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Reinventing Loyalty in Financial Services

Louise Beaumont, Strategic Advisor, discusses reinventing loyalty in financial services via The Financial Brand.

 

The concept of loyalty is shifting, driven in part by the relentless, data-driven approaches of the Tech Titans. For banking, this means moving from a transactional, rewards-based concept of loyalty to something far deeper, and more personal – and, for the first time, pleasurable. This will require financial institutions to embrace data sharing via APIs, data augmentation and an entirely new way of valuing and acting upon what that data reveals.

What does loyalty really mean? For the banking industry, it has too often been code for inertia because when it comes down to it, most banks and credit unions are offering bland cookie-cutter products.

However, the advent of Open Banking will result in increasingly searching questions being asked of all financial services players. Opening up the data held inside banks will sharpen competition to the benefit of those customers by forcing the pace of innovation in response to the disruption being brought by tech-first players.

This is not a notion exclusive to financial services, as we have seen in areas of e-commerce dominated by the giant tech companies. In a world where consumer behavior and technology disruption are catalyzing social and commercial change at an unprecedented rate, the concept of loyalty in banking will not be challenged. It will be reinvented, made personal and pleasurable.

The points-based, transactional concept model is already stuttering according to the 2017 COLLOQUY Loyalty Census. It found that while loyalty memberships across the US have increased, growth is consistently slowing down. And that, while the average US household has more than 29 loyalty memberships, they are only active in 12. Furthermore, 28% have left a loyalty program before redeeming a single reward.

The reason? Customers don’t value loyalty programs that pay no mind to their attitudes, behaviors and expectations. Beyond acquisition, the consumer feels as if they are of little interest after starting the relationship. The consumer is waking up to this new reality.

Source

The Financial Brand

Publish Date

May 15, 2018

Author

Louise Beaumont

The Elasticity of Brand Loyalty

There will be very few companies with whom any customer might choose to share all, or even some, of their data. And, there won’t be room for as many providers as today, because of the ecosystem of service offerings that encompass every facet of financial requirements: from basic checking and current accounts, to savings accounts, retirement planning and wealth management.

The decision of who consumers choose to share their data with will come down to brand elasticity and the ability to embrace new ways of talking and listening. Can the brand stretch to accommodate new services delivered in new ways to consumers? Can the brand manage the reputational risk if something goes wrong?

Amazon is the the best example here. It doesn’t seem to matter what you put the word Amazon in front of – Amazon Balance, Amazon Pay, Amazon Key, Amazon Prime, Amazon Fashion – it makes sense and there is an implicit positive association around the extension because when things go well you expect it, and when things go badly they fix it.

Try that with other familiar brands – financial and non-financial – and you will see what this means. Banks in particular tend to be heritage brands, with proven resilience only within their historic heartland.

The brand is critical because it needs to be appropriate when it is talking to a consumer about financial well-being, retirement, possible overspending, or worse … when the consumer is in financial distress. That’s why Amazon is mentioned repeatedly. It’s not just the very competent update messaging that wraps around anything you might buy from them; they’ve also invested heavily in the Echo interaction technology, where you literally talk to it and it listens to you – and vice versa.

People will routinely use this kind of technology as their interface with their life, which should serve as a reminder that there is no absolute requirement for branches and physical locations to sustain a relationship with the consumer.

Reinvention of Loyalty Focused on the Consumer

Transformation and building the next generation of services that enable and engender loyalty is not a technology project. It’s not, for those beholden to PSD2 and similar Open Banking regulations elsewhere, a compliance project. It is a re-imagination of how financial services are conceived, designed and delivered. It how the brand that offers those services listens, understands and communicates to its audience – at an individual level.

We will move away from notions of transactional relationships to something more emotionally engaging, personal and pleasurable, because the consumer has explicitly agreed to share their data in the expectation of receiving services that work for them and feel good to them. When they receive rewards they will feel valued and appreciated, and if they do not, they will turn that data sharing off. They will then find someone who is using data, and aggregating other sources to understand preferences, see the potential gaps or under-served needs and deliver great experiences tailor made for the individual.

This is the start of something far more than a battle for share of wallet or even share of mind – it is becoming the battle for the share of heart and life.