THE 6 KEY CHALLENGES FOR RETAIL BANKING

How to Survive in This New Era of Banking

by Mike Osborn

digm / 85 Allen St. / Suite 110 / Rochester, NY 14608

Copyright © 2019 by Mike Osborn

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the author, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law.

Table of Contents

Introduction 1

CHALLENGE #1: Using Data to Improve the Bank Customer Experience 2Why is data analytics important?What are the key roadblocks?What can banks do (now)?

CHALLENGE #2: How to Develop a Single View of the Banking Customer 5The importance of a single viewChallenges for banksHow to implement an SVC

CHALLENGE #3: Banks Should Align Around Customers – Not Products 8Why are banks siloed?What problems do siloes create?How can banks align around customers?

CHALLENGE #4: Bank Marketing at a Crossroads 11Roadblocks for customersMarketing priorities

CHALLENGE #5: Acting Fast – Today’s Bank Marketing Imperative 15Why banks are slowHow bank marketers can go faster

CHALLENGE #6: Why Customer Loyalty is Banks’ Number-One Concern 18Why is customer loyalty important?Why do bank customers leave?How to improve loyalty programs

Now That You Know 21

About the Author 22

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The 6 Key Challenges for Retail Banking

IntroductionDoes more need to be written on the dramatic changes impacting banking? We’ve heard the dire warnings and read the ominous predictions. The answer is much simpler than the question – not enough is being done. Powerful forces are transforming the banking industry, but banks have historically changed very slowly, and today’s banking environment demands rapid change. Many banks will be left behind.

This eBook describes the six biggest challenges faced by retail banks. The factors driving these changes are often repeated: the emergence of new competitors, increased customer expectations, new technologies, rising interest rates, and pressure on margins. These changes are described in this book; also included are steps banks can take to prepare for this new era in banking. The bigger question is, how will banks respond?

“Fewer than 20% of executives feel well-prepared for the future.”

– PwC Retail Banking 2020

One thing that’s a constant in all six challenges is how customer expectations are evolving as younger, more technologically savvy consumers demand higher levels of service. Trust is at an all-time low, so it’s no surprise that nearly all bankers surveyed by PwC view attracting customers as one of their top challenges in the next few years. Bankers realize that deepening relationships (and trust) with existing customers is as important as getting new ones.

The way forward is unclear as banks try to navigate these choppy waters. Most bankers believe they’re working harder than ever before. How can they possibly make all these changes when faced with tighter budgets and slow-moving organizations? It’s difficult, but one thing is for certain; staying the same is not an option. Banks need to innovate and transform themselves to prepare for the future.

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The 6 Key Challenges for Retail Banking

Challenge #1: Using Data to Improve the Bank Customer ExperienceIn the midst of this dramatic change, new technologies, increased regulation, and digital channels are impacting the future of retail banking. Customers may choose to visit your branch locations or buy your products and services online; your new job as a retail banker is to understand and anticipate their needs in advance.

Data and analytics are the keys to the customer-centric bank of the future. Harnessing data and segmenting customers in new, meaningful ways will enable retail bankers to offer the right products at the right time. But, when expectations aren’t met, customer loyalty inevitably declines. A Temenos study on retail banking found that 30 percent of bank leaders cited decreasing customer loyalty as their primary concern. In short, improving the customer experience is critical to the future of banking.

Why is data analytics important?

There are three reasons why data analytics should move up on your priority list:

1. It works. A recent study by Forbes concluded that “data-driven organizations are 23 times more likely to acquire customers, six times more likely to retain those customers, and 19 times as likely to be profitable as a result.”

2. Better data and analytics produce better customer experiences. Customer expectations are growing rapidly. Customers expect banks to be proactive and provide personalized insights that save them money and improve their daily lives. Data and analytics provide the foundation for these customer interactions.

3. Data analytics are the table stakes necessary for remaining competitive. The new competitive marketplace requires banks to increase innovation, develop new business models, and create new products and services. Banks and nonbank competitors are rapidly developing these skills.

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What are the key roadblocks?

It’s one thing to recognize that data and analytics are keys to the future; it’s far harder to implement them successfully. According to research by the Digital Banking Report, there is a significant “performance gap” when we view the importance of analytics and its actual use in financial marketing. Eighty percent of organizations surveyed viewed data analytics as important, but virtually none reported that it was being effectively implemented.

It used to be that only the big banks could afford these new technologies; that’s not the case any longer. Even smaller, community banks can leverage their data and develop more stable customer relationships. Why aren’t all banks moving in this direction? Because there are some significant roadblocks:

• There’s a skill gap. The skills needed to implement a data analytics program are in short supply, especially in the banking industry. Specific skills such as statistics, artificial intelligence, advanced marketing, and data privacy are hard to find (and pricey). Banks will be forced to search out this talent but also enlist the help of outside suppliers.

• Banks’ reliance on legacy systems. In the past, banks developed systems that were focused on efficient transaction processing. These systems, however, are serious obstacles in making meaningful improvements to the customer experience.

• Entrenched organizational silos. A report by Price, Waterhouse, Coopers detailed how one of the key challenges for retail banking is that products have traditionally been launched and maintained in silos. These silos slow down retail banks’ ability to adapt to market changes.

• New competitors enter the market. New technologies, like Application Programming Interfaces (APIs) are disrupting the banking industry. In 2017, a Bain and Company survey showed that tech giants like Amazon and PayPal ranked nearly as high as banks for trust with customers’ money. Expect these financial technology firms to be granted charters to operate as banks.

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“ . . . one of the key challenges for retail banking is that products have traditionally been launched in silos. These silos slow down retail banks’ ability to adapt to market changes.”

– Price, Waterhouse, Coopers

What can banks do (now)?

This eBook is written so that you can take meaningful action right now to address these challenges. Here are some steps that are fairly easy to follow:

1. Segment your customers. A good place to start is by segmenting your customers throughout the customer lifecycle. The goal is to match the right customer with the right banking product. This is often done with a Next-Most-Likely-to-Buy predictive model. You may wind up with hundreds or even thousands of micro-segments that can be used for cross-selling.

2. Get buy-in. If you try to implement a data analytics strategy without getting buy-in from senior leadership, it will almost always get bogged down. These projects are typically large in scale and effort and, therefore, need the support of all levels of management.

3. Start small. Having interim milestones for success will let you show success at an early stage. For many smaller banks, it’s difficult to have realistic expectations until they know more about how data and analytics can change how they do business.

4. Change your mindset. It should be clear that any data analytics initiative is about serving the customer – better, faster, and cheaper. The challenge is to make sure that everyone in the bank views customer data as a valued tool for delivering a better customer experience.

5. Invest in training and education. The emergence of data analytics as a priority in retail banking is often hampered because bankers are relatively unaware of its mechanics. Training and education should be given to bank decisionmakers; this will allow them to better utilize the insights in front of them.

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Challenge #2: How to Develop a Single View of the Banking CustomerBanks create a lot of data. One challenge they face: developing a more strategic approach for managing customer data. Creating a single view of the customer (SVC) is a crucial foundation for delivering more personalized service and enhancing the banking customer’s experience.

What is an SVC? It’s a concept, not a process, product, or database. It means that the bank has a complete and easily accessible picture of the customer. It’s used when mining customer transaction files; outside data is also appended to the internal data to give a more accurate view of the customer. Some people call this a 360-degree view (although expecting to have all the data to do this is overly optimistic).

The importance of a single view

A theme in this eBook is that today’s customers demand a highly personalized experience. To deliver this experience, banks must improve their targeting ability by developing a unified view of the customer. However, a recent study by the Aite Group showed that just 40 percent of financial institutions in the U.S. use cross-product and cross-channel data to make decisions.

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The 6 Key Challenges for Retail Banking

What are the drivers for improving the use of data?

• Revenue growth – when banks increase their cross-sell and up-sell rates, customer retention improves as a result of a better customer experience. Ultimately, revenues improve as well.

• Cost reduction – the consolidation of data reduces costs. For example, eliminating multiple and redundant data warehouses results in decreased costs.

• Risk management – having data stored in one easily accessible spot improves compliance and risk management.

In order to obtain these results, the data collected must be of high quality. This allows banks to bring a customer’s relationships together—usually by matching name, address, and date of birth. The bank creates a unique identifier, or consolidated customer record, for each customer. Compiling information from demographics, customer service satisfaction, online and mobile banking behavior, and transactional data provides a singular view of the customer.

Challenges for banks

Assembling this information may sound like an easy task, but it’s not. Here are the major roadblocks:

• Poor data quality – without accurate data, an SVC isn’t possible. The data cleansing process involves updating obsolete customer information, removing duplicates, and merging profiles belonging to the same customer. Other problems include inconsistent data formats, disparate storage locations, and inconsistencies from multiple mergers and acquisitions.

• Siloed data – most banks build their IT structures around products and services (for example, mortgage lending software). All of these IT solutions may store information in multiple unrelated databases. This makes it almost impossible to understand the customer lifecycle across different channels and products.

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The 6 Key Challenges for Retail Banking

• Inability to link systems – linking the siloed data is difficult when there are multiple technologies. The solution is to transition the data to one location. How can you treat customers individually if the communications you’re sending out are not coordinated from one spot?

How to implement an SVC

As noted earlier, overcoming these challenges is not easy. It requires both strategic and tactical approaches. There must be an overall strategy in place, with total buy-in from all levels of the bank. In the short term, a tactical approach, like improving customer data, gets the bank’s SVC project underway quickly.

“There must be an overall strategy in place with total buy-in from all levels of the bank.”

An SVC project consists of four key tasks:

1. Data collection – marketers need to understand how their data is collected. Encourage the use of validation software at key capture points and enforce consistent data-governance standards across the bank.

2. A central data management strategy – having an overall strategy for managing data is the only way to ensure obtaining a single view of the customer. Larger banks may want to consider adding a Chief Data Officer or a Chief Marketing Technology Officer to oversee the strategy.

3. Hiring analytical talent – it’s one thing to collect the data and quite another to analyze it. The skills for successful marketing have changed dramatically. Banks need to invest in analytical talent to help understand their key customers.

4. The right technology – many vendors have IT solutions in this space. Finding the right one is difficult. A master data management solution (MDM) is the “system of record” for core business entities. When the system being managed is a customer, it’s referred to as a Customer Data Integration (CDI).

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The 6 Key Challenges for Retail Banking

SVC is the most critical building block for a customer-centric approach to retail banking. Implementing SVC results in an improved customer experience, cost savings, revenue growth, and improved customer loyalty.

Challenge #3: Banks Should Align Around Customers – Not ProductsDo you ever get annoyed when the ATM prompts you to proceed with your withdrawal for an extra $3.50? Or when the bank clears the biggest checks first so they can maximize overdraft fees? In both cases, banks are maximizing profits but risking alienating customers. The days are numbered for programs like these, because enterprising entrepreneurs (e.g., nonbanks and financial technology companies) are tackling these pain points and delivering a better customer experience. In order to compete in this new world of customer-centric banking, banks need to shift from a siloed business model to one where the bank wins only when the customer wins. It’s called customer alignment.

Ernst and Young conducted a global banking survey of 55,000 customers and found that banks must adapt as their relevance with customers wanes. It’s time for banks to shake up their siloed business models or fall behind new entrants with disruptive models of their own.

Why are banks siloed?

Banks have historically been organized around product silos because they are efficient at processing transactions. Because different kinds of clients use the common services of a bank, like its branch network or back-office processing, product silos were added on top of the common ones, creating a “matrix

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The 6 Key Challenges for Retail Banking

organization.” The complexities of a matrix organization result in banks looking inward instead of looking outward and solving customer needs.

Legacy information technology (IT) systems reinforce the creation of these siloes. These systems were installed to meet the needs of individual departments. While systems today have the ability to integrate functions across bank departments, managers who want to protect their own turf often block their adoption.

What problems do silos create?

Silos create several problems for banks:

• Product focus. Instead of selling what the customer wants or needs, silos force banks to market their respective products. Ultimately, this product orientation leads customers to seek other alternatives and attrition is the result.

• Lack of responsiveness. When banks are organized around products, it often causes them to respond too slowly to quickly respond to customers’ changing needs. The millennials and Generation Z, those born after 1982, will not accept this when there are better alternatives out there.

• Consistency of experience. The handoff between a customer with a deposit account to other needed services like a mortgage or credit cards is not seamless. In fact, it’s difficult and often doesn’t happen at all.

• Short-term thinking. Banks’ product orientation results in their caring more about short-term profits than the long-term interests of the customer. Wells Fargo’s incentive scandal is a perfect example of the problems that arise from short-term thinking.

• Mismatched computer systems. Not only are IT systems disparate, as mentioned above, but combining them to get a better picture of the customer is problematic.

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How can banks align around customers?

There are six steps banks can take to flip-flop their orientation from product-focused to customer-focused:

1. Change their mindset. Bank leaders need to inspire a change in thinking from the top down. A set of clearly articulated values that put the customer first is a good place to start. When incentives are aligned to these values, then real change can happen. Also, work to develop a culture that fosters collaboration between departments.

2. Develop a new model and remove silos. New organizational structures need to combine customer segments with products and geographies, so the customer is better served. Removing silos and breaking down the barriers between departments can reveal new ways of understanding and engaging with customers.

3. Create new products that customers want. In order to offer a new array of financial and nonfinancial products, most regional and community banks will have to partner with some expert suppliers. These new products should have transparent features and transaction fees. Products should be added so the bank can remain the trusted advisor for the customer through lifelong financial decisions.

4. Restore trust. Trust is essential in banking because of its intensely personal nature. In the EY survey mentioned above, consumers present both good and bad news in relation to trust: they have high levels of trust in banks to do the basics (like keep their money safe) but low levels of trust when it comes to providing unbiased advice.

5. Master touchpoints on the customer journey. Banks should strive for operational excellence in the customer’s journey. Efficient processes and access to information will let banks redesign their branches and online offerings to align with future consumer needs. A good place to start is customer journey mapping.

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6. Modernize legacy IT systems. Moving away from legacy- and product-focused IT systems will help banks become more responsive to customers. This includes building a single, smart view of the customer (SVC). In addition, banks need to work to connect data from multiple sources, which will allow for greater cooperation between the various lines of business within the bank.

“Bank leaders need to inspire a change of thinking from the top down. A set of clearly articulated values that put the customer first is a good place to start.”

Here’s my challenge to you. The next time you visit your bank, take a blank sheet of paper and draw a vertical line down the center. On the left side, write down all the things you see that improve the customer experience, for example, a friendly teller, posters for a new product, or perhaps free coffee. Next, in the right-hand column, jot down everything that detracts from the customer experience (like those nuisance fees mentioned at the beginning of this challenge). It should only take a few minutes to do this; see which side has more entries. It’s a good way to gauge whether your bank is trying to become more customer-focused or is locked in the same product orientation of the past.

Challenge #4: Bank Marketing at a CrossroadsHas your bank been promoting “great rates,” “amazing service,” or “free checking?” If so, you’ve chosen the tried-and-true, traditional path of bank marketing. However, outdated mass-marketing approaches like these don’t work when there are tectonic forces reshaping retail banking (e.g., rising consumer expectations, new competitors, better technologies, etc.). Bank marketing is at a crossroads. Will you continue to market the way you always have, or will you adapt to the new world of retail banking?

Just like athletes, many banks have “muscle memory.” They continue to develop their marketing plans around a branch-based strategy. As a result, they spend too little effort on developing new and more relevant marketing approaches.

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Roadblocks for marketers

Most bank marketers are aware of these changes. They can’t do their jobs because there are some really big obstacles in the way. Here are the top seven roadblocks bank marketers face:

• Legacy systems. Marketers can’t get the data they need to deliver highly personalized marketing messages. The data is siloed in legacy systems, which makes it difficult to share information across multiple departments. These legacy systems weren’t designed for this new age of digital marketing. Sooner rather than later, banks will have to invest in new IT infrastructure so marketers can have a single view of their customers (SVC).

• Analytical skills. Today’s bank marketers need to understand technologies like Google Analytics and multichannel attribution. Outsourcing is a good option in the short-term. Lack of analytical talent has been mentioned previously in this eBook. It’s a big issue.

• Competition. In this new world of banking, there’s fierce competition from other banks, but also from emerging fintech (financial technology) firms. Not only do Square, Apple Pay, and Google have the ability to launch new financial products, they also have the ability to add convenience. Tech-savvy customers are twice as likely to switch banks as other consumers.

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• Time. One of the biggest problems bank marketers face is a lack of time. There just isn’t enough of it to make a dent in the to-do lists, attend meetings, and work on all of these marketing challenges. Bank marketers are faced with more responsibilities than ever before. Prioritization and outsourcing make a lot of sense.

• Consumer expectations. Banks are beginning to place increased importance on the customer. This quote sums it up: “Consumers now expect seamless real-time social and mobile experiences from brands, but the channels often provided by financial institutions are primitive and uninspiring.”

• Brand loyalty. As the market continues to change, it’s been well-documented that customer satisfaction and loyalty are steadily declining. Millennials, in particular, are looking for more out of their bank. They want someone who will guide them to a better future. In short, millennials don’t trust their banker.

• Digital expertise. Many banks aren’t seeing the results from their digital efforts. They’ve dabbled in digital by revamping their websites, sending out emails, or posting content on social media. Digital marketing must be recognized as the primary driver for future marketing. Banks need to acquire these skills right now (outsourcing, again, may be an option).

“Not only do Square, Apple Pay, and Google have the ability to launch new financial products, they also have the ability to add convenience. Tech-savvy customers are twice as likely to switch banks as other consumers.”

– Decibel Insight

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Marketing priorities

Given these roadblocks, some marketing strategies can be implemented right now. Here are the top short-term marketing priorities for most banks:

1. Invest in the customer experience. Bank customers no longer want the relationship to be transactional, they want it to be advice-driven. Use data analytics to better understand how customers interact with the bank and develop a more personalized journey.

2. Market to existing customers. Marketers can re-allocate budgets, so more resources are focused on existing customers and less on acquiring new ones. According to EverFi, only 12 percent of financial institution customers are relationship-based customers (having two or more products). All bank marketers know that current customers are much more likely to buy than noncustomers.

3. Fight for deposits. In today’s interest-rate environment, there’s a growing demand for deposits to fund banks’ loan growth. Consumers want higher rates and aren’t particularly loyal. This has resulted in an intensive fight for deposits. Developing a relationship-based approach to deposit generation is much more effective than playing the rate game.

4. Win the loan battle. Loan acquisition is a constant priority for banks. Fintech companies are aggressively competing for loans. Banks need to improve their application process, making it faster and less stressful for consumers.

5. Become better at digital and multichannel marketing. Using more digital and social channels, banks can get their message in front of new and existing customers. Banks can allocate their marketing budgets to get the best return on their dollars. Also, banks can build trust by increasing their digital content.

6. Hire the right suppliers. Fill in the skill gaps by outsourcing. As mentioned previously, the two areas most in demand are analytics and digital marketing.

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“According to EverFi, only 12 percent of financial-institution customers are relationship-based customers (having two or more products). All bank marketers know that current customers are much more likely to buy than non-customers.”

Challenge #5: Acting Fast – Today’s Bank Marketing ImperativeIn 1986, Ferris Bueller uttered the prophetic words, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” Changes are coming fast for today’s bank marketers. When they stop and look around, they know that they have to change—and change quickly.

Bank marketers make decisions at a much faster pace than they did a short time ago. For example, it’s impossible to create an annual marketing plan today—things are changing too fast. However, that doesn’t stop bank CEOs from asking for more. They sit atop banks that are crisscrossed with bureaucracy, departmental infighting, and silos. Yet, they want marketing to be more agile.

Speed is important. It’s necessary to move quickly in order to deliver a better customer experience, which is a common theme in this eBook. Spurred by a rise in banking innovation, customers keep raising the bar on their expectations. It’s difficult to meet these expectations, but for banks to remain relevant, they must.

Why banks are slow

“Bueller, Bueller, Bueller.” You probably also remember the scene from Ferris Bueller’s Day Off when the economics instructor tried to get the attention of his snoozing economics class. This quote is famous because it’s a non-shouting way to get someone’s attention. Hopefully this eBook is a wake-up call for bank marketers—you’re moving too slowly.

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Here are the top four reasons why banks are slow:

1. Bureaucracy. Bank CEOs preach that they want to become more entrepreneurial, but their organizations are layered with departmental red tape. This is a challenge for marketing departments with large teams, big budgets, and campaigns that span over several months; it’s hard to be nimble.

2. Culture. You can’t buy “fast.” You have to be fast. Conservative bankers often prefer to slow down and get it right. They’re afraid to fail. This permeates the culture and makes agility difficult.

3. Silos. Banks are organized around product silos, because they are efficient at processing transactions. Silos also make it difficult to go fast.

4. History. In the late 1990s, one-to-one marketing was a hot topic. Banks had the technology to look at customers across their banking relationships, but did they change and deliver more one-to-one experiences? No. Is a new generation of customers watching the same movie repeat itself?

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How bank marketers can go faster

To go faster, bank marketers must change the way they think. Agile marketers say, “If one person buys this, I can always improve to get more people buying later on.” They need to obsess about experimenting, rather than getting it right the first time. Here are some tips on putting this into practice:

• Implement a “test-and-learn” approach to marketing. This seems counterintuitive to most marketers in large, entrenched financial institutions. However, they must be willing to conduct these small-scale experiments. This new world of marketing requires a “failing fast” mentality. Failing just means you’re one step closer to finding something that works.

• Devise small, always-on campaigns. In small, “always-on” campaigns, customers are engaged at exactly the right contact point along their journey. Examples include triggered cross-sell and up-sell campaigns, retention and win-back programs, and new customer onboarding programs. Developing a customer journey map is a good way to start.

• Reallocate media dollars. In most cases, budget dollars need to be moved from brand and positioning advertising to fund smaller, more digital marketing efforts. While banks have started to invest more money in digital in the last few years, this trend is expected to continue.

• Make faster decisions. Making faster decisions requires data analytics. So why are such analytics only being used about 35 percent of the time in marketing decision-making? If you’re making the investment, you’d better use it.

“This new world of marketing requires a “failing fast” mentality. Failing just means you’re one step closer to finding something that works.”

Rather than repeat the 1990s, it’s time for bank marketers to move quickly. Let’s hope it’s not like Ferris when he says to Cameron, “You’re not dying, you just can’t think of anything good to do.” Bank marketers can do good things. They just need to act fast.

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Challenge #6: Why Customer Loyalty Is Banks’ Number-One ConcernCustomer loyalty has been a buzzword in banking circles for a long, long time. We all know that it’s a lot cheaper to keep a customer than get a new one, so it’s no surprise that 30 percent of banks said that keeping customers was their biggest challenge. It’s especially challenging now that banks face less loyal customers and intense competition from financial and non-financial service providers.

Improving the customer experience is at the center of winning customers’ loyalty. In short, if customers have positive interactions with the bank, they are more likely to stay. Many facets of delivering a better experience have been chronicled in this eBook. For example, with a single view of the customer, banks can deliver more relevant and timely products at the most appropriate times. That creates loyalty.

This final challenge explores issues that are often discussed but are nonetheless critical to the future of banking. Why is customer loyalty important? Why do customers leave? How can banks improve their loyalty programs? These three questions have to be answered if banks are to meet this challenge.

“In 1980, only 3 percent of customers changed their bank account. Last year it was 12 percent, so it’s changing very, very fast.”

– David Arnott, CEO of Temenos

Why is customer loyalty important?

Increased churn has some profound impacts on banking. Consider these:

• Customer satisfaction. If customers are happy, they stay. Satisfaction is the measure for how well a bank is meeting the needs and desires of its customers. There is a direct correlation between satisfaction and loyalty.

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• Customer acquisition. The cost of acquiring a new customer is rising. According to a recent article in CustomerThink, the cost of acquiring a banking customer is estimated to be around $200, while the typical retail customer generates only $150 in revenue each year. Replacing defecting customers with new ones is an expensive proposition.

• Frequent purchases. Banks flourish when customers purchase multiple services. They benefit from increased loyalty but also through word-of-mouth referrals and less price sensitivity.

• The honeymoon. The onboarding period with a new customer is the most critical time for developing loyalty and setting the stage for a long and mutually beneficial relationship. Unfortunately, the churn rate on new customers is in the 20-25 percent range during the first year. Clearly, customer expectations aren’t being met.

Why do bank customers leave?

The same factors contributing to bank customer defections pop up all the time. It just seems they now happen with more frequency. Here is the list of reasons (pay attention to the last one—it doesn’t make many lists like this):

1. High fees. High fees are the number-one reason why bank customers leave, according to Qualtrics’ The Bank Customer Experience Report.

2. Poor service. In the same report, customers who were “very sure” they were leaving the bank said that poor service was the culprit. The greater the perceived service quality, the greater the customer loyalty.

3. Bad experience. This encompasses a host of related issues like inconvenient locations, poor financial advice, and inconvenient hours. The most important factor, however, is providing an effortless experience for customers.

4. Competitive offers. For the first time ever, banks see as much of a competitive threat from outside the industry as inside. The fastest growing threat is coming from payment providers such as PayPal.

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5. No salvage effort. Most banks don’t try to save their departing customers. In fact, 56 percent of customers who told their bank they were planning to leave say the bank made no effort to save them (see the above Qualtrics study). Wow.

“. . . 56 percent of customers who told their bank they were planning to leave say the bank made no effort to save them.”

– Qualtrics

How to improve loyalty programs

Many banks have already implemented loyalty programs designed to decrease the number of customer defections and attract new customers. Often, these programs include some sort of points or rewards, however, they need to constantly evolve due to competitive offers. As banks retool their loyalty programs, here are some important considerations:

• Implement core retention programs. There are three essential loyalty programs for all banks: 1) an onboarding program for new customers, 2) a cross-sell and up-sell program for existing retail customers, and 3) a salvage program to win back potential defectors.

• Utilize relationship-based pricing. Existing customers feel they are being ignored when they see new customers receiving better deals. Relationship-based pricing looks at the customer across all lines of business and helps banks treat each customer differently.

• Leverage new technologies and analytics. If banks want to create compelling loyalty programs, they need to stay abreast of new technological tools that provide valuable insights on customers.

• Listen to customers. Customer feedback should be regularly solicited to improve product and service offerings. This can be in a structured way (e.g., feedback from surveys) or in an unstructured fashion like social media networks or discussion forums.

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Customers are becoming increasingly thoughtful about their banking relationships, and top-notch loyalty programs can make a big difference. In this new era of banking, customer loyalty is the number-one challenge retail banks are facing. Winning and keeping customers is the ultimate challenge for banks.

Now That You KnowIt’s one thing to know the challenges but something entirely different to take action. Banks need to address these issues quickly because the world is changing fast. Be part of the solution.

“Whatever the problem, be part of the solution. Don’t just sit around raising questions and pointing out obstacles.”

– Tina Fey

If you’d like assistance finding the solution, let’s talk about how the digm team can help. Call me at 585.730.6167. Or, you can email me at mosborn@digmgroup.com.

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About the Author

Mike Osborn, Managing Director

Mike Osborn is the founder of digm, a marketing firm that helps retail banks develop more profitable customer relationships by combining complex data analysis with marketing technology to measurably increase customer acquisition, activation, retention, cross-sell, and up-sell.