Why Financial Institutions Must Prioritize Customer Retention in Today’s Competitive Market

Financial institutions, including banks and credit unions, are finding themselves in an uphill battle when it comes to acquiring new customers.

"It has never been more critical for banks to focus on how financial institutions can increase their competitive edge and improve the experience they provide their customers," said Hans Tesselaar, Executive Director, BIAN in an article by IBM Newsroom. "Before they implement real changes to their service offerings, they must first overcome the obstacles caused by a lack of technical standards and adopt a coreless banking approach to transformation. This will help the industry benefit from each and every technological development to create the bank of the future."

In the shadow of the enticing offers and agile services of fintech startups, the onus now falls on established players to streamline their core offerings and double down on customer retention to secure their future. This article explores why it’s increasingly critical to prioritize customer retention, and how institutions can do it effectively.

The Uphill Climb of Customer Acquisition

Consumers have an abundance of options when it comes to financial services. In addition to banks and credit unions, consumers have access to a range of non-traditional financial brands through which they can facilitate most, if not all, of their financial transactions.

Consequently, the cost to acquire a new customer or member has increased significantly over time, and yet the loyalty span has all but diminished. In the digital era, customers are quick to switch allegiances for even the slightest incentive.

Traditional acquisition tactics like broad marketing campaigns and attractive introductory rates may still be necessary. However, they are no longer sufficient on their own.

What sets a brand apart is the ongoing value it provides and the relationships it nurtures. Given these challenges, a robust retention strategy is vital for long-term sustainability.

The Personal Touch is Back in Fashion

The key to a robust retention strategy lies in customer experience (CX). Financial services are fundamentally personal, dealing with an individual's intrinsic need for stability and growth. Institutions can no longer afford clunky processes or one-size-fits-all services. A personalized approach, from account opening to issue resolution, is indispensable.

Customers who feel valued and understood are far less likely to churn. These personalized interactions, often driven by data insights, lead to a significant uptick in customer satisfaction.

Banks, credit unions, and other financial institutions can use the following strategies to deliver more personalization in their customer interactions:

• Leverage Artificial Intelligence and Machine Learning to analyze customer data, enabling the delivery of tailored financial advice and product recommendations that align with individual customer needs and life stages.
• Utilize Predictive Analytics to anticipate customer needs and offer solutions before the customer recognizes the need themselves, such as pre-approved loans or savings account benefits.
• Offer Personalized Financial Health Checks through digital platforms, allowing customers to understand their financial standing and receive bespoke advice on improving their financial health.
• Implement Chatbots and Virtual Assistants for 24/7 customer service, programmed to handle a wide range of queries and tasks while providing a personalized experience based on the customer’s history and preferences.
• Develop Personalized Content such as webinars, articles, and tutorials tailored to the customer's financial interests and goals, fostering a sense of empowerment and engagement.
• Enhance Personal Interaction by training customer service representatives to understand and anticipate customer needs, ensuring that even traditional in-branch or phone services are personalized and thoughtful.
• Customize Banking Apps and Websites with user-friendly interfaces that adapt to show the most relevant features and information to each customer, based on their previous interactions and financial behavior.
• Use Social Media and Email Marketing to send targeted messages and offers to specific customer segments, ensuring that communication is relevant and engaging to the recipient’s financial situation and interests.

A mix of digital and human-centric strategies can significantly improve the customer experience. Taken together, these strategies can more effectively personalize services and make customers and members feel that their financial institution is an essential part of their financial security and growth.

Listening is Winning

Active listening is also a foundational step in building a retention strategy. Banks and financial institutions must provide channels for customers to voice their concerns and ideas. Implementing regular satisfaction surveys, robust social media monitoring systems and dedicated customer support teams are just the beginning.

The next step is applying the lessons learned.

When customers see their feedback materialize into actual changes that improve their experience, not only does it boost their satisfaction, but it also builds a level of trust that’s hard to replicate. In a sense, customer feedback becomes a growth catalyst for the institution itself.

Financial Education Delivers Additional Value

Personalization extends beyond services; it also encompasses education. By curating financial advice and educational content that is tailored to individual customer needs and interests, institutions can foster a deeper understanding of their financial products.

Educational initiatives can take a variety of forms, including traditional in-person consultations. Some other examples include:

• Online Courses - Comprehensive guides on financial literacy topics.
• Webinars and Workshops - Live interactions with finance experts.
• Interactive Tools - Budget calculators and investment simulators.
• E-Books and Guides - In-depth exploration of financial concepts.
• FAQ Sections - Answers to common financial questions.
• Infographics - Visual summaries of financial information.
• Video Tutorials - Step-by-step guides on financial operations.

Customers and members who feel empowered and knowledgeable will have better financial health. They'll also feel that their financial institutions care about their financial well-being and are in a position to assist them when they have a question or are facing a challenge.

Communicating Core Values and Building Community

Trust in financial institutions has been low for several years. According to an article by Forrester, only 2% of financial services brands in the U.S. were considered strong on trust by their customers in 2023, while 57% were seen as weak.

"Financial services firms simply don’t understand how customer trust is built and lost," the article says. "Many brands in this space mistakenly think the factors that satisfy regulators are also the factors that build customer trust."

Demonstrating Value

Communicating the institution's core values is now a vital aspect of building trust and loyalty. Financial institutions must be clear about their purpose, mission, and the value systems they espouse.

More specifically, institutions must be able to demonstrate how they serve their customers first and foremost. This can be accomplished through transparency, responsiveness, and meaningful change.

Furthermore, institutions that go the extra mile to build customer communities centered around shared financial goals can create a sense of belonging that goes beyond mere transactions. It's critical to establish a holistic relationship with customers and members, so the institution can be viewed as a trusted advisor rather than a business that is only interested in profits.

Prioritize the Customer Experience

With customer acquisition becoming increasingly challenging, banks and financial institutions must focus on innovative strategies to retain their existing customer base. Prioritizing the customer experience, leveraging tech for better service, personalization in financial education, data-driven engagement, and transparent communication are key pillars in this endeavor.

To learn more about how you can improve customer retention at your financial institution, don't miss Future Branches 2024. It's happening from June 24 - 25 at the Westin Copley Place in Boston, Massachusetts.

Download the agenda and register for the event today.