traditional banks. Some of the largest global and regional banks have borrowed a page from the playbook of direct banks, as they simpliﬁed products and improved their digital operations.” It’s a sound strategy that has allowed Tangerine to secure one of the highest Net Promoter scores in the Canadian financial industry, all through a digital-first, branch-free service strategy that has the company publishing value-oriented digital content on a daily basis.
In their fourth annual Consumer Digital Banking Study, researchers at ath Power surveyed more than 3,000 retail banking customers, 2,400 of which self-identified as active mobile banking users. Of all respondents, 62% said they were interested in loyalty programs from their bank, the highest of any feature included in the survey. Following closely behind at 51% were discount coupons, including programs that allow customers to reward customers with a percentage of their transactions. This is another area where Canadian financial darling Tangerine has established itself as a market leader. Their 2% money-back credit card program is one of the most aggressively pro-customer loyalty programs on the market, helping to make them Canada’s favorite bank six years in a row and setting the bar for modern financial institutions everywhere.
With brand trust at an all-time low thanks to the PR fallout of the 2008 financial crisis, it’s more important than ever for financial institutions to acknowledge modern market biases and foster customer relationships rooted in genuine altruism, but it won’t be easy. In a 2017 study by integrated retail experience strategy and design consultancy SLDNXT, researchers polled 1,100 US banking customers and discovered that “Over 57 percent of customers view their relationship with their bank as ‘transaction centric’ … only four percent of consumers view their bank as a trusted source of financial advice.” It’s an unfortunate situation that starkly contrasts the trust-standards of past decades, but resourceful financial loyalty marketers will recognize it as an opportunity to differentiate their brands by offering sound advice that addresses their customer’s needs.
In a 2016 study out of Halmdstad University in Sweden, author Andreas Knutsson surveyed 228 internet banking users regarding their feelings towards a variety of bank brands. Included in the study was an inquiry into the respondents’ opinion of their corporate image and brand identities. It was determined that corporate image was a key consideration among banking customers, and corroborating results from similar studies led the author to conclude that “a powerful brand may create additional value to customers which can enhance the consumer’s loyalty to the corporation. This faithfulness can in return generate value back into the company.”
With churn rates poised to spike, banks looking to insulate themselves from market disruptions need to embrace the needs of modern customers. Those that offer simple, value-oriented products and loyalty programs while maintaining a public reputation of trustworthiness will be able to future proof their brands against whatever comes next. In doing so, they can secure their future, at least until the next major market shake up.