As the global economy continues to falter – with recent
events denting confidence in both financial institutions and
governments – are banks doing enough to restore consumer confidence
and re-establish a rapport with their customers? Mark Jones
discusses the threats and identifies potential
solutions.
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The banking community’s public image has suffered blow after
blow since the collapse of the Lehman Brothers investment bank in
September 2008. Whether fuelled by political anger or personal
economic suffering, many people have felt badly let down by the
financial world in the past several years.
In February, UK tabloid The
Daily Mail ran a story headlined: “Proof banks treat customers
with contempt”. The newspaper’s readers hardly rose to object.
To say public confidence in the
banking industry is at a low point would be one of the great
understatements of the year.
Recent events both in Europe and
the US have severely dented any green shoots of recovery seen
emerging since the start of 2011, with many fearing the global
economy will slip back into recession.
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By GlobalDataFears continue around the stability
and future of the eurozone, in addition to the lack of political
cohesiveness currently seen in the US political system and its
ability to manage its economy effectively.
The recent downgrade of the US
credit rating came as no surprise to many onlookers, and many
believe it may take some time for its rating to be restored.
In the UK, banking shares have
again come under pressure as market and regulatory concerns
threatened to derail the drive to create more competition in the UK
banking market; this, combined with austerity cuts being
implemented by the UK government, is fuelling customers’ further
discontent with the banking sector.
This discontent is reflected in
consumers’ feelings towards their financial services provider and
resulting reviews of their products and services. Many customers
are now looking for, and expect, increased customer service,
support and an improved range of products.
If disappointed, many of these
customers will look to change providers. What little confidence and
loyalty that remains after the credit crisis could be abandoned in
the pursuit of increased and immediate benefits from another
provider.
It is safe to say that many
customers have remained loyal to their bank, particularly in the
case of checking accounts, more due to apathy than any deep-rooted
sense of loyalty to brand or organisation. In light of recent
events, this would make them more susceptible to change.
A consumer’s ability to switch more
price sensitive products (such as credit cards, loans and
mortgages) may have been somewhat restricted by a general
retraction in credit policy, but competition in terms of checking
accounts remains fierce with many attractive offers available to
consumers.
Those that are able and willing to
act are actively looking to spot a better opportunity with a
different bank, credit card company or financial service
provider.
Globally, research proves the trend
is already underway. The 2011 US Retail Bank New Account
Study from marketing information services company JD Power and
Associates, for example, shows 8.7% of customers had switched their
primary banking institution in the past year (up from 7.7% in the
2010 study). The average customer considered 1.9 banks in this
‘shopping’ process, up from 1.6 in 2010.
An already-crowded market is seeing
new entrants arrive in the financial services arena, offering
attractive introductory deals to entice customers away from
established providers and, with further entrants expected to
follow, new challenges are on the horizon.
The virtualisation of everyday
financial management could also increase pressure on the share of
wallet currently enjoyed by existing players in the UK market. With
both O2 and Orange moving into financial services, more will surely
follow.
Some banks, however, have begun to
work with (as opposed to against) many telecommunications companies
in an attempt to enhance the customer experience.
Brands on both sides have realised
the advantages of co-operation in terms of enhancing the customer
proposition through the provision of new services, such as virtual
wallets and mobile payment technology.
This will also provide far greater
insight into consumer behaviour and, leveraged effectively, will
further enhance the customer experience.
With the adoption of contactless
payment either via traditional card mechanisms or emerging
technology via mobile phone, banks are able to significantly
enhance the distribution of offers and discounts in real time and
at point of sale, allowing for further partnership opportunities
with merchants who are keen to gain an advantage by providing
innovative products to their customers.
Although not new to the market,
prepaid cards provide significant opportunities in terms of opening
up new customer segments. Youth and under-banked sectors can all
benefit from the new and innovative ways pre-paid cards are being
used across a range of services.
Customers that were previously out
of reach of more traditional payment methods have now been able to
access services (such as internet shopping) thanks to pre-paid
cards. Early adopters also identified opportunities pre-paid cards
can offer government agencies in terms of cost, security and
process efficiencies.
Banks must seek to provide
targeted, consistent and relevant benefits and rewards to their
customers across many aspects of their lives, not just financial
services. The silo approach and, indeed, mentality, still prevalent
within many leading banks, needs to be changed; the ambition being
to gain a single view of the customer, providing information on
each customer’s interaction and transactions with the bank and not
a specific product or product type.
As previously mentioned,
advancements in electronic payments have the potential to
completely change a bank’s relationship with its customers and
create a wide range of positive touch points outside those of core
banking products. Here is the opportunity to extend existing
relationships, giving customers regular, relevant benefits across
many areas of their lives, whilst the bank enjoys greater
incremental revenues.
Additionally, this will provide
more scope to reward customers and allow for increased cross-sales,
resulting in a larger share of the customer’s wallet.
A long-term, profitable
relationship will then follow, through which the bank gains both
customer loyalty and incremental revenues and we all know that the
more products a customer has with an individual organisation the
stronger the bond between the two.
New customers may also follow, as a
result of these mutually beneficial relationships. There is always
the chance that satisfied customers will make recommendations;
banks should place more focus on creating advocates as a source of
highly profitable revenue.
In the past, traditional reward
programmes have often been expensive to set up and run.
Capitalising on the proven and growing popularity of online
shopping is a particularly strong route to customer retention.
An online shopping and rewards
programme, for example, can bring together thousands of diverse
online merchants globally, so that each time a customer makes a
purchase through the portal on the bank’s website – buying anything
he or she wants from one of the third-party retailers – he or she
earns cash back into their bank account.
Another good example of inventive
banking is the Riyad Bank Hassad credit card reward programme in
Saudi Arabia.
Perhaps the most impressive
innovation within this programme is the fact the customer reward
voucher is delivered quickly and efficiently through an ATM.
The ATM prints the voucher, which
is then available for immediate use and accepted by merchants as
payment. In a market dominated by hedonic consumption, this is a
truly innovative move into a form of real-time reward.
Alternatively, a programme used by
many banks to generate revenue and reduce churn is the added-value
account (AVA), such as Barclays Premier or NatWest Advantage Gold
in the UK.
Benefits traditionally offered with
these types of accounts have changed very little since the first
account was launched by Lloyds TSB in the mid-nineties. The usual
benefits of mobile phone insurance, breakdown cover, card
protection and travel insurance remain the core of just about every
leading AVA in the UK market.
Some, such as Barclays, have
continuously added more benefits to their AVA product in an attempt
to provide more value for money and product differentiation.
Understanding customers and
targeting accordingly is the key to ensuring benefits appeal to
particular customer groups. Banks must analyse the large amount of
transactional information they already hold to make certain, for
example, that packages are only pitched to customers with
appropriate earnings and lifestyles.
The most certain route to ensuring
a product appeals is to let the customer choose the content.
Through ‘dynamic packaging’,
customers can add benefits to their core AVA, easily managing the
process online and, by definition, guaranteeing the AVA benefits
are relevant to their needs.
For example, regular travellers may
wish to expand and enhance their AVAs by adding travel-related
benefits, such as insurance, VIP airport lounge access or gym
membership away from home.
The goal is to ensure the customer
enjoys a targeted experience, rather than paying for an AVA in
which many so-called ‘benefits’ are not actually used or even
applicable.
One final point on how banks and
financial service providers should be rethinking their customer
loyalty strategies can be summed up in two words: social media.
Without question, banks moving slowly on social media adoption are
missing out on a key route to customer engagement.
Twitter, for example, is a very
effective means of answering customer questions while carrying out
market research for new product development. US-based Wells Fargo
and 1st Mariner are among the banks to have moved quickly in this
growing area of customer relations.
Many banks, however, are
inexplicably embracing social media at a glacial pace. Positive
word of mouth (about benefits enjoyed from an AVA, for example)
remains the most powerful and influential marketing of all and
there are no platforms more rapid or global than social networking
communities.
Unless banks move fast to improve
their engagement with customers, those customers will leave for
short-term gain – and might never come back.
The long-term impact of the
recession undoubtedly remains a significant force throughout the
global economy, yet many banks are on the verge of heading directly
into further troubles. Have they even spotted the danger ahead?
Mark Jones is a global
financial services specialist at Collinson Latitude, a global
provider of multi-channel, incremental revenue products and
services.
