Is loyalty to banks declining?
Customer retention in banking hasn’t always been an important concept in the industry.
Before the digital age, people would often open accounts with their local banks or financial institutions and switching would rarely cross the mind. Contrast that with today and you see a vividly different financial landscape.
Not only is customer retention a major consideration that requires significant care and attention, but the whole concept of loyalty to banks is being questioned. Research in 2022 suggested that 63% of people were loyal to their bank, dipping from 72% in 2021.
With this in mind and the ever-greater commercialisation of banking, we delve into the financial landscape that faces banks and customers today.
Have customer needs and wants changed?
The whole banking system has developed dramatically in recent years, largely with the adoption of digital practices. Banks have revolutionised the way people access and manage their money, and customers have come to expect new things from their financial providers.
Online and digital app services have swiftly taken over telephone and in-store banking. Additionally, card and payment technology have completely changed the way many people spend their money. Different types of accounts give people more options when it comes to spending and saving – just consider the range of savings accounts available to customers today.
Now more than ever, people are demanding innovation and cutting-edge technology – this will only continue as demographics change.
How has competition intensified?
It’s hard to ignore the influence of competition when thinking about loyalty to banks.
The “Big Four” banking groups in the UK once had an easy time of it – these are HSBC, Barclays, Lloyds and NatWest. These still dominate the industry by the number of customers and net profit, but competition has intensified dramatically over the last 20 years or so. Smaller local and regional financial institutions continue to vie for market share, whilst big players in the digital space are threatening to overtake the banking landscape in years to come.
Online-only banks such as Monzo and Starling are becoming increasingly popular with younger generations and they have been setting the pace in terms of innovation and forward-thinking recently.
Is it too easy to switch?
Another factor that may be responsible for dwindling loyalty to banks is the ease of switching which has been implemented in the last 10 years.
The Current Account Switch Service was launched in 2013, giving consumers the freedom to switch banks without hassle in 7 days. It was partly launched to make the banking industry more competitive alongside larger financial system reforms – and it’s certainly done that.
Add to the mix banks offering quick cash to switch current accounts and it’s no wonder that loyalty is being brought more into question.