Loyalty in Retail Banking: More Than Just Sticking Around

In retail banking, loyalty is often misunderstood. A truly loyal customer is not just someone who has stayed with a bank for a long time — it is someone who actively engages with the bank’s products and services and has a strong emotional connection to the brand.

Such customers do not just remain with the bank; they advocate for it. They willingly recommend it to friends and family, contributing to a high Net Promoter Score (NPS). They are true brand ambassadors—not because of incentives, but because they genuinely believe in the brand’s value.

Loyal customers are also more resilient to competition. Unlike transactional customers who can be swayed by welcome bonuses or minor pricing advantages, truly loyal customers stay even when competitors offer slightly better terms. Their connection is built on trust and experience rather than short-term financial perks.

However, this level of loyalty must be earned through a combination of high-value products and exceptional customer experiences, including:

• User-friendly interfaces that make banking seamless and intuitive.
• Operational excellence ensuring reliability, security and performance.
• Personalization through tailored financial solutions.
• Automation to simplify processes, such as pre-filling data and streamlining transactions.
• Adherence to highest Non-functional requirements (NFRs) like 24/7 availability, strong security and error-free experiences.

However, even when loyalty is achieved, it is never guaranteed. A decline in customer experience or a failure to innovate can prompt even the most loyal customers to reconsider. Maintaining loyalty requires continuous effort, ensuring that value, quality, and experience remain ahead of expectations.

Many neobanks have set new benchmarks in customer experience, offering sleek apps, frictionless onboarding, and innovative features. But are they fostering true loyalty, or are they simply benefiting from customer curiosity? While some users appreciate their services, many join out of convenience rather than deep-rooted commitment.

Meanwhile, incumbent banks have long relied on customer inertia rather than genuine loyalty. In many countries, banking habits are inherited, i.e. people often stick with the bank their parents used. By the time they enter the workforce, their salary is deposited there and switching becomes a hassle. The complexity of updating direct debits, employer information and tax records creates natural resistance to change.

To address this, some markets have explored IBAN portability, similar to mobile number portability. This would significantly reduce friction, forcing banks to compete on true loyalty rather than artificial retention tactics.

Many banks also invest heavily in customer acquisition through financial incentives such cashback offers, fee waivers, high savings rates and welcome gifts. While these strategies attract large volumes of new customers, they rarely foster true loyalty. Instead, they appeal to deal-seekers who take the perks and disengage soon after.

Loyalty in retail banking is not about locking customers in—it is about earning their trust and commitment. Banks that create real emotional connections will not just retain customers; they will turn them into passionate advocates. In a market where switching is becoming easier, the winners will be those who prioritize genuine, enduring loyalty over inertia and superficial perks.