What’s Loyalty Got To Do With It?

There’s no question that the banking industry is working overtime to woo new customers—this blog continues to document ongoing initiatives to draw people in. This includes emerging demographics, such as folks who want a comfortable atmosphere, or those pesky millenials who need constant attention and rewards.

This leads to a related question: Once we get them in, how are we doing at keeping them there?

Not so well, as it turns out. The World Retail Banking Report 2013, an annual survey of 18,000 global customers conducted by Capgemini and Efma, provides a sharp counterpoint to the perceptions of success in retail banking. The bottom line seems to be loyalty ain’t what it used to be.

For a start, 10% of retail banking customers say they will ‘likely’ leave their bank within the next six months. But that’s not even the worst of it.  A surprising 41% of customers say they are actually unsure whether they’ll stay. In other words, one out of every two retail customers might just go elsewhere before the end of the year. And just to rub salt in the wound, the numbers are actually worse than they were in the 2012 study.

One underlying factor for the dwindling sense of loyalty is customer satisfaction. Fewer than half of all customers worldwide, 44%, express satisfaction with the banking experience their institution provides, and a sobering 63% voice the need for greater personalization, specifically learning about and meeting their unique needs.

Looking at these issues in a historical context is misleading. The typical retail customer today is a far cry from even the most demanding patrons of the past—they have too many options available at the click of a button, and in the digital era they’ve been weaned on a steady diet of instant gratification. If even the most complex problems can’t be solved in an instant, it’s surely a failing on the part of the bank.

In fact, even positive customer experiences can be undermined by unrelated events, such as high-profile scandals around rigging and money-laundering involving marquee institutions, not to mention huge government bailouts. Unlike, say, the retail industry, loyalty in this business has a lot to do with trust, and this has become a major issue. The survey reveals that 49% of banking customers don’t ‘completely’ trust their institution.

Even with all these clouds, however, there might be a silver lining or two. Most regions studied reported improvements in customer satisfaction levels. North American institutions checked in with a 5.5% jump—a respectable showing, but somewhat behind an 11.9% spike in Latin America and a 7.2 rise in Western Europe. That said, customer satisfaction is still highest in North America. Canada leads the pack a 61% rating, but the U.S. is close with 57%.

It’s hard to tell what the 2014 study will look like, and there’s clearly no panacea. But a pair of related statistics offers some markers to the road ahead.

First, the most recent report from research and consulting firm Celent shows the extent to which retail banking in changing. Branch density has risen steadily for a long time now, registering a staggering 281% growth in FDIC-insured branches since 1970. Now, it’s clearly going the other way, with a “dramatic reduction” in local branches. In 2012 alone, according to SNL Financial, 2,267 branches were shuttered. Main Street USA will never look the same.

Meanwhile, this is the year in which there will officially be more mobile devices than people. In other words, there might be far fewer branches but the opportunity to do far more banking.

The industry isn’t going away—consumers need financial institutions, and vice versa. The better the service, the more the business, and that’s the way it’s always been. But moving forward, customer loyalty and fidelity probably will be quite different.

Written by Banking.com Staff