Changing banks may sound like a pain, but it’s something 20 percent of consumers do every year, says Ted Peters, a 32-year veteran of the banking industry and CEO of Bluestone Financial Institutions Group. “Everyone is fighting over those 20 percent,” he says.
However, it’s hard for banks to differentiate themselves from the competition on the basis of their products alone. After all, checking and saving accounts work virtually the same everywhere. Instead, banks need to look for other ways to foster customer loyalty.
Today’s financial institutions are taking diverse approaches when it comes to attracting and retaining customers. “It’s a little inconsistent at the moment,” says Neil Hosty, senior vice president of retail and business banking at M&T Bank. While it seems unlikely customers will see a standard loyalty program offered by all banks, some trends are emerging.
Here’s a look at how banks are hoping to make you a customer for life.
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Credit cards are an obvious way to draw in customers. One way banks try to get customers in the door is with a rewards credit card. Daniel Farrar, CEO of loyalty program platform Switchfly, points to Citibank and its Thank You Rewards program as a prime example of how banks are using points programs to drive business. “It’s a very profitable piece because [program sponsors] establish how many points to issue,” Farrar says of credit card rewards in general. Not only do banks decide how many points customers use, but they also determine how many points are used to redeem for rewards such as cash back, merchandise and travel.
Big sign-up bonuses and attractive reward offerings may be enough to bring in new customers. Then, once a person has a positive experience with the brand, they may be inclined to move more of their banking business to the institution. “Hopefully the bank itself is offering the types of things customers are looking for,” Farrar says.
Loyalty perks include free banking, discounted rates. Other institutions have launched programs that offer rewards based on banking behavior. That’s likely welcome news to the 61 percent of consumers who told Bank of America in 2014 they want rewards for everyday behavior. The bank surveyed 1,017 adults who had investable assets of $20,000 to $250,000 for its Preferred Rewards Consumer Survey. Free checking and ATM transactions, along with higher savings account rates, were some of the rewards valued by survey respondents.
At some institutions, rewards may be tied to the level of service used by a customer. Those with more accounts and greater deposits may be rewarded with lower loan rates or other perks. Debit card usage may also be encouraged as a method for customers to earn these rewards.
“Debit cards are extremely profitable for banks,” Peters says. “Banks just make a boatload of money off debit cards.” As a result, it’s not unusual to see banks waive fees for those who make a certain number of debit card transactions each month.
[Read: 9 Ways Consumers Can Avoid or Minimize Bank Fees.]
Mobile banking is a crucial component. Patrick Reetz, senior vice president of product management, retail banking and channels for technology solutions provider Fiserv, says mobile banking and real-time applications are quickly becoming a must-have for banks to retain customers. He points to a Bain and Company study that found banking transactions made on mobile apps were more likely to be characterized as “delightful” by consumers compared to transactions made in a branch. Even more telling, mobile apps were less likely to annoy customers than a visit to a branch.
That said, simply having a mobile app may not be enough. “It’s got to be relevant,” Reetz says. “It’s got to be in the moment.” To that end, some banks are exploring innovations such as location-based offers that notify customers of discounts at nearby stores.
To make these and other personalized rewards programs work isn’t necessarily easy. “The whole concept of leveraging the data and the analytics is a challenge,” Reetz says. However, those who master mobile apps may find they are rewarded with more loyal customers. Bain and Company found that frequent mobile users were 40 percent less likely to switch banks.
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Nothing trumps good, old-fashioned service. While mobile banking and loyalty programs may help draw in business, it takes excellent customer service to keep people coming back year after year. M&T Bank has been in business for 160 years, and Hosty says that’s in no small part because of the institution’s commitment to customer service. Bank employees log 7,000 volunteer hours each year to remain connected to their communities. “Banks rely on creating long-term relationships,” Hosty says. “Rewards programs play their part, but they don’t trump the relationship.”
Hosty isn’t alone in that belief. A 2012 Banking Clarity Report by the Sells Agency found that nearly a third of the 200 people it interviewed said service quality is what set their primary bank apart from the competition. While mobile banking is convenient, people still want to have a branch nearby and, perhaps surprisingly, nearly 7 percent say knowing an employee at a branch is important.
Points, low loan rates and free checking may bring in new people, but at the end of the day, the bank’s level of service may ultimately determine whether customers remain loyal. As Peters says, “We’re not in the loan and deposit business as much as in the relationship business.”
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How Banks Are Working to Gain Your Loyalty originally appeared on usnews.com
