Tech with a human touch: A loyalty-led approach to banking

Commentators from Bain & Co and loyalBe help us determine the best approach for building, maintaining, and reclaiming customer loyalty in banking

Trust: it can take years to build but only seconds to lose. When it comes down to whom a customer entrusts with their money, banks have always needed to prove the superior value of their products and services. Loyalty and an enduring relationship were their rewards, yet banking in the pre-digital era had one distinct advantage: there was largely no alternative.

Then in 2008, as the financial crisis brought public trust in high street banks to a new nadir, digital native banks (challenger or neobanks) began to emerge. Featuring easy-to-use customer interfaces, tech-enhanced functionality, app-based convenience, personalisation options, and much more, global leaders such as Chime, Nubank, Starling, Monzo, and N26 continue to reshape what customers expect from a banking experience.

With a large proportion of adults in some markets still convinced that banks do not work for the betterment of society at large, what can incumbents do to regain their loyalty? Furthermore, how can the incumbent sector prevent disruption from both challenger banks and Big Tech firms?

To find out, we spoke with Katrina Cuthell, Senior Partner at Bain & Company, and Cormac Quinn, Founder and CEO of loyalBe.

Closing the loyalty gap

As part of its ongoing research on customer loyalty in retail banking, Cuthell reports that Bain has noted three key trends in the last 10 years:

  1. Traditional banks have noticeably struggled to make up the shortfall in their customer loyalty performance compared to digital banks. “In the US, the average Net Promoter Score [ranging from -100 to +100] in 2019 for national banks was 23 and 36 for regional banks. By comparison, direct and digital banks scored an average of 69.”
  2. Digital adoption among traditional banks is at record levels as they seek to emulate the fast, fluid, and convenient digital offerings of tech competitors. “While virtually all banks have moved the majority of routine transactions to digital, only a few have successfully converted complex interactions involving sales or advice. However, in 2020, we saw a significant improvement in the performance of digital channels.”
  3. Digital channels are fast becoming customers’ de facto preference. As such, Cuthell notes a rise in “hidden defection”, whereby customers buy products from banks and providers not affiliated with their primary bank. “Our 2020 research found that between 25% and 51% of all banking product purchases [follow this trend]. Hidden defection may also increase in many countries as Open Banking regulations make consumer data portable and therefore encourage competition.”

Clearly, the advent of a more digital tech-focused milieu is having a significant impact on customer loyalty. Continuing to offer the same experience is a strategy guaranteed to lose traditional banks business, particularly when newcomers can bring a price and technical advantage to the fight. For now, incumbents are on the back foot and essentially playing catch-up with the competition.

Annex Cloud’s top three challenges of customer retention

  1. Establishing a digital presence
  2. Deploying online tools to incentivise custom retention
  3. Lack of customer relevance in available loyalty plans

The meaning of ‘loyalty-led’ banking

To truly turn the tide, banks will need to match the status quo and then push further to emerge as leaders. For Quinn, this means providing customised offerings capable of meeting individual needs and preferences. “In order to be truly ‘loyalty-led’, loyalBe suggests that banks employ tools like continued recognition, which is the feeling of being individually acknowledged and valued as a customer and rewarded for investment in the brand over time.”

The phenomenon of incentivising the onboarding of new customers to the detriment of maintaining existing customers is well known and certainly not constrained only to banking. Nonetheless, ensuring that this disparity is healed should be of prime importance; Quinn cites reports from Bond and Citi that found 71% of customers considered loyalty programmes meaningful and 86% felt more compelled to be brand loyal while participating in such schemes. 

“Combining loyalty rewards with a frictionless customer experience can be a way for brands to set themselves apart and drive lasting loyalty,” he states, and these can easily be tailored to suit each bank’s objectives. However, Cuthell contends that loyalty should not just be restricted to a single programme but rather inform the overarching philosophy of the bank itself. “Banks that are loyalty-led hardwire the customer’s perspective into all of their important decisions: they elevate customer goals alongside shareholder returns. Our research has demonstrated that doing so pays off with customers staying longer, buying more, and recommending the bank to friends, therefore achieving higher revenues.”

Annex Cloud’s seven recommended loyalty programme features

  1. Account specific perks
  2. Omnichannel capabilities
  3. Comprehensive rewards structure
  4. Regular and timely new offers
  5. Rewards based on customer participation in tasks, events, etc.
  6. Priority benefits
  7. An ‘elite club’

The danger of alienating future customers

When it comes down to whether traditional banks are alienating millennial and Gen-Z customers, both Cuthell and Quinn are in agreement: yes. “While consumers’ willingness to try banking products with technology companies varies, it is consistently higher among younger consumers,” explains Cuthell. “In the UK, our 2019 research found that 65% of 18 to 34 year-olds were open to banking with an established technology company, versus 34% of consumers aged 55 and over.” The impact of the COVID-19 pandemic, which made physical branches unusable and digital platforms all but essential, has likely boosted these statistics across every demographic.

Quinn calls these younger, more tech-savvy customers ‘NEOs’ and emphasises that they are generally “quick adapters, demanding, and desire transactions that are frictionless, flexible, hassle-free.” Cuthell concurs, adding: “At any point through the experience, a defect or failure can cause a prospective customer to drop out. Younger consumers have even higher expectations for ease and convenience.”

It would appear, then, that NEOs are not likely to be placated by mundane digital features like real-time push notifications - “table stakes,” as Quinn calls them. Indeed, with Morgan Stanley claiming that 80% of Gen-Z customers are already actively exploring mobile finance options, the ability of banks to ‘wow’ this demographic with anything less than cutting-edge technology is unlikely. “Banks need to begin thinking and acting like tech companies who experiment, move quickly, and build the future products and services today. If they don’t act fast, they risk tech companies encroaching into financial services and disrupting them,” says Quinn.

Capitalising on inherent advantages

A positive future for traditional banks will be predicated on learning to adapt and also capitalising on their own strengths. Challenger banks, although increasingly popular, have a distinct profitability issue that Cuthell links back to their origins as secondary, lower-deposit alternatives for initial adopters. Early investment, she continues, has generally been allocated to customer acquisition in the short- and medium-term. While this weakness remains, incumbents will retain the advantage of market longevity and financial security, a foundational component of loyalty. More recent studies have even found that 83% of customers find traditional banks more trustworthy overall.

However, Cuthell cautions that failure to capitalise on this and introduce the best aspects of digital banking into the traditional sector will be a losing strategy. “Many digital attacker (disruptor) banks are now expanding from retail to small business accounts, from deposits and basic transactions to lending.    This is diversifying revenue streams, and Bain’s analysis conducted with Thought Machine indicates that a digital attacker launched on a modern, cloud-native platform could have a cost base that is 60% to 70% lower than a mid-tier legacy bank.”

Reclaiming lost trust

There is a discernible race between the two banking factions to resolve their customer pain points, and it is a competition in which neither is fast-emerging as the victor. In terms of building loyalty generally, Quinn emphasises that banks must infuse relevancy into their offerings above all else. “Banks need to invest in technology, provide services and products that are harmonious with key segments’ needs, increase transparency through the customer journey, and infuse humanity and personalisation into these digital channels.” Fundamentally, technology needs to be at the heart of banking and not a periphery concern.

Following traditional banking’s positive response during the pandemic, Cuthell is more optimistic about its continued ability to build customer loyalty. “Our research of 20,000 US consumers in June 2020 found that 30% of respondents were more likely to recommend their bank based on their experience during the pandemic,” she reports. “However, direct banks still maintain a significant lead in loyalty, so it will take more than the pandemic to erode that advantage.” In conclusion, Cuthell agrees with Quinn’s sentiment that combining “a human touch” with technology is the most valuable strategy moving forward. “To do this, banks will need to continue migrating customers to digital self-service for simple interactions, thereby freeing up front line bankers to handle moments of truth.” This should remind one of a core truth in business: a customer doesn’t owe any business their loyalty; it is the natural reward of empathetic service, quality products, and superior benefits to competitors.


Meet our commentators…


Katrina Cuthell, Senior Partner, Bain & Company


Cormac Quinn, Founder and CEO, loyalBe



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