Stemming the Tide of Customer Churn Through a Better Banking Experience

By Jordan Glazier, CEO, Wildfire Systems

A Chinese proverb suggests, “A good customer should not change his shop, nor a good shop change its customers.” However, changing shops, especially financial institutions, has never been easier for consumers. That delicate balance that exists between client and financial institution has seen an extraordinary power shift to customers — much of it brought about by digital transformation and the ready availability of other financial service options.

In what should be an inherent strength, financial institutions today face enormous pressure to stay competitive and learn new methods to gain customers, cultivate existing relationships, and generate income.

Providing a stronger digital connection through better banking choices and engagement, and loyalty and rewards programs, could serve as keys for financial institutions that want to maximize their customer base.

Seeking a Better Experience

Financial institutions today try to match the quick, smooth, and accessible offerings of new digital competitors. The pressure to offer innovative and user-friendly financial services − such as digital accounts, wallets, payments, and rapid lending − has made customer retention, or more specifically customer erosion, a major concern.

The most effective banking customer procurement tactics nowadays involve expanding tailored interaction across the entire digital journey to broaden and personalize engagement.

A number of studies show banking customers ready for a better banking experience:

• Forty percent of banking consumers in a Harris Poll said they are willing to leave their primary financial institution for digital banking that provides a great online shopping experience.
• More than 50% in a PWC analysis indicated customer experience in most financial brands needs improvement.
• Livement discovered 61% of millennials willing to switch banks for a digital-only environment; and almost a third of respondents having changed their primary bank in the past five years. Of those that switched, about 30% made the shift for a more convenient banking experience.
• Almost half (49%) of consumers aged 18-34 in a MuleSoft study said they switched or considered switching banks in the last year for a better digital experience.

The Challenge of Customer Retention

Of course, there are two main ways for financial institutions to erode customer erosion — keep current customers and/or attract new patrons. Keeping customers means providing them with services they want. Attracting new customers entails offering amenities competitors do not deliver.

However, acquiring or retaining customers comes with a price tag. A Harvard Business Review report noted that depending on which study one believes, and what industry they are in, acquiring a new customer is anywhere from 5-to-25 times more expensive than retaining an existing patron.

Most financial institutions must deploy an effective banking customer acquisition strategy to offset the annual 10-15% average attrition rate and the typical customer acquisition cost at between $200-500 per client.

Exacerbating the current banking environment is the growing number of defecting or partially withdrawing customers due to difficult pandemic effects and the spread of digital channel use. The reality is in order to compete for customers in today’s digitally-based, on-demand environment where consumers make a la carte selections for everything including entertainment, meals and shopping, financial institutions must also deliver exceptional digital engagements.

Rewarding Loyalty

Consumer loyalty is still possible, according to Forrester, which found 91% of retail customers who feel valued stay with their current brand. One way to improve loyalty, thereby improve defections and attract new clients and revenue, is by incentivizing the customer experience.

Management consulting company Bain & Company suggested combining loyalty rewards with a frictionless customer experience can be a way for brands to set themselves apart and for financial institutions to elevate customer goals alongside shareholder returns.

Financial institutions’ reward programs can comprise spending inducements, with online shopping companions which provide cashback and automatically apply coupons, thereby encouraging digital channel usage and enhancing customers’ connection with the banking site or app.

Rewards programs yield results. A report from Citi found loyalty programs are very effective with 86% of customers saying they are more loyal to the brands where they participate in rewards programs. SAFE Credit Union promoted a cash back rewards program with push notifications that yielded a 30% conversion rate, increased engagement, and higher card spend.

Shopping for Rewards

McKinsey points to large China-based players such as TMall or Ant Group that offer shopping, payments, financing, and banking products in a single platform. These providers monetize consumer engagement through offerings other than financing. The report suggested financial institutions are missing an opportunity by not effectively leveraging their existing scale to drive incremental traffic to merchants — which can also improve financial institution brand loyalty — through integrations with online shopping, which engage consumers throughout the entire purchase journey.

Wildfire Systems research revealed that merchant-funded revenue from shopping referral programs stacks on top of interchange; and the average commission per transaction ranges from $3 to $7, which increases the lifetime value (LTV) of existing customers and helps offset the downward pressure FIs are experiencing on fee revenues (i.e., waived ATM and overdraft fees).

Financial institutions that recognize evolving consumer demands and provide a more rewarding digital customer experience are most primed to retain and attract customers.

About the author:

Jordan Glazier is CEO of Solana Beach, Calif.-based Wildfire Systems, which delivers a loyalty and rewards program in a turnkey white-label platform.