Customer Loyalty in UK Banking: The disengaged customer

Efforts to reform the banking sector and stimulate competition within the market, such as the 7-Day switch guarantee introduced by the Government in 2013, have made it less complex and time consuming for individuals to switch bank accounts in the UK. As a result, the Current Account Switching Service (CASS) reported that switching rates increased by 11% in the last quarter of 2015, to 257,638.

But this highlights a desperate need for the banking sector to tackle a falling loyalty amongst its customers. Loyalty in UK banking has deteriorated to such an extent that in a review in October 2015, the Competitions and Markets Authority (CMA) stated that British consumers were “disengaged” with the current banking market.

Meanwhile, traditional banks are marching up a blind alley. Faced by innovation that highlights banks’ lacklustre customer loyalty performance, such as Apple Pay and challenger banks such as online-only Atom Bank, they need to evolve and find new ways to engage the consumer for survival.

CX becomes paramount

In October 2015, the CMA stated that people could save at least £70 a year if they switched from their current account provider. This reward alone will not be worth the switch, especially as one of the main barriers to switching is the perception that it is too complex and error-prone, as reported by the Independent Commission on Banking (ICB).
But a clearly differentiated offering and service many prove the tipping point. With brands such as First Direct and Atom Bank leading the way with technology and new players such as Metro Bank changing the digital landscape, the promise of easier engagement may become too alluring and overcome any misgivings over the perceived hassle of switching provider.

With the global propensity of customers leaving their primary bank on the rise, and the CMA also calling for stronger competition from banks, customer experience will take on an even greater importance for driving the proportion of switching customers.
But in order to turn a corner, banks must first understand the current climate of high street banking in the UK. What are the factors driving customers to switch current account providers? What are their frustrations? What are banks doing well… and not so well?

Brand loyalty amongst banks

Customer experience technology and services company MaritzCX recently surveyed 1,000 UK current account holders in order to understand what factors will drive the changing and perhaps precarious climate of customer loyalty within the high street banking sector in 2016. The study found that poor customer experience will provide many consumers with a tipping point, and ease of engagement is a major contributor to success for all banks to focus on.

In the survey, customer satisfaction was rated on the ease of conducting banking activities and the support received, with consumers rating their banks most highly on the following five factors: ease to bank with, customer service, reliable systems, talking in plain English, and trustworthiness. Respondents also gave reasons for high rates of dissatisfaction with banking services, citing poor delivery on: interest rates, rewarding loyalty, fees and charges, customer service, and resolving problems. Response to failed service has also been highlighted by BACS as a driver to switch, and therefore an area for differentiation for both current account holders and Cash ISA account holders.

When asked what specific benefits provided by alternative banks would increase respondents’ likelihood to switch current accounts, the top three benefits ranked in order of popularity were: keeping you informed, efficiency, easy to do banking with.

The financial services industry has never been so competitive, and banks are facing a further threat of disintermediation by digital-first fintech companies and challenger brands. They have a real opportunity to get ahead of the competition by making sure the customer always comes first. The feedback to this survey shows that ease of engagement is paramount for consumers, giving banks the insight they need to ensure a positive customer experience.

Taking action

A recent report by BACS shows that the drivers for staying with their current account providers are trust, loyalty and satisfactions. In fact, trust and satisfaction increases the level of loyalty: BACS found that if every other factor remains equal, consumers’ trust and satisfaction levels with their current account providers increase over time. These two factors reinforce each other, increasing the level of loyalty and negating the desire to switch.

Consumer satisfaction derives from both values and needs being met, or perceived to be met, by their current providers. This can be achieved in a numbers of ways - by keeping customers informed, allowing them to bank efficiently, and resolving problems quickly through good customer service. A potential £70 saving may not prove to be the tipping point for customers to switch bank accounts, but that coupled with poor customer experience certainly could.

Investment in the right customer experience technology can help banks to strengthen customer retention and to stay ahead of competition. The right technology transforms ad-hoc information gathering and sporadic processes into institutionalized CX tactics and consistent metrics that are easy to access, use and understand. Placing the right customer information, such as feedback data, in the hands of frontline employees will support them to offer personalised service to customers.

Customer experience can prove to be a real differentiator. But to improve customer experience successfully, it must be emphasized through the entire business. It’s time for financial institutions to appreciate the implications that aligning customer experience efforts with each area of the business will have for their customers. This may prove to be the key to avoid greater numbers of users switching.