Banking in the new age of customer loyalty

  • By Christine St Anne

Significant shifts are now at play in the banking sector and the main bank relationship may no longer be enough to win on customer loyalty.

“Our data has revealed some interesting shifts around loyalty and the way that customers are interacting with their banks and financial service providers,” RFi Group deputy general manager Kate Wilson said at the recent Australian Loyalty Conference.

For Wilson this dynamic has changed significantly which spurred RFi Group to launch a loyalty report.

The RFi Group data highlights that over the past couple of years customers are becoming less loyal. 

The majority of customers today - edging towards 70 per cent – are now multi-banked. 

“Almost the majority of customers in Australia are now using more than one bank provider,” Wilson said. 

At the same time, the data also suggests that customers are holding multiple provider relationships for the same product. 

For example, customers are taking out credit cards and savings accounts with different providers. 

“There is a lot more diversification in what we are seeing in terms of the take up of products with providers,” Wilson said. 

Ultimately, RFi Group research reveals a decline in the proportion of customers who would now consider their main bank for various products. Pre-existing banking relationships are also declining as a driver of choice across key products.

So how can banks provide the right services and products to ensure customers remain loyal? 

Wilson points to the increased competition in mortgage refinancing as highlighting the importance of price. 

But RFi data also highlights the importance of consumer perceptions around price. 

“While competitive pricing is the number one factor in garnering loyalty, our research found that customers must also feel that they have been given good price relative to other customers. 

“That is, they need to feel they are being rewarded for being loyal to their bank.”  

In fact, “Rewarding existing customers according to tenure” was a particular feature important for the older age groups.

The way banks have been pricing the front end book compared to the bank end book – that is offering newer customers better rates – is now subject to a probe by the ACCC and data from RFi Group to date suggests that failure to reward customer loyalty is driving increased switching intent.

And RFI data shows there is ample opportunity or banks to reward customers that goes beyond a simple discount on price. 

For Wilson, banks and financial institutions should also embrace initiatives like rewarding customers for paying off their debt. 

One proposition that “springs to mind” for Wilson is Athena’s tiered LVR pricing 

“It isn’t necessarily a traditional loyalty program, but what Athena’s initiative is doing is really rewarding people for paying down their debt.” 

Importantly, such an initiative also rewards customers for their tenure with the bank – that is by providing them with a lower interest rate through the life cycle of the loan 

“It also rewards positive behavior which really resonates with customers. I personally believe that financial health and wellness support is especially important given the current environment and is likely to become more important for customers in the near-future.”