What does loyalty really mean? For the banking industry, it has too often been code for inertia because when it comes down to it, most banks and credit unions are offering bland cookie-cutter products.
However, the advent of Open Banking will result in increasingly searching questions being asked of all financial services players. Opening up the data held inside banks will sharpen competition to the benefit of those customers by forcing the pace of innovation in response to the disruption being brought by tech-first players.
This is not a notion exclusive to financial services, as we have seen in areas of e-commerce dominated by the giant tech companies. In a world where consumer behavior and technology disruption are catalyzing social and commercial change at an unprecedented rate, the concept of loyalty in banking will not be challenged. It will be reinvented, made personal and pleasurable.
The points-based, transactional concept model is already stuttering according to the 2017 COLLOQUY Loyalty Census. It found that while loyalty memberships across the US have increased, growth is consistently slowing down. And that, while the average US household has more than 29 loyalty memberships, they are only active in 12. Furthermore, 28% have left a loyalty program before redeeming a single reward.
The reason? Customers don’t value loyalty programs that pay no mind to their attitudes, behaviors and expectations. Beyond acquisition, the consumer feels as if they are of little interest after starting the relationship. The consumer is waking up to this new reality.
The Elasticity of Brand Loyalty
There will be very few companies with whom any customer might choose to share all, or even some, of their data. And, there won’t be room for as many providers as today, because of the ecosystem of service offerings that encompass every facet of financial requirements: from basic checking and current accounts, to savings accounts, retirement planning and wealth management.
The decision of who consumers choose to share their data with will come down to brand elasticity and the ability to embrace new ways of talking and listening. Can the brand stretch to accommodate new services delivered in new ways to consumers? Can the brand manage the reputational risk if something goes wrong?
Amazon is the the best example here. It doesn’t seem to matter what you put the word Amazon in front of – Amazon Balance, Amazon Pay, Amazon Key, Amazon Prime, Amazon Fashion – it makes sense and there is an implicit positive association around the extension because when things go well you expect it, and when things go badly they fix it.
Try that with other familiar brands – financial and non-financial – and you will see what this means. Banks in particular tend to be heritage brands, with proven resilience only within their historic heartland.
The brand is critical because it needs to be appropriate when it is talking to a consumer about financial well-being, retirement, possible overspending, or worse … when the consumer is in financial distress. That’s why Amazon is mentioned repeatedly. It’s not just the very competent update messaging that wraps around anything you might buy from them; they’ve also invested heavily in the Echo interaction technology, where you literally talk to it and it listens to you – and vice versa.
People will routinely use this kind of technology as their interface with their life, which should serve as a reminder that there is no absolute requirement for branches and physical locations to sustain a relationship with the consumer.
A Loyalty Gap in Banking
While the advent of these shifts may just force the hands of banks that have refused to innovate around their customer thus far, the question now is less about whether they are ready, but rather, are they willing?
Maintaining an insular mindset in the face of the digital and data revolutions has led to the underwhelming yet ubiquitous ‘me-too’ innovation of many banks and credit unions. They nod to digital transformation with their mobile apps, but poor functionality means those apps take twice as long to log in to and don’t provide the instantaneous notifications that smartphone-users expect. Spending data can appear days after a transaction occurs, while monthly statements offer no insights or tools to manage records, analyze spending, or plan future budgets.
Meanwhile, they still charge exorbitant fees for international transfers and spending abroad, providing a major opportunity to the likes of TransferWise and Revolut to thrive. Consumers don’t see why they should have to pay for incumbent bank inefficiencies for legacy services that have failed to adjust to the reality of modern working life and the accessibility of international travel.
As we are exposed to more of these types of services and new thinking, consumers won’t settle for mass-market, transactional loyalty approaches, as the results of the COLLOQUY research show.
Today, the consumers using these new services may only result in a relatively small margin loss for the banks. But the ongoing ripples of disruption felt by the retail sector since e-commerce matured started should ring loud alarm bells.
Loyalty in financial services will focus on becoming far more customer-centric, addressing pain points, fulfilling desires and engaging with the consumer as an individual. The more consumers choose to share, the more they are enabling highly personalized and pleasurable services to wrap around the relationship. And the more of the personal data consumers choose to share, the more predictive and preemptive these services can become. This sharing will also provide a greater potential for the brands that are trusted to make smarter suggestions and decisions that work for the consumer and feel good – today, tomorrow, and in the longer term.
Reinvention of Loyalty Focused on the Consumer
Transformation and building the next generation of services that enable and engender loyalty is not a technology project. It’s not, for those beholden to PSD2 and similar Open Banking regulations elsewhere, a compliance project. It is a re-imagination of how financial services are conceived, designed and delivered. It how the brand that offers those services listens, understands and communicates to its audience – at an individual level.
We will move away from notions of transactional relationships to something more emotionally engaging, personal and pleasurable, because the consumer has explicitly agreed to share their data in the expectation of receiving services that work for them and feel good to them. When they receive rewards they will feel valued and appreciated, and if they do not, they will turn that data sharing off. They will then find someone who is using data, and aggregating other sources to understand preferences, see the potential gaps or under-served needs and deliver great experiences tailor made for the individual.
This is the start of something far more than a battle for share of wallet or even share of mind – it is becoming the battle for the share of heart and life.