Consumers are increasingly dividing their banking and financial relationships among more and more providers, driven by proliferating options and attractive offers. How can traditional banks and credit unions fend off this behavior and nurture loyalty with their existing consumer base?
How can they counter the steady flow of third-party offers and enticements? When facing down digital-first competitors, what is the role of personal, human relationships? And how can employee incentives drive customer retention?
Devesh Khare, chief product officer at MeridianLink, has some answers to those questions. Since joining MeridianLink, Mr. Khare has led portfolio and market expansions both organically and through acquisition, and has been integral in the launch and success of MeridianLink One. During his 16-year career, he has worked in product strategy across several industries, including fintech, health IT, and mobile commerce, and worked for a diverse set of companies including ADP, Amazon, and Broadcom
In a conversation with Jim Marous, founder and chief executive of the Digital Banking Report and co-publisher of The Financial Brand, Devesh discusses the strategies financial institutions can deploy to combat market fragmentation and secure lasting connections.
Q: How has the current competitive landscape radically degraded loyalty?
Devesh Khare: Today’s consumers face constant bombardment with attractive offers from challengers and fintech disruptors. This proliferation leads to “silent attrition” as customers readily open accounts with new entrants while still keeping their old relationships. Their business gets steadily diversified across an expanding array of vendors, progressively diluting loyalty.
Read more from Jim on retaining customers and avoiding silent attrition.
Q: Can you expand on the nature of silent attrition and what drives it?
Khare: Historically, you maintained a primary checking account where all your transactions flowed through. You then added ancillary products like loans off of that core relationship. Because the bank held that primary account, they knew you and your financial profile intimately. So you trusted them when needs arose to provide additional relevant offerings with your best interests in mind.
This has now changed dramatically. Consumers see a plethora of external offers from competing providers. If the value proposition from their incumbent bank feels purely transactional rather than differentiated, customers don’t hesitate to shop around.
The proliferation of digital banking options greatly accelerates this fragmentation. Consumers expect seamless, integrated, personalized experiences comparable to those delivered by leading technology brands. If legacy institutions cannot evolve to provide these streamlined digital journeys, customers will readily turn to alternative competitors who can.
How Customer Data is Critical to Retaining Relationships
Q: Given this dispersion of relationships, how can banks hope to rediscover relevance with consumers?
Khare: They must leverage data-driven insights to deliver highly personalized journeys that add tangible value. By harnessing transaction history, credit data, and other inputs allows banks to anticipate needs and proactively offer solutions tailored to each specific customer.
“Start by asking yourself who your target customer is and what experience do you want them to have.”
Ultimately, it comes back to focusing on fundamentals. Start by asking yourself who your target customer is and what experience do you want them to have. Then, determine how you can use data and analytics to make that journey consistently seamless, contextualized, and relevant.
Q: Many banks seem to fear that a focus on digital necessarily comes at the expense of personal connections. Do you think this concern is valid?
Khare: This idea reveals a misunderstanding of how to effectively harness digital capabilities. Implemented thoughtfully, additional digital touchpoints provide more opportunities to demonstrate relevance to customers and deepen satisfaction through frictionless experiences. By smoothing pain points and enabling self-service, you reinforce trust and loyalty.
Critically, the human element remains essential even in a digitally transformed institution. Generic fintech disruptors simply cannot match the level of human empathy, relationship-building, and problem resolution made possible by knowledgeable branch staff. The goal should be designing integrated journeys that leverage the best of both worlds. Banks need to learn how to measure beyond superficial intent signals like NPS.
Why NPS is Actually a Poor Predictor of Loyalty
Q: On that note, why do you feel generic NPS surveys fail to adequately capture the true health of customer relationships?
Khare: NPS predominately measures perceptions and states future intent rather than actual behaviors. There is often a large gap between someone saying they intend to recommend a company and them taking action to do so.
High NPS does not ensure loyalty. Plenty of surveys show customers defecting to competitors that delivered better overall user experiences despite voicing satisfaction.
“High NPS does not ensure loyalty. Plenty of surveys show customers defecting to competitors that delivered better overall user experiences despite voicing satisfaction.”
In contrast, a customer effort score directly captures the ease and friction of recent journeys. So it serves as a superior proxy for how well you are delivering seamless, integrated experiences right now. Banks need to prioritize minimizing the effort required across the most important journeys to proactively identify pain points before customers ultimately leave.
Read about how other institutions have built and strengthened customer loyalty:
- Success Story: A Digital Banking Conversion & A Sharp Rebound in Satisfaction
- How Fifth Third Is Delivering on the Promise of Digital Transformation
- How To Win Over the 45 Million Customers Most Banks Neglect
Q: What advice would you give banks today seeking to optimize engagement and combat attrition?
Khare: The essentials hold true regardless of company type or industry. First, clearly define your target users and their needs through research and data. Then, map the ideal end-to-end journey for those high-priority segments based on how they want to interact with your brand. Finally, align your organizational focus on enabling personalized, frictionless experiences that build loyalty rather than simply maximizing transactions.
Operationally, this means judiciously leveraging data and analytics to recommend contextual solutions proactively matched to individual customer needs. Implement feedback loops tracking actual customer behavior – like churn rates and customer effort scores – rather than superficial stated intent metrics like NPS that provide false comfort.
Most importantly, seek to combine excellent digital capabilities for convenience with human empathy and problem resolution. Seamlessly blending both elements will distinguish the relationship winners going forward.
Leadership Needs to Set Customer-First Mindset and Metrics
Q: How can leadership help motivate employees to evolve towards personalized digital experiences?
Khare: It ultimately starts at the top. A customer-first mindset and vision must permeate an organization’s cultural fabric. But empowering staff is equally crucial. Employees on the front lines need to have the right tools, training and authority to resolve issues on the spot when they arise.
With a clear roadmap and sense of purpose combined with upside opportunity, most employees will come to see they complement rather than compete with technology. The two together enable scaled personalization.
Above all, banks must closely align performance metrics and incentives across employees, shareholders, and customers. Leadership needs to consciously connect business value, customer satisfaction, and employee engagement metrics together, even if short-term sacrifices are required. This unity of vision is imperative to seeing the journey through.