Taking Account The consumer perspective on loyalty programmes in financial services A COLLINSON GROUP COMPANY
54% The majority of people (54%) still use two or fewer providers for all their financial needs 2 #TakingAccount
Introduction The financial crisis has changed the relationship between banks and their customers. Trust levels keep falling, and yet the majority of people (54%) still use two or fewer providers for all their financial needs. Customers have, for the most part, stuck with their banks for a number of different reasons which vary across the globe. From inertia in the UK, through to strict regulations found in some Middle Eastern countries like Kuwait and Qatar, where financial relationships can only exist with the bank in which your salary gets credited with. But the question is: for how much longer? The explosion of technology and the consumerisation of the industry has led to an increasingly competitive landscape. Consumers are becoming more knowledgeable about financial services (FS), switching and greater share of wallet between providers is becoming more prominent and products are becoming more commoditised, leading to greater differentiation. So how can traditional financial institutions ensure they remain relevant to their customers and maintain a competitive edge? To better understand the ground shift of loyalty in the financial sector and how providers can adapt to new customer demands, Collinson Latitude conducted research of 4,000 global consumers from the US, UK, Singapore and the Middle East. The findings show that change is happening and fast. The loyalty of your customers will be severely tested by the growing consumerisation of the industry, and meeting these challenges will require close inspection of how you communicate with and incentivise them. In order to keep customers, as well as attracting new ones, programme managers need to better understand how these changes will affect the landscape for loyalty. This report examines: What factors influence consumers to choose one bank or credit card provider over another How the shift in preference towards online transactions has changed customerbank relationships How satisfied customers are with existing reward programmes What providers can do to encourage loyalty The changes finance providers need to make to ensure they meet the changing needs of today s customers 3
A time of reckoning: the new landscape for loyalty In the years immediately following the global financial crisis, banks have been focused on restoring consumer confidence and building loyalty. As the head of the Royal Bank of Scotland, Ross McEwan told the British Bankers Association in October, 2014: Are we here to serve ourselves or our customers? That is the question the financial crisis and the years that followed have put in lights for our customers Research in the US found that one in two people s trust in banks has declined in the past few years (1). In the UK, it s a similar story with only 32% saying they trust their banks (2). Yet this distrust has not yet turned into a customer exodus: 54% of consumers still use two or fewer institutions for all of their financial needs. FS providers could therefore be forgiven for a sense of security regarding the retention of their customers. But is this loyalty, or have customers not yet realised the options available to them? In the digital age there are significant changes emerging that threaten financial institutions ability to keep customers loyal and attract new revenue. The digital age has brought a whole new world of choice to the consumer, which places great emphasis on brands to keep up. So far, financial institutions have been largely unscathed by this trend, but as consumer expectations continue to evolve, business models need to follow. 4 #TakingAccount
There are three particular trends that are driving change in the finance sector: 1. The explosion of technology The online revolution has transformed the way consumers interact with brands; just look at the explosion of ecommerce in retail for example. The financial services sector is no exception to this. Online banking, live chats, mobile banking and remote account management are now considered a necessity rather than a benefit for the connected customer who expects to be able to access financial services 24 hours a day, seven days a week. More consumers want to interact online with their bank (70%) making this a more popular avenue than in branch (66%) Keeping this in mind, it makes no sense that a loyalty programme be viewed in a different light to the core services that FS brands provide. Digital access is becoming a necessity across all customer touch points and devices, from access to credit card or current account statements, to the access of member rewards. As consumers increasingly use smartphones for financial transactions (over half of smartphone users do so according to Board of Governors of the Federal Reserve System) (3), it s now more of a necessity to think about the always on nature of consumers and how digital can help facilitate and drive a seamless and integrated customer experience. Increasingly, consumers are pushing their expectations from other industries onto the financial sector. The question is, is the financial services sector up to the challenge? 5
2. The advent of consumerisation The days when a customer heads to their primary high street bank for savings accounts, credit cards, mortgages and any other service you care to mention are under threat. Globally, more than onethird of customers bought a new FS product at a bank other than their primary bank this year (4). Consumers nowadays can shop around, compare FS services at the click of a button and choose a product/service that better fits their needs. This, paired with the growth of comparison websites that showcase the inherent rewards of switching - has resulted in increased consumer curiosity. Although a universal trend, it seems curiosity is taking different forms across different regions. This trend, known as unbundling, is the result of increased information access - which has made consumers more informed in their own financial service purchase process. And, although unbundling in most regions still remains an emerging trend it is clear that customers are becoming more inclined to explore alternatives, unless incentivised not to do so. 1.64 million people switched Since September 2013, 1.64 million people in the UK have changed their current account provider thanks to the seven day switching service introduced by the Financial Conduct Authority (FCA) (6) UK ASIA 4.7 banking relationships per individual Since 2011 Asian consumers have been increasingly splitting their wallet between financial services providers. In a report titled Customer first: New Expectations for Asia s retail Bank the number of banking relationships per person was found to have reached 4.7 per mass affluent individual (5) 6 #TakingAccount
3. Changing competitor landscape With consumers becoming more inclined to shop around it is becoming more important than ever for FS companies to develop a competitive differentiator. One that will resonate with the end user. With the cost of keeping an existing customer at around 10% of the cost of acquiring a new customer, it s important that FS companies start investing in loyalty programmes that differentiate them from the competition. If we think back 10 years ago to a time pre digital boom there were a handful of companies competing for consumer wallet. Fast forward to the digital era and there are hundreds of banks and credit card providers competing for market share; both globally and locally. For the most part the new landscape for customer loyalty in the FS sector has been driven by consumers pushing their expectations from other industries onto the financial sector. While the industry is taking steps to improve customer satisfaction in the financial services sector, it s important to take a step back and acknowledge how and why these changes have materialised, in order to make meaningful changes; understanding the needs and wants of today s consumers is a good place to start. With competing financial service providers offering similar services, it won t be long until customers start looking towards incentives/rewards on offer as a motive for choosing one organisation over another. In fact our research found this already to be true; with a third (33%) of consumers stating rewards on offer are very important when choosing a current account or credit card provider. 7
Great expectations: understanding what increased choice means for loyalty In the next stage of this report, we wanted to understand more about how customers currently interact with their financial providers, what they expect in terms of service and where the triggers for loyalty might be. In other words, we wanted to know how can you make existing and new customers actively want to do business with you? The results of our research clearly show the impact of rewards on brand choice. Two thirds (63%) of respondents said reward programmes are important when choosing a provider...... while a third (33%) admitted being strongly influenced by them...... ranking rewards on offer above customer reviews (58%)...... and almost on par with brand reputation (69%) In the same way that availability of rewards positively impacts choice of financial provider, a lack of available rewards or rewards that fail to meet consumer expectations can have the adverse effect. So how can programme managers in the FS sector get it right and increase their market share? With increased competition, the advent of consumerisation and all-encompassing digitalisation it s no easy feat but analysis of the research findings point to three clear areas where rewards programmes in the industry are currently falling short: 1. The need for digital capabilities Consumers want to manage their finances via their computer, tablet and mobile phone. In fact, we ve found that online is now the number one communication channel between consumers and their banks, with 70% choosing it among their top three. This pushes face-to-face service into second place (66%) and telephone into third (52%). 8 #TakingAccount
Yet more intriguing is the fact that 31% put mobile in their top three preferences for customer-provider communication and 19% said tablet. In addition, around 6 in 10 (63%) customers may never set foot in branch instead preferring to transact online. When asked about accessibility of their reward programme, only 2 in 10 respondents (17%) claimed they were able to access their rewards online and 7 in 10 (72%) said access to their rewards online would improve their programme experience. Finding More consumers want to interact online with their bank (70%) than they do in branch (66%) Warning As consumer technology improves, the gap between online and offline will only widen Challenge As a financial services provider trying to appeal to the next generation of customers, you need to be thinking online before in-branch 9
Why finance providers need to embrace online loyalty programmes For most regions online has overtaken in branch interaction. On average nearly half (45%) of consumers prefer to interact with their bank online compared to only 37% who prefer in-branch interaction. INTERACTION PREFERENCES PREFER ONLINE CONTACT PREFER IN-BRANCH CONTACT UK 56% UK - 34% Singapore 45% Singapore 28% Middle East 34% Middle East 25% US 42% US 44% 10 #TakingAccount
DIGITAL LOYALTY PROGRAMME ACCESS Twice as many people under 44 say they want to redeem rewards on their mobile compared to those over 45. Though people without children are most likely to want to redeem points online (61%), when it comes to mobile it s consumers with children that are twice as likely to use their mobiles (22% v 10%). BUT only 17% of members say they can currently access their rewards online AND 72% say online access would make their programme better 11
2. The need for improved performance The warning signs are there, financial service providers have much more to do to improve their loyalty programmes and best practise examples exist within other industries. While at first glance, reward programmes in the finance sector look to be meeting consumer needs 31% of participants said their scheme is great, whilst well over a third find them easy to use (41%) and easy to understand (38%) - a direct comparison with the retail sector shows there s plenty of room for improvement. With one in five members also expressing a wish to make their financial services programme easier to understand, the overall user journey can also be brought into question. When respondents were asked how their loyalty programme experience in the retail sector compares to the financial services sector: 44% said the retail sector offered the best reward programme communication while the finance sector (37%) was ranked as offering the worst How good are the reward programmes you are a member of? RETAIL (%) l Poor l Good l Neither 30 59 11 The average satisfaction score for retail was 4/5, compared with a 3/5 satisfaction score for financial reward programmes Only 11% said their reward programme experience in the retail sector was poor compared with nearly double (19%) in the finance sector FINANCE (%) l Poor l Good l Neither 29 19 52 12 #TakingAccount
Communication matters but who does it best? Regular communication (by sector): 3. The need for choice and personalisation While the retail sector leads the way for the personalisation of rewards the finance sector once again is trailing behind. When asked about their satisfaction with the choice offered by their financial services reward programme: Best - Retail (44%) Worst Finance (37%) 27% of respondents said they were not happy because their programme offers a poor choice of rewards 39% said they want rewards from outside their provider s own range Regular communication (by country): 52 45 36 34 33 41 34 37 % receive regular communication (retail sector) % receive regular communication (finance sector) l UK l US l Singapore l Middle East Almost 72% said the rewards they want to redeem are not always available When asked what would make their finance programmes better more choice of rewards came top (82%) and a similarly high number of consumers (78%) said they would like to choose their own categories of rewards. What s the pay-off for programme managers of getting personalisation down to a tee? Our research found that financial reward programmes significantly impact purchase behaviour (70%) and 1 in 5 programme members admit that they would increase spend with their reward programme if they were being offered more personalised and relevant rewards. Having choice and offering personalisation in your reward programme, really adds up. 13
Conclusion: a blueprint for loyalty success in the financial services sector Data and digital has transformed the meaning of knowing your customer and when used effectively, enables organisations to understand consumer preference and offer personalised reward programmes that will keep customers brand loyal. Although the retail sector has to an extent set the bar for loyalty programmes, there is no reason programme managers in the FS sector cannot and should not raise the stakes. Up until now, financial services companies have been lucky. In spite of the financial crisis, their customers have by and large stuck with them. But the rules of engagement are changing. Armed with smartphone technology and fast broadband access, today s consumers has more access to a whole host of credit card, bank account, savings and loan providers. For some, a new product or service is just a click away. In order to stay ahead of the competition in what is becoming a more competitive global market financial service organisations need to ensure they are incentivising customers to stay brand loyal, through reward and redemption programmes tailored to their individual needs. What s on offer right now is satisfactory, but in this changing loyalty landscape, it needs to be exemplary. When it comes to loyalty reward programmes, finance providers are left in retailers wake. This is especially worrying given the moves the big supermarkets are making into the finance sector in the UK. There has been huge inertia across the FS industry, but in the face of the digital revolution, new regulations and a more competitive market, finance providers need to react. Loyalty programmes need to evolve, offering ease of use, speedy (online) redemption, a wide range of rewards and more regular updates. Only by doing this will the FS sector be able to offer loyalty programmes that live up to customer expectations and competitor offerings. OFFER 14 #TakingAccount
Four top tips to help improve your loyalty programme 1. Make rewards more attainable It s clear that some loyalty schemes out there are proving to be more hassle than help to consumers. To avoid consumer fatigue why not offer lower value rewards, achievable over a short timeframe, that keep members engaged and actively participating in your programme? 2. Offer choice and variety Personalisation of offers has become commonplace in the era of big data and consumers have come to expect rewards tailored to their habits and preferences. One size fits all rewards are a thing of the past; you need to make sure you are offering a variety of rewards from inside and outside your brands own range to satisfy all redemption needs. 3. Make rewards redeemable online Consumers want access to rewards 24 hours a day, 7 days a week on the device of their choice. To avoid consumer switch off, your reward and redemption store programme needs to be optimised across all devices and operating systems. 4. Talking sense Striking the right balance of communication can be difficult; each member has different needs/ expectations that dictate how much interaction they want with your brand. As programme manager you need to use all the data/customer information available to create bespoke comms tactics that appeal to all of your member profiles. 15
Join the debate What s impacting your loyalty programme? @c_latitude #takingaccount For more information Like to discuss the report with one of our team or request a hard copy version for you and your colleagues? info@collinsonlatitude.com 16 #TakingAccount
About Collinson Latitude At Collinson Latitude, we unlock the value of your customer relationships by blending a unique combination of e-commerce expertise, content delivery and technology solutions. You will benefit from increased customer engagement which drives increased revenue. Your customers will benefit from access to a wider choice of products and services. Our track-record shows that we build successful long-term partnerships with our clients, who include many leading global brands. These relationships are founded on strong, mutually beneficial performance-based commercial modelling that drives both financial targets and engagement levels. Collinson Latitude is a Collinson Group company. Collinson Group is a global leader in influencing customer behaviour to drive revenue and add value for our clients. With a unique blend of industry and sector specialists, the group develops and delivers market-leading products and services to build, manage and optimize customer relationships across four core capabilities: Loyalty, Lifestyle Benefits, Insurance and Assistance. What we do Collinson Latitude drives daily engagement through multiple customer touch-points with your programme. We optimise value by structuring commercial models that are aligned to your objectives. We recommend the best content strategy and support the design and delivery of tailored marketing communications to drive high performance through effective interaction. Contact Us For more information about Collinson Latitude and what we do, please contact us on: www.collinsonlatitude.com info@collinsonlatitude.com 17
References 1. http://www.harrisinteractive.com/newsroom/harrispolls/tabid/447/ctl/readcustom%20default/mid/1508/articleid/1515/default.aspx 2. http://pwc.blogs.com/press_room/2014/10/pwc-research-financial-services-industry-faces-bigger-problem-than-lack-of-trust-apathy.html 3. http://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201403.pdf 4. http://www.bain.com/publications/articles/customer-loyalty-in-retail-banking-2014-global.aspx 5. http://mckinseyonmarketingandsales.com/sites/default/files/pdf/asia%20retail%20bank%20customer%20expectations.pdf 6. http://www.bbc.co.uk/news/business-31852839 18 #TakingAccount
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