By Christopher Evans, Director at Collinson Group
It’s been a rocky decade for customer experience executives in the financial services industry. They continue to rebuild consumer trust and confidence, recover from the financial crisis, and adapt to the dynamic fintech sector. Traditional methods to reward customers, such as cash incentives are less effective as consumers seek immediacy, choice and unique experiences that appeal to their own individual lifestyles. The current business climate is also pressurising banks to rethink how they fund their loyalty programmes.
Loyalty initiatives help banks build a positive, engaged relationship with customers. They therefore have real potential to further build trust with consumers. Our research and market trends provide evidence that the large retail banks could be doing more to offer loyalty initiatives that customers truly value. For example, Santander reported that the number of people applying to its popular cash-incentivised 123 current account fell dramatically after the bank cut interest rates. The lender cited that only 483,000 customers switched to its account in 2016, compared to approximately one million the year before. Yet Santander hasn’t been the only retail bank to experience slowing customer interest in its services, as Bacs showed with a dip in customers switching bank accounts earlier this year. There are lessons to be learnt from slow growth in customer acquisition. Firstly, it is now harder to raise the revenue to fund loyalty initiatives, and banks may be neglecting to respond to changing customer expectations while contemplating how to fund them. Second, the availability of additional customer data that could provide rich insight into consumer behaviour creates an opportunity to be more relevant to customers, especially in the way they are rewarded for their loyalty.
If banks diversify their rewards and services then they seize the opportunity to foster better customer relationships, whilst also being able to better monetise interactions and loyalty programmes. In 2016 we commissioned a study into the global mass affluent customer, and found that only 17% of this wealthy group of consumers believe that their bank understands them. Furthermore, Collinson’s research discovered that only 37% of consumers who are members of financial loyalty programmes believe that they are offered rewards reflective of their lifestyle and hobbies. Clearly there should be a real sense of urgency within the customer experience department of financial service organisations to deliver enhanced value to customers.
The business case to diversify
At Collinson Group, we see a massive commercial opportunity for banks, if they are able to offer the right rewards and experiences for consumers to gain a competitive edge over rivals. For this reason, customer experience executives should push for customer loyalty to be moved higher up the boardroom agenda.
Our mass affluent research found that consumers expect greater recognition and rewards for their loyalty. When asked why they don’t feel loyal to their bank, 41 percent stated that this was because they are not rewarded for their custom, 33 percent that they are treated the same as everyone else, and finally 19 percent said that they are charged unnecessary fees. When asked what would encourage higher and more frequent spending on their preferred brands, 59 percent of respondents requested a loyalty programme where it is easy to earn, redeem and adapt to their personal preferences.
These insights show the potential for accelerating existing customer relationships, and driving future business. This could take the form of tailored packaged accounts, offering additional value-added products and services from insurance and assistance, to airport lounge access or concierge. Enhancing packaged accounts with more choice on selected benefits is cited by consumers as more appealing than standard products largely available today. Overall, banks have yet to capitalise on this opportunity to tailor products and facilitate add-on products.
In addition, we found that people are more motivated by altruism and money-can’t-buy experiences, so offering a range of aspirational and lifestyle rewards will have a far greater impact than pure discounts or cashback. Access to exclusive events, destinations, restaurants, hotels and services are increasingly important for affluent middle-class consumers. These benefits could be part funded by merchants and third parties, enabling credit card providers to fund future reward initiatives. Banks that provide these value propositions will engage with their customers on an emotional level too, and achieve brand differentiation.
A spotlight on insurance
Collinson Group research shows that customers would value a one-stop shop for all their financial services products. By analysing customer data to capitalise on key life events and providing relevant, tailored offers on the back of this, banks can deliver incentives to encourage multi product purchases. This can mean that banks need to offer products and services that are outside of their core offer. When loyalty programme members were asked about their attitudes towards insurance, we found a clear gap in the market for streamlined insurance services. Respondents claimed to have an average of four different insurance products split across three providers. Two thirds of those surveyed (63 percent) said they would prefer to deal with a single insurance provider, which is where banks can step in. For example, some retail banks already package up travel or mobile phone insurance for a fixed monthly fee, but this could be extended to include wider insurance products – car, home, health, identity fraud protection. Consumers indicate a strong preference for being able to choose the products and services that suit their lifestyles.
Indeed, when consumers were asked why they use multiple providers, 37 per cent said their insurance provider did not offer a relevant variety of products and more than a quarter (27 percent) said they did not believe there is any benefit for staying loyal. The research also highlighted the different insurance products customers value. Besides health and travel insurance, 63 percent highly value lost cards assistance, and 57 percent rate identity theft protection as a highly valuable service. The opportunity is clear, diversifying the product portfolio to fulfil customer’ needs should be a natural progression for retail banks and card providers who are well placed to offer these.
Personalised, relevant loyalty is the solution
Brands now need to reinvigorate their programmes and experiences with an imperative on the needs of individual customers, and to explore new ways of funding the right rewards. The abundance of generic programmes has diluted the impact of loyalty programmes. Brands could better balance programme objectives for motivating short-term behaviour with initiatives that drive deeper engagement for long-term loyalty. According to our research, over half (56 percent) of the mass affluent feel more loyal to brands that know who they are and treat them differently. Personalisation and breadth of rewards and benefits is key for brands to remain relevant.
Lastly, banks will build loyal customers if they provide additional services to fulfil the customer’s broader lifestyle needs. Of course, data analytics plays a critical role in aggregating insight on the customer journey, allowing brands to offer more diversified, targeted products, services and rewards. The provision of varied, dynamic and richer services could herald a new era for the role that banks play in the lives of consumers, helping financial brands to regain the trust of consumers and forge enhanced customer relationships.
References  Refers to our mass affluent research which is mentioned in more detail later on in the article  http://www.thisismoney.co.uk/money/markets/article-4157186/Number-savers-switching-Santander-tumbles.html  https://www.bacs.co.uk/NewsCentre/PressReleases/Pages/CurrentAccountSwitchServiceJan2017.aspx  Independent research was conducted by SSI Research in Singapore during January 2016 on behalf of Collinson Group. 6,125 consumers within the top 10-15 percent of earners in Australia, Brazil, China, France, Hong Kong, India, Singapore, the United Kingdom, the United States of America and the United Arab Emirates were polled online.  Research commissioned by Collinson Latitude, part of Collinson Group and conducted by Vanson Bourne