By Peter Cunningham, Director of Marketing at BuyaPowa.

Well, the answer is clearly yes if you listen to the NPS reported by leading banks, which according to Customergauge listed these scores for 2022:

• First Republic Bank: 72
• first direct: 66
• ING Luxembourg: 63
• American Express Bank: 52
• Royal Bank of Scotland: 51
• Etc.

When the question is “how likely are you to recommend us on a scale of 0 to 10” and where, according to Bain & Company, any score above zero is good, above 50 is excellent and above 80 World Class, clearly these and many other financial institutions have a pool of potential brand ambassadors ready and willing to advocate for the bank within their circles of social influence.

And considering the vast sums banks and financial institutions have invested in measuring and improving the customer experience in recent years, it’s surprising just how few banks and financial institutions actually have a modern online referral program, that is if they have a referral program at all. Particularly when you consider that an effective and well-managed referral program is the missing link to turn that reported customer satisfaction into actual customer acquisition.

This is a shame because, given that we power referral programs for over 150 global brands and retailers, including first direct, L&C Mortgages, JaJa Finance, IG plc, PaymentSense, Delta Credit Union, Ageas, The AA and many others we can’t mention here, we know just how effective referral marketing can be. For example, when promoted effectively across all customer touchpoints, with attractive referral rewards and incentives, and with engaging tools such as gamification, tiered rewards and booster campaigns, we have seen brands achieve up to 30% of all customer acquisition at up to 80% the cost of other customer channels.

If you don’t want to take our word for it, then look at how challenger banks and fintechs are harnessing the power of referral to disrupt the banking world. Wise (formerly Transferwise), Revolut and Robin Hood, are just three examples of challenger brands that effectively use referrals to transform positive brand experiences into a powerful customer acquisition channel. But perhaps the most impressive example we have heard of must be the challenger bank Nu, which now has 40m members and announced that it got 80% of all its customers in Brazil from its referral program despite offering no reward or incentive other than a non-guaranteed better chance of being accepted as a Nu customer.

I don’t know about you, but if I read about a bank getting 80% of all its customers from a referral program, I would put down this article right now and get on the phone to a leading referral provider like Buyapowa. But let’s assume you need a little more convincing :).

Why don’t banks have referral programs?

Maybe it’s a lack of confidence? Maybe banks don’t really believe that their customers will really talk about them to their friends, family and colleagues despite what they say in NPS? Of course, banking and finance is not what you would call a passion product like music, fashion, beauty, sports, food, wine etc. where people naturally and easily share discoveries and experiences with friends.

Of course, I doubt you think your customers will interrupt their friends talking about Squid Game, Money Heist or Emily in Paris to announce ‘I just want to tell you all how much I love my bank!’ Well neither can I. But actually a choice of a bank, credit card, investment or insurance is an important decision, one where the advice and recommendations of trusted friends can make all the difference. Actually, it’s an occasion where a person might even solicit the opinions of friends and family.

Psychologist Johan Berger identified that much word of mouth was self motivated and identified  6 reasons why people share information including:

• To look good (social currency) e.g. by recommending a cool new restaurant;
• What’s on the top of our mind (triggers);
• When we care we share (ease of emotion);
• Imitating things we see others doing (public);
• To help others (practical value): and
• When things are wrapped up in narratives (stories).

Recommending a bank to a friend clearly seems to clearly fall within the category of helping others reach an important and difficult decision. All you need to do is give your customers the tools and incentives to share and help their friends find the right financial product. That’s where referral marketing comes in.

Customer service can be your differentiator

Another reason why customer referrals can be so powerful is that there is often little discernible difference in the eyes of the consumer between one banking product and another, or between one bank and another. And the sceptics amongst us might suggest that the products are packaged and wrapped in small print deliberately to make such comparisons difficult.

It’s why banks and other financial services businesses often try to differentiate on customer service (such as Metro Bank with its commitment to local branches and convenient opening hours) or customer values (such as TSB with its LGBT sponsorship etc). Both of which are ideal for referrals, firstly because customer service is something you can only really experience if and when you are a current customer, and if you share values with your friends, you will be more likely to recommend a bank that also demonstrates those values.

In fact, we also wrote about how customer referrals can be the perfect channel to win back lost customers who left because of previous poor service. This is simply because, assuming you have since improved service levels, it will be almost impossible for you to convince them you have changed, but their friends who are current customers can.

Why referrals can be so powerful in financial services

In simple terms, there’s plenty of research that shows that people trust their friends more than any other advertising channel, and if we’re friends you’re likely to read my emails, chat and SMS messages.

There’s some quite dated research from Wharton that found that referred-in customers of a German bank generated higher profit margins, were more

loyal and showed a higher customer lifetime value (CLV). However, more recent research by the Keller Institute explained why referrals can work so well. They identified two factors (i) better matching and (ii) social enrichment. Better matching was broken down into passive matching, which is due to the fact that people tend to socialise with people like them in terms of values and demographics, which means a good customer is likely to know other potentially good customers.  And active matching, where customers look through their network for contacts they know or believe would appreciate the recommendation.

The concept of social enrichment comes from the fact that not only do your customers know their friends, they also know your products very well, which means that they can make very targeted recommendations, i.e. not just first direct, but this particular savings account with first direct. In other words, referral marketing offers the promise of the marketing nirvana of the right message to the right person at the right time.

Why you can’t afford not to do this

Marketers in financial services share many of the problems faced by all marketers, namely that the tools that they used to rely on no longer work as well as they did, that is if they even work at all anymore. This is due to:

• Ever increasing costs of clicks on paid search and paid social and for impressions on programmatic bidding as more marketers bid for inventory using AI tools that increase the costs to the point where marginal cost equals marginal revenue;
• The complete death of organic social;
• Adblockers, spam filters, and banner blindness meaning that consumers no longer see ads;
• Younger consumers no longer watching terrestrial television and either watching Netflix or gaming and so not watching TV commercials;
• Regulations like GDPR that make it harder to build and use large email databases without recording all consents and using the data strictly in accordance with the permissions received; and
• Reduced customer loyalty.

But marketers in banking face even steeper challenges due to:

• Capture by price comparison sites like Go Compare, Compare the Market and Money Supermarket with huge marketing budgets and highly effective SEO;
• Very competitive markets which see very high CPCs and CPAs, with Wordstream recently reporting these eye-watering average category CPCs in financial services:
  • Insurance: US$54.91
  • Loans: US$44.28
  • Credit: $36.06
• Competition from aggressive fintechs for younger and more profitable segments with innovative offers and huge marketing budgets fuelled by venture capital, private equity and sovereign wealth funds that enable them to blitzscale losing large amounts of money on each newly acquired customer.

We can’t be the only ones who think that is simply unsustainable. Marketers in financial services can’t just keep tipping more and more of their precious marketing budgets into the coffers of Meta (Facebook) and Alphabet (Google). To the point where one UK auto insurer confided to us that they make no profits from a customer acquired on Google search until the third renewal because they gave all their profits for the first two years to Google!

As a marketer in banking, you need to look for a way out of this downward spiral, and referral marketing can be one of the ways to achieve that.

Is anything holding you back?

Having read all the above, is there anything holding you back?

• Is it because you’re regulated and you worry about potential misrepresentations by customers to their friends? Well, with a well-designed referral program, all the selling is done on your website or via your call centre and the referred-in customer passes through all the normal processes as would any other customer. You could even disable the ability of the referrer to personalise the referral message.
• Maybe you don’t want to be the first? Well, here we can point to plenty of successful banking referral programs like Nationwide, first direct, American Express, Wells Fargo as well as those listed above.
• Maybe you’re worried about potential security risks and consequences of handling sensitive personal information. Here, you need to be sure that you’re working with an enterprise-level supplier that has been ISO certified, regularly pen-tested and is able to hold and store only hashed data.

We think that in 2022, you can’t not have referral marketing on your marketing agenda.

This article was written by Peter Cunningham, Director of Marketing at BuyaPowa, a leading referral marketing platform