Shifting loyalties

  • By Christine St Anne

The health pandemic has changed the way customers are thinking about their banks and latest industry research has revealed a new kind of dynamic playing out. 

The entry of neobanks provided much needed competition in banking.

Post the royal commission these disruptors as well as the non-major banks were well positioned to capture the hearts and minds of customers as trust with the big players was challenged. Fast forward a year and the health pandemic is challenging customer loyalty. 

RFi Group data to date suggests that the health pandemic drove banks and financial institutions to place greater focus on retaining customers.  

Therefore, while customer retention has always been on the agenda for the banks, but it is even more on the agenda right now. 

According to an RFi Group report on client loyalty, the data also seems to suggest that the health pandemic re-set the loyalty dynamic

Amid the uncertainty of COVID it is natural for consumers to look for constants. Incumbent providers should benefit from this.  

RFi Group client insights manager Sarah Niessen notes that what is now really important is ‘trust in institution,’ particularly for transaction and savings accounts. 

“I think trust is particularly important in the current environment, we are seeing trust in the primary transaction account provider, usually the main bank relationship, increase year-on-year.”

RFi Group’s consumer loyalty study explored a number of segments in banking including deposits. 

In particular, Niessen sees some interesting trends emerge in how MFIs can win on the deposit front. 

“We know that typically half consumers will switch the bank that they consider their main bank at least once,” Niessen said.

“This means that half do not, I think this highlights the value of the opportunity when we think about winning a first relationship,” she said. 

If this switching is going to happen, Niessen notes that that it will happen before the age of 45 which is at the point where banking needs diversify.

“The opportunity to incentive is most likely to sit with younger consumers’,” she said.

“Ultimately if you incentivize a switch,  the bank will then need to work harder than just an introductory offer to keep that customers loyalty in the long-term.

“We see in the deposit space a person who has switched their primary transaction or savings account is more than twice as likely to consider switching again.” 

The study also explores opportunities in cross-selling and for Niessen an area where main banks could do more in expanding their MFI relationship is in the area of cards. 

“We see 40 per cent of credit card balances sitting away from the MFI and this is largely driven by rewards” Niessen said.

For example, cards like American Express or Qantas appeal to consumers because of their point earning propositions. 

"Although consumers still value frequent flyer points, there could be an opportunity in the current climate for bank proprietary rewards. Particularly with the instance of credit card switching increasing’ 

Open banking could also provide a fertile ground for banks to build on their loyalty rather than challenge their customer relationships

“What we can see anecdotally from our data is the MFI is in the strongest position to gain consent to access personal data and consumers are most likely to be comfortable using open banking services with their MFI when compared with non MFI banks and brands’. 

The full report is included in the September edition of AB+F