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Make up or break up? How the cost-of-living crisis will affect customer stickiness

Make up or break up? How the cost-of-living crisis will affect customer stickiness 3

Make up or break up? How the cost-of-living crisis will affect customer stickiness 4By Jonathan Power, RVP Northern Europe, Backbase 

There is no denying that the current financial landscape looks bleak. Inflation rates are soaring – expected to hit 18% in January, and a recession is almost certainly ahead of us. This combined with sky-high energy bills has created a cost-of-living crisis that many are struggling to navigate.

For traditional banks, their first instinct will be to de-risk, in 2008 this meant cutting customer credit, fourteen years later, it means something entirely different. During this period, banks now have a balancing act to achieve: not only do they need to decrease their operational costs, in order to stay profitable, they also need to ensure that they are supporting their customers financially. They can successfully tread this line by implementing new and innovative technology that will remove overhead costs, and provide a digital offering, helping customers with their financial literacy.  So far, challenger banks have done this particularly well compared to their traditional counterparts and the increased competition in this sector means this next recession could be make or break for incumbents, depending on whether they can get a grip of the data and deliver a customer centric approach – or not.

Don’t let history repeat itself 

Understandably, as we approach a recession, banks have to de-risk to make sure that their business model can survive. However, unlike 2008, when the knee jerk reaction was to cut credit if customers were considered ‘high risk’, banks must find a different approach or put their own long-term survival in danger.

In this digital era, customers have come to expect the detailed and tailored analytics that challenger banks provide. App alerts which help them to stay on top of their spending, personalised offers for loans when crunch points with bills are coming in and tracking where money is going each month. If traditional banks don’t follow this lead and support their customers with financial literacy, not only will their business model be more risky, their customers will be more susceptible to jumping ship.

A restructure needed

That being said, the issue remains that the structure of traditional banks is a huge obstacle to any innovation, or better use of data. Many are still organised in siloes and are focused on products, each completely independent of the other.  With each product treated as separate, a fine-tuned process of recording customer’s needs, wants and experiences across all touchpoints is almost impossible. Those banks with monolithic technology are cannot keep up as it renders them inflexible, restricted and unable to form a full picture of the customer profile, therefore preventing any form of tailored financial advice or help.

What is the answer? 

The answer– like many things – lies in the data. If traditional banks are able to successfully collate all of their customers’ data into one centralised place, they can more easily see where the money is coming in and going out to create a more streamlined and useful offering.

Although the last 15 years has been underpinned by the rise of challenger banks, traditional banks still have a foothold in the pecking order. Most customers have dipped their toes into a challenger bank but have yet to make it their primary account, opting to keep the high street incumbents alongside it. It’s positive for traditional banks that customers do still choose to have their salaries paid into their accounts, but equally eye opening that it is often transferred to their digital counterparts, such as a Monzo or Revolut, in search of better spending caps and analytics.

Now is the time for traditional banks to tip the scales, improve their data capture and finally put their customers at the centre of their approach. Incumbents must focus their efforts on creating a tailored and personalised product for each customer, based on what they truly need, and at a time that suits them. This would mean these banks can increase customer loyalty, scale and grow alongside customer demand.

However, during this period of austerity and uncertainty for customers, failure to deter from the current trajectory, will mean that incumbents will fall far behind their challenger rivals, who can offer the financial support and literacy that consumers need, to avoid the inevitable break up.

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