Are banks doing all they can to harness customer loyalty and do they realise the opportunity placed at their fingertips by increasing digitalisation? Anna Milne investigates why customers only wish banks would exploit the data they have on them to provide a better service- with rewards all round
It’s official- banks are on the road to retail branding and whether they like it or not, their customers are expecting more than ever."Banks need to realise that they are becoming another retail brand and need to offer similar rewards in order to retain customers,"says Penny Hembrow, vice president of IT systems provider CGI.
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CGI has just conducted a survey entitled "Understanding Financial Consumers in the Digital Era" to gain a perspective on emerging
financial consumer trends."Consumers view banks as another retailer. In other industries the propensity to switch hovers at around 20% and in this survey, with banks it was 40%, consistent across all geographies.
You’d expect places with the bug for switching,like the UK, to have more of a propensity to switch- yet it was very consistent across the board," Pembrow says. This includes CGI-headquartered Canada, where the impact of the 2008 financial meltdown was far less pronounced, thus leading you to expect a stronger level of loyalty to the banks but this is not the case. It seems people are beginning to realise the power they hold and that consumer finance is very much a buyer’s market. The move of major retailers into banking has raised the competition stakes and Hembrow says this trend is only going to rise. "Companies like Monitise are very quickly getting into the e-commerce space and trying to facilitate those networks. What I don’t see is Monitise and the banks teaming up on that e-commerce platform- they’re just using it as a technology platform. I also don’t see credit cards teaming up with banks to do it. They seem to have missed this market completely."
The survey results suggest consumers recognise that banks know more about them than any other retailer and are confused as to
why banks aren’t therewith offering bespoke services and products as a retailer would, given the same information. Certainly, newer
banks have an advantage here, being able to set up and go, so to speak.
Swedish bank Nordnet says it continually responds to customer feedback and aims to constantly deliver more: "We constantly ask for consumer feedback and allow beta testers for new services so we can make adjustments and developments in real time with their help," says chief analytics officer Hans Stromblad. He says banks have been too comfortable and believes niche players are a "healthy thorn in the side of big banks. We win customers from the big banks by being faster and more flexible in meeting customer demands. Our social investing network Shareville is an example of this, as we believe social investing will be a standard soon enough, but so far we’re the pioneers in the field and it’s been keenly welcomed by the savers," he says.
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By GlobalDataWhat are the top three things your customers want from the service you provide?
- An easy-to-use platform to handle their investments
- Inspiration and tools to make the right
investments - Innovative investment products and services
However, digital is complementary to face-to-face,Hembrow maintains, and she sees the digitally-focused newer banks at a distinct disadvantage in not offering branches. "People think about their finances all the time and use devices on which to bank out of office hours but at some point they want to have face-to-face contact out of hours."
The future of banking rewards? Hembrow expects loyalty building for additional products and high credit to significantly increase over the next 12-18 months in a bid to retain the most profitable customers: high creditworthy multi-product-holder customers. Currently, there are implicit rewards with better interest rates if you keep your money with the same institution over time "but the question is what happens if you take out additional products and are rewards lost if you buy additional wealth products and move deposits into a wealth product. So I expect to see banks working this out".
Another interesting point the survey highlights is a top five desire of respondents to have wealth building advice. "Banks are waiting to be asked and yet the mass affluent segment is increasing across America and Western Europe. And it’s the area of the market where there’s the highest dissatisfaction with banking services among users," Hembrow says.
There is a lot of opportunity, particularly within online forums, to offer independent advice- banks could significantly improve the way in which they engage with their clients. "Banks can’t afford to do bespoke private banking- it’s too high a cost. People don’t have sufficient assets and so banks are using self-execution models, which have zero advice content because of RDR."
It is an interesting question; banks could so easily approach customers coming to the end of a car finance deal, for example, to talk
them through financing the next car purchase. "And a strong proportion thinks that this advice can be delivered digitally; delivering
pre-approved lending advice."
Take a customer’s month-to-month spending patterns- Hembrow says that, increasingly,customers want to find out how to stretch
their money and fine tune their spending. "And it is something of an elephant-in-the-room scenario that their banks don’t offer advice in this area".
Nordnet only offers limited investment advice: "We do not want to be perceived as promoting what makes us the most money. We
are putting a lot of effort into harnessing Big Data and predictive modelling is one way to try to determine what products to offer customers at given times. However, it’s important to take a broader perspective to build a healthy and long relationship with our customers- we cannot only optimise our communication from a short term ROI. We focus on the customer’s perspective,"Stromblad says.
Besides, he explains, only some of the profitability of customer analytics is easy to measure, such as cross and up-selling. A better
understanding of customers is more difficult. "We are still at the beginning of this journey and it remains to be seen if our faith in big
data analytics as a foundation for decision making is as profitable as we believe."
Either way, big data analytics in the growing mass affluent sector is the next hot topic for consumer finance. Watch this space.
