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Can banks still win customers' loyalty post COVID-19?

Jul 13, 2021

Emerging technology will play a critical role in replacing the customised experience banks and financial services have traditionally relied on to retain customers.

While digitalisation has been on banks' agendas for years, COVID-19 has pushed the pedal to the metal.

In 2020, banks and other financial services firms made five years' worth of digital progress in a matter of months. And the bulk of customer interactions now happen through online channels.

But if customers have long been clamouring for better digital banking experiences, it's not all good news.

In an increasingly competitive space, the human element has traditionally given banks an edge over neo-banks and other digital-first challengers. So how can they win, retain, and increase customer loyalty now that the rules of engagement have changed?

A silent drain

At first blush, customer loyalty in digital finance — or the lack of it — doesn't seem like an issue. If anything, statistics suggest the opposite.

In 2017, for instance, only 2% of UK customers switched banks. And, in 2020, the number of switchers actually declined by 65%.

Customer attrition is similarly low in other major markets. In the US, the number of switchers peaked at 8% in 2016 and was back down to 4% by 2019. And while exact numbers for the EU are hard to come by, the European Banking Authority's Consumer Trends Report 2020/21 notes that switching 'continues to be significantly low'.

But if you look at the bigger picture, the situation isn't as rosy as these numbers suggest. Customers may not be switching or closing their accounts. But it doesn't follow that they're not shopping around or buying financial services from elsewhere.

Case in point, the OECD reckons that around 10% of customers across the globe have refinanced their mortgages with fintechs. Digital-only lenders have also made big inroads into the lucrative unsecured loan market. In the US, for instance, they provide almost half of all unsecured personal loans.

The upshot is that low attrition, on its own, isn't an indicator of loyalty.

An open account isn't necessarily a profitable account (or even an active one). And a long-term customer isn't necessarily an engaged customer.

Technology: a means to an end, not an end in itself

So how can banks increase engagement and strengthen their customer relationships?

For years now, successive research reports have suggested that the answer lies in providing a superior digital experience.

Customers, the argument goes, expect their banks to be at least as good at digital as Amazon, Google, and other big tech firms. The banks that meet these expectations will thrive, while those that don't will have an ever more disengaged customer base with low lifetime value.

This may well be the case. But there's an important qualification: technology in and of itself isn't a silver bullet.

According to Fincog, there were over 250 active neo-banks in 2020. Most of them offer fairly similar digital experiences, enabled by the proliferation of affordable, plug-and-play as-a-service platforms.

This increasingly homogenous landscape means it's not enough for banks to create a flashy app. Put bluntly, being good at digital — or digital-first — is no longer a differentiator. It's the bare minimum.

More to the point, at the end of the day what customers really care about isn't technology, but the benefits technology has to offer. The platform and the mechanics don't matter, as long as they get more convenience, and a faster, better, more cost-effective service.

Winning the battle for customer loyalty

If technology is the medium, not the end-goal, it follows that the path to more engagement — and more loyalty — lies in using it to create more value for the customer.

There are four technologies that could be radically transformative in this regard:

  • Embedded finance
  • Biometrics
  • Artificial intelligence
  • Smart contracts

 

Embedded finance

Embedded finance is one of the most exciting trends in fintech, because it enables banks to provide their customers with highly relevant, hyper-personalised products at the time and on the channel where it makes most sense.

A buy-now-pay-later loan offered at the online checkout, for instance, eliminates friction, saves time, and is much more convenient, because it's seamlessly weaved into an existing user journey and offered at the point where the customer might naturally consider looking for such a product. 

But banks also benefit, because they can get in front of a much wider and already engaged audience, including customers — younger demographics are a case in point — that might not normally consider a financial services product.

Biometrics

Consumers value convenience. But they also value security, to the point where 51% told us they'll tolerate a poorer user experience if it makes them feel safer.

With biometrics, security and convenience don't have to be a binary choice. Fingerprints, facial recognition, and other biometric technologies are secure while also doing away with unnecessary friction, because the process is faster and more convenient than setting, remembering, and inputting various passwords (and having to change them every so often).

Artificial intelligence

From a customer perspective, there are three compelling use cases for artificial intelligence in banking:

  • Faster onboarding - Seamless onboarding remains a challenge for banks even in 2020. Facial recognition, automatic document uploading, and technologies like optical character recognition can streamline the process and make it less painful, which increases the chances of the customer finishing and submitting their application.
  • An enhanced customer experience - From chatbots to smart insights based on usage behaviour and personalised financial advice, artificial intelligence can add more value to banks' digital experiences by providing a fast, high quality, and tailor-made service customers can access straight from their banking app
  • Better protection against fraud - AI excels at parsing through large volumes of data and detecting patterns of behaviour, including irregular or unusual patterns that might be too subtle for human detection. With incidents of fraud skyrocketing during the Covid-19 pandemic — and customers more concerned about becoming victims than ever before — being able to offer this added peace of mind is a significant competitive advantage

 

Smart contracts

Smart contracts can eliminate many burdensome manual processes, making them faster and more cost-effective for customers.

But their most exciting feature is that they're trustless. The proof is in the maths. And this lowers risk and increases transparency, which makes it possible for financial products to be much more accessible and inclusive.

As the World Bank noted in a 2020 report: 'Where process frictions and operational, fraud, or legal risk contribute significantly to the cost of financial services and where trust is a barrier to uptake of financial services, smart contracts can drive incremental gains in financial inclusion.'

It's time for to step it up

Over the past twelve months, banks and fintechs have made huge strides when it comes to digitalisation.

But while that's a good thing, now is not the time to get complacent.

Greater accessibility may have been the imperative that kicked off the fintech revolution. But in 2021 and beyond, technology for technology's sake won't cut it. If banks want their customers to become more invested in them and pick them over digital-first alternatives, they need to use technology in a way that solves their pressing problems, reduces stress, and gives them their time back.

 

Tags:
  • Viewpoints,
  • Payment trends,
  • AI,
  • Biometrics,