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Customers are becoming less loyal to their main bank. They increasingly expect banks to provide effective rewards to retain their loyalty and prevent them from either switching banks or increasing the number of banks they use.

According to Ernst & Young, between 2011 and 2012, global customers:

• planning to change banks increased from 7% to 12%;
• with only one bank dropped from 41% to 31%;
• with three or more banks increased from 21% to 32%.

Banks are competing for the loyalty of increasingly demanding customers. This is amplified by new entrants offering better rates, more personalised service, better technology or more appealing rewards.

Customers strongly believe that their loyalty (whether it be longevity, number of products used, or value generated) should be rewarded. Rewarding loyalty is a key factor influencing customers to change their bank.

More customers are joining bank loyalty programmes

A quarter of Australian customers are now enrolled in a bank loyalty programme. Enrolment in loyalty programmes is growing rapidly and banks should capitalise on this. Loyalty programmes are not just valued by existing customers but are a key attraction for new customers. The benefits to banks in terms of retention, advocacy, and attracting new customers are significant.

Loyalty programmes should be flexible

Not only are customers expecting rewards, but they also expect to have the ability to choose their rewards. Banks should allow their customers to choose rewards and this could be based on their value to the bank. Banks should tailor rewards for specific groups of customers Affluent customers are more likely to join loyalty programmes and banks are starting to realise that the costs of providing financial rewards is outweighed by loyalty from such customers.

An online US bank provides a loyalty programme targeted to student communities that helps customers repay their student loans. It puts rewards collected from debit card use towards paying down student loan balances.

Customers want tangible financial rewards

Customers expect bank loyalty programmes to provide tangible financial rewards. Cash-back offers on credit or debit cards and discounts on products and services are the most desired rewards.

According to Ernst & Young, 70% of people globally believe that loyalty should be rewarded with lower fees or higher rates on deposits compared to only 60% who believe loyalty should be rewarded with better service. Customers wanting to be rewarded with air miles or hotel points are declining.

New Zealanders are more loyal to their bank than Australians

Westpac New Zealand CEO Peter Clare believes that New Zealanders are more loyal to banks than Australians, stating that cultural differences are a major factor in Westpac New Zealand having 49.6% of its customers with four or more products compared with just 30.2% at Westpac Australia. Nevertheless, the benefits of loyalty programmes undoubtedly apply to New Zealand banks wanting to attract and retain customers.

Sources:
"The customer takes control", Ernst & Young Global Consumer Banking Survey 2012.
"New Zealanders are more loyal to banks than Australians, Westpac NZ CEO Peter Clare says" Posted in News November 6, 2012 - 04:30pm, Gareth Vaughan.