Spending on customer loyalty keeps going up, but returns are diminishing. This article will tackle how banks manage and integrate new techniques in keeping up with their customers’ needs and demands in order to maintain ties with their clients and achieve growth simultaneously in the fast-changing times.
Retail banks were severely battered a decade ago when the Great Recession hit. Since then, they’ve done a lot to recover lost ground. And yet profitable growth has often remained conspicuous by its absence. The average operating income growth rate across the top 100 banks globally by total assets was a mere one percent between 2014 and 2017.
This struggle is linked to the loyalty-focussed growth strategies that still make up a major part of most banks’ go-to-market approach. Banks have traditionally aimed to “lock in” customers by selling them additional products and services, and then making it costly or difficult for them to leave. Also, banks to an extent have been doubling down on loyalty: U.S. credit-card issuers, for example, spent $27 billion on rewards in 2017, compared with $16 billion in 2014. However, customers are increasingly favouring the bank that is most relevant to them in the moment. They are increasingly willing and able to compare offers on the spot. And, when we asked 180 CEOs and 970 C-suite executives in 2017, 69 percent (66 percent for the bank CEOs surveyed) told us that it is harder to gain customer loyalty today than it was three years ago.
In this environment, bank leaders can certainly choose to stay their course. However, every year, approximately 10 percent of banking revenues shifts to new providers or moves to banks that have had a secondary relationship with customers. This represents $192 billion on the table for banks that understand what relevance means for their customers and put their knowledge into practice.
What are the keys to capturing that opportunity? Three imperatives are at the center of the task:
• First, become the trusted financial advisor to each and every one of your individual customers.
• Second, broaden your reach by developing and controlling a bank-based ecosystem in areas such as housing, mobility, entertainment and health care.
• Finally, position yourself as part of one or more of the powerful ecosystems clustered around today’s tech giants.
Carrying out each imperative is a matter of broadening a bank’s footprint in its customers’ lives by creating, and growing, a portfolio of relevant interactions. Each imperative gives the bank a larger opportunity to become an indispensable, hyper-relevant partner and guide in an increasing number of customer activities. And each increases the opportunity to benefit from the network effect of those connections.
The Trusted Financial Adviser
Selectivity about the digital products and services you offer is key to earning customers’ trust. So to solidify your bank’s position as a trusted financial advisor, home in on the space in which the bank will differentiate itself, and integrate only the products and services that align with your brand and your target customers’ needs and wants. Customers might find (and welcome) new bill management tools, or an easier way to access personal advice, or a new tool for keeping their banking credentials secure. Whatever the offering, it must enhance the bank’s position as the most relevant choice.
Critically, your front office must be fluent in the services you offer. These individuals have to know how to bridge the gap between new and old services. Customers need to feel confident that the bank can follow through with its digital promise. They need to know that the bank recognises them as the same customer regardless of where they interact with the bank — in person, through an app or through a website. They need to see and experience consistent brand values and quality of service across all touchpoints. Problem-solving routes must be clear and easy to navigate, for customers, and for employees.
Your bank should also leverage the customer data you gather at this stage to augment customer profiles. By doing so, the bank will improve its ability to raise conversion rates. It will also position itself to be more effectively selective about the opportunities it pursues when it broadens its reach.
Taking these steps to deliver services in “best of” digital ways will build trust, as your customers’ experiences become more personal and more relevant in the moment. And although revenue drivers at this fundamental level are traditional (interest income, and fees), this milestone is the foundation for building an expanded customer “catchment area”.
The digital strategy for one large global bank is demonstrably relevant to a wide cross-section of customers. In its Wealthy segment, 85 percent regularly uses the bank’s app to monitor their investment portfolio, or to access tailored investment advice. And 96 percent of the bank’s millennial customers use the bank’s credit card, which offsets its annual fee with travel and dining rewards and a portal for booking travel that helps users maximise those rewards. The bank’s customer retention rate rose 10 percent in 2017, and card spending increased by 14 percent, resulting in a financial performance well above the industry average.
The Bank-based Ecosystem
Think of the moments when banks have traditionally played an essential yet supporting role in their customers’ lives; house-hunting for example. If your bank has a traditionally strong presence in the mortgage market, it might do well to press that advantage and begin to act as an aggregator, consolidating ancillary services, perhaps with realtors, designers, or contractors, under a bank-branded platform. In such a bank-controlled ecosystem, benefits can accrue through a network effect, where ecosystem interactions provide opportunities to upsell or cross-sell services and acquire new customers.
Singapore-based DBS was the first bank operating in Hong Kong to introduce an app that uses virtual reality to modernize the way people buy a home. In partnership with Century 21, DBS Home360 helps homebuyers search for properties, compare prices, assess mortgage affordability, and stay abreast of changes that might affect their home-buying journey — all from a single point of contact.
DBS Car Marketplace, meanwhile, offers Singapore’s largest direct seller-to-buyer car marketplace, in partnership with car sellers, sgCarMart and Carro. Using this DBS service, sellers can list on both sgCarMart and Carro at one go for free. Buyers are channeled to DBS’ loan offerings. A car-budget-calculator provides the estimated loan amount the buyer is eligible for, and then serves up a list of available cars based on their budget.
In 2017, DBS’s efforts to become explicitly relevant for different groups of customers in this way resulted in an increase in digital customers from 2.2 million to 2.5 million. That digital activity accounted for 42 percent of the bank’s operating profit; in 2017, DBS’s return on equity was 27 percent for its digital customers, nine percentage points ahead of the traditional banking segment.
The Broader Ecosystem
Becoming part of an ecosystem with one or more of today’s technology giants can also vault a bank far ahead on the relevance front. In fact, the growth opportunities — new revenue pools, multiplied by new contacts, and new acquisitions — are enormous for banks that successfully become a second-nature element in an established ecosystem (or two, or many).
To such systems, your bank will have to develop products that currently lie beyond the boundaries of the traditional banking domain. Specifically, it might package financial services products (credit cards, loans) for sale on the major retailer platforms. It might offer sub-prime funding through fintech platforms. It might sell digital services, such as digital identification, through an API (application programming interface). or it might make intellectual property, such as banking algorithms, available to the third-party ecosystem controller, or to other participants on the ecosystem it is targeting.
Here, banks might take a lead from one fintech peer: London-based iwoca, a lender that offers flexible credit to small businesses across Europe.
The fintech’s concept is simple: provide working capital loans in hours rather than weeks. To bring it to life, iwoca partners with Amazon, where its revolving credit facilities give businesses selling on the Amazon marketplace in the UK access to as little as £1,000 and as much as £150,000 on demand. (With over £400 million borrowed since its launch in 2012, Amazon businesses have given iwoca a 9.7 out of 10 satisfaction rating.)
And iwoca has not hesitated to build on its success. It has similar relationships set up with eBay, Shopify, PayPal, notonthehighstreet.com, and several others. The fintech’s investors represent incumbent banks and disruptors including Intesa Sanpaolo, Talis Capital, CommerzVentures, and others.
Spending on customer loyalty keeps going up, but returns are diminishing. It’s not a sustainable approach to higher growth for banks, although some banks are emerging as digital leaders, pointing towards an approach based fundamentally on trust and the power of ecosystems. These are the cornerstones of the relevance that banking customers increasingly demand. And this is how banks grow now.
For more details on the research and thinking behind this article, please see two Accenture reports: Maximizing Revenue Growth in Retail Banking (2018) and Banking as a Living Business (2017).
About the Authors
(left) Piercarlo Gera (p[email protected]) is global managing director of Distribution and Marketing Services, Financial Services, for Accenture. (middle) Alessandro Secchi ([email protected]) is a senior principal, offering development lead, with Accenture. (right) Luca Gagliardi ([email protected]) is a senior principal with Accenture Research.