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Building customer loyalty in banking

Building customer loyalty in banking

With technology making it easy for customers to walk away, and with challengers and start-ups hot on the heels of incumbents, Australian banks that don’t recognise loyalty will lose out.

Carmen Bekker

Partner, Customer Brand & Marketing Advisory

KPMG Australia


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Financial services providers have had rewards programs in place for many years – notably linking credit card spend to frequent flyer programs. However, consumers don’t accept that these appropriately recognise their loyalty. This is why so many customers switch credit cards to chase rewards – meaning the programs are not generating true loyalty.

The issue of recognising customer loyalty appropriately is pertinent amid today’s environment of customer dissatisfaction and digital disruption in financial services. The ACCC estimates that rates for existing mortgage customers are 32 basis points higher than for new home loan customers. If banks don’t preference existing customers, they risk many hundreds of millions of dollars in revenue as customers flee elsewhere.

Technology is allowing challenger banks and start-ups to sign up customers, enquire and fulfil transaction accounts, deposits and loans, and offer competitive terms and pricing, all online. And there are currently more than 20 companies that have applied for a banking licence, which will offer ease of transacting and new, attractive digital experiences. These start-ups will provide compelling customer experiences and lure customers away from incumbent banks.

However, the good news is that incumbent banks and wealth managers have the opportunity to take a new approach to recognising and rewarding the loyalty of existing customers. There is still a chance to mitigate the material risks to reputation and profitability from consumer dissatisfaction, disruption, and a lower-return future.

What customers think

A KPMG Acuity (now KPMG Customer Intelligence) survey of over 500 Australian consumers about their attitudes towards their bank found evidence of the limited effectiveness of traditional loyalty programs, and the need for banks to find better ways to recognise loyalty as a priority.

Some key findings were:

  • Six in 10 (61 percent) of customers said it was extremely/very important for their bank to focus on ‘finding better ways to reward loyal customers’, with 26 percent saying it was quite important. Only 10 percent did not think this was an important issue.
  • ‘Finding better ways to reward loyal customers’ was even more important to big banking customers (63 percent extremely/very important) than non-big four customers (57 percent); it was more important to women (66 percent) than men (54 percent); and particularly important to the 26-35 year old cohort (76 percent).
  • More consumers placed importance on this particular issue than, for example, the proportion who said it was extremely/important for their bank to focus on ‘improving online banking’ (57 percent), ‘offering greater flexibility in payment terms and options’ (56 percent), ‘making application processes easier’ (52 percent), ‘improving branch service’ (49 percent) or ‘automating more services’ (45 percent).
  • Almost one in 10 (9 percent) of customers said ‘finding ways to better reward loyal customers’ should be their bank’s number one priority; 45 percent said it should be in their top five priorities.

The potential of reward

Customers expect to be offered loyalty programs, and by not doing so, incumbents risk further exacerbating customer dissatisfaction.

The financial and reputational value that could be gained by the first bank or wealth manager offering a truly valuable loyalty program would be significant. Most financial institutions see value in loyalty programs and have some form of rewards scheme.

So the question is – how do banks and wealth managers rethink loyalty in a way which rewards existing customers?

Successful loyalty programs require relevant, honest and believable engagement which is consistent across channels. Existing customers need to be preferenced with simple, appealing and relevant rewards for loyalty. This can take many forms, however the core attributes should include ‘best offers’ to existing customers; easy sign up and servicing; consistent experience across channels, and effortless complaint resolution.

The financial institutions that prioritise investment and transformation in a way which develops compelling customer loyalty will be well placed to turn around customer dissatisfaction, and avoid the significant reduction in returns that the new era of financial services beckons.

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