Now that it’s easier for customers to switch their current accounts, banks are attempting to entice people to sign up using new initiatives.
These initiatives however, do not allow them to differentiate or create value in the banking relationship. Creating loyalty and building advocacy over the longer term is a bank’s greatest opportunity for attracting switchers.
Barriers to switching banks
There was a time when people were more likely to get divorced than switch their bank account. Customers were reluctant to change their bank, even if they were unhappy with the service. This was generally for two reasons:
- Switching banks was always considered to be a hassle. The effort of switching was too great and the possibility of a payment or direct debit going awry was too much of a risk.
- In recent years, customers have found it difficult to differentiate between banks. If there is one insight that is consistent throughout our research findings with financial services, it’s that to customers, all banks are the same. Therefore, even if they did want to switch, they wouldn’t know who to switch to.
As these two reasons were significant barriers to leaving a bank, the banks’ priority was to attract as many customers as possible by heavily incentivising them to sign up. This explains the proliferation of NUS cards and Railcards offered to students in the hope that they would stay with a bank well beyond their student years. For the most part, that’s exactly what happened.
7 day switching advantages
Now all that’s beginning to change. When the Current Account Switch Service was introduced in September last year, the effort of switching an account was removed as the bank guarantees to transfer all your details over for you within a week.
They also make sure that if any direct debits or payments are missed due to the switch, they foot the bill. According to the Payments Council, the amount of customers who switched in the last quarter of 2013 increased 17%compared to the same quarter the year before. There have now been around 600,000 switches since the scheme was introduced.
Now the issue of hassle is being addressed, the remaining obstacle is the perception that all banks look the same, leaving customers wondering who to switch to.
Creating meaningful value
Banks need to understand that if they want to attract the right customers, they must look longer term. Pursuing the outdated strategy of using incentives such as introductory interest rates, one off cash payments and cash back initiatives, is of no interest to high value customers who are likely to be more lucrative in the long-term. Similarly, with all banks beginning to offer cashback or marginal rates of interest, the value is being diminished so, before long, all banks will once again appear to be the same.
Instead of attracting customers only to watch them be lured away by a deal from a competitor, banks should focus on creating and maintaining loyalty with the customers that they already have.
Our research shows desirable customers are much more likely to be interested in the simplicity of the customer experience and the quality of the service. To create long-term loyalty and then the real jackpot – advocacy – banks need to offer a brand promise that resonates with customers. It’s not about incentivising customers to join; it’s about incentivising them to stay.
The key to creating a deeper more meaningful relationship with customers is understanding their motivations and observing their behaviour. If banks listen to, and learn what their customers want, and redesign every touch point (not just digital) to ensure all contribute to a great experience that aligns with what customers want, they will stay with their bank - out of choice.
Advocacy is for those playing the long game
It’s this value that banks must offer to retain their customers in the long-term. If there is value in the relationship, customers will begin to feel loved by their bank and the relationship will become reciprocal. Loyal customers will become advocates and they will tell others how great their bank is and how they’d never bank with anyone else. Banks should be looking to wider avenues for value, such as unrivalled service, innovation and digital experiences. This stronger, more meaningful proposition should be integral to their brand promise, and demonstrated throughout their service offering.