Does Customer Loyalty in Banking Matter as Much as It Used to?
Customer loyalty: In an age when many checking or savings accounts can be opened without ever meeting anyone face-to-face, does it still matter? The COVID-19 pandemic has spurred a movement of users to try out new banks and credit unions with a digital bias. The majority of American holders of checking accounts (64%) report adjusting their payment practices as a direct result of the pandemic.
According to a survey by Bankrate, 45% say they paid bills online more often and 25% made more deposits with a smartphone app. Said another way, legacy banks and credit unions that have been slow to adopt digital innovations and personalized user experiences are seeing a loss of longtime consumers. Users’ willingness to switch their bank or credit union to neobanks or other digital start-ups continues to grow.
Convenience no longer means geography. The coronavirus pandemic was a “huge catalyst” in driving new consumer behaviors and “spells opportunity for banks and credit unions to advance their digital offerings and loyalty programs,” according to Rob Lee, head of digital and banking at FIS. Convenience is being redefined as user experience, speed, zero downtime and personalized solutions.
More Fickle Than Ever
According to Foresight Research, 22% of users — or roughly 44 million people — considered leaving their old bank and starting over with a new primary financial institution. Of the consumers who “intend to leave their bank or credit union, almost 3 out of 4 are Gen Z or Millenials — the very block of business that drives the future of your financial institution.”
Fewer Physical Banks, or Not?
The move to digital banking and the adoption in some sectors of moving to a cashless society is seemingly decreasing the need for physical branches. In 2019, there were 5000 fewer commercial bank branches than in 2010. In 2021, several financial institutions have announced branch closures, including KeyBank, PNC, U.S. Bank and Wells Fargo. Yet a recent survey by goMoxie indicates that 62% of consumers prefer to use banks or credit unions that have a physical presence versus a digital presence only.
Reasons for Switching
With more user-friendly, user-centered fintech and neobanks entering the market, it’s crucial for your bank or credit union to take high-quality engagement to the next level. End users who had been digital holdouts aren’t going back to their pre-pandemic banking habits. According to BCG, between February and June 2020 mobile-banking usage grew by 34%, while banking at branches declined by 12%. Furthermore, younger generations are increasingly willing to bank all digitally. Users “are becoming used to the ‘bank’ as an app rather than a building,” according to the BCG study.
Digitally biased users want to compare mortgage rates, check interest on money markets and get financial advice and preemptive customized solutions wrapped in a good, reliable user experience. Before the pandemic, 9% of households and 14% of businesses claimed “switching intent” (people who say they are definitely changing primary banks in the next six months). From November 2020 to January 2021, these numbers jumped to 17% of households and 31% of businesses that claimed they were ready to switch primary banks.
“I have never seen such a dramatic increase in switching behavior in the three decades I have been tracking this,” Bruce Paul, Managing Director, Banking Research for Rivel. Paul acknowledges there is a difference between “intent” and actually doing something, but is quick to point out:
- 31% of consumers are unhappy with their current banking provider
- 15% are saying they’re actually going to switch in the next six months
The top reasons cited for starting a new banking relationship (according to a survey over the 12 months leading up to February 2021):
- 7% Received coronavirus assistance or support
- 10% Earned a new customer cash bonus
- 33% Better benefits (e.g. rates, fees, rewards)
- 10% Accessed products and services current bank didn’t offer
- 30% Started a new chapter in life
- 7% Unpleasant customer experience
- 19% Other
Customer loyalty in the banking industry is up for grabs. However, there are ways your bank or credit union can build digital trust among fickle users. According to Insider Intelligence’s second annual Banking Digital Trust survey, of 2412 digital-banking users in February and March 2021 on their sentiments toward their banks or credit unions, the top data-driven recommendations for your financial institution to improve digital trust among users who have lower consumer satisfaction and loyalty scores (“doubters”) are:
- Supplement security features with contextual information.
- Alleviate doubters’ reliability concerns by highlighting available support.
- Mitigate doubters’ ease-of-use frustrations by streamlining the mobile-banking user experience.
- Improve doubters’ perceptions of feature breadth by enhancing search functionalities.
- Reach doubters in their preferred bank or credit-union research channels.
Quality investment in digital-banking technology is differentiating the large banks and fintechs from the regional and smaller banks and credit unions. Jamie Dimon, CEO of the megabank JPMorgan Chase, notes that financial institutions including JPMorgan Chase face extensive competition from both fintechs and megacap companies like Amazon, Apple, Facebook, Google and even Walmart. In his 2021 letter to shareholders, Dimon notes, “As the importance of cloud, AI and digital platforms grows, this competition will become even more formidable. As a result, banks are playing an increasingly smaller role in the financial system.”
Customer loyalty in banking still matters. In fact, it’s even more important than ever. However, it’s also clear that banks and credit unions can’t afford to waste any more time by streamlining existing practices with tiny incremental changes. Mobile banking surged 30% during the pandemic, and it continues to rise. The leap in digital in the past year means your bank or credit union is effectively disadvantaged if you aren’t able to offer sought-after digital-banking solutions. Rather, your bank or credit union should consider following BCG’s recommendation and “acting more like digital giants before digital giants … start acting like banks.”
Marty Aquino has been a passionate writer on venture capital, technology, forecasting, risk mitigation, wealth and entrepreneurial topics since 2009. He is the founder of Carbonwolf Energy, a venture-capital firm specializing in world-changing and status-quo-defying technologies and people.
Time – The Average American Has Been With the Same Bank for 14 Years. Now Is a Good Time to Shop Around
Bankrate – Survey: Those hit financially by COVID-19 paying 4 times more in bank fees
Banking Exchange – US Consumers ‘More Adventurous’ When Switching Banks
Forbes – Revamping Loyalty Programs Could Be The Key To Customer Engagement
Foresight Research – Foresight Research: Expect a Spike in Consumers Switching Banking Providers Due to the Pandemic
Forbes – The Pandemic Is Fast Forwarding Us To A Cashless Society—And Making Life Harder For The Unbanked
goMoxie – New goMoxie Survey Reveals Where Banks Need New Strategies to Connect with Customers Digitally
The Financial Brand – Financial Marketers Have a Big Opportunity to Snag Frustrated Consumers
Business Insider – Here’s how banks can build digital trust among skeptical customers
JP Morgan Chase – Chairman and CEO Letter to Shareholders
BCG – The Front-to-Back Digital Retail Bank