How Can a Financial Services Company Achieve Customer Loyalty?
For a financial services company to remain relevant, it must have the ability to retain its customer’s loyalty.
Maintaining existing customers is significantly more cost-effective than acquiring new ones. Studies reveal that a mere 5% boost in customer retention can result in an impressive 25% to 95% surge in profits. Moreover, satisfied customers can become brand advocates, sharing your products with their family, friends, and network.
So, let’s learn more about why customer loyalty is important in financial services.
Table of Contents
Understanding Changes in Customer Views on Financial Services
1. External Influences
The global economy has faced significant shocks because of unforeseen events. Over the past twenty years, we’ve weathered numerous financial storms. Specifically, we’ve navigated through the 2008 financial crisis and the Covid-19 pandemic in 2020.
Currently, in the UK, many people are grappling with a cost-of-living crisis exacerbated by high inflation rates.
These historical and ongoing challenges have slowly chipped away people’s confidence in conventional financial institutions. This decline in trust is a substantial issue, as customer loyalty dramatically depends on their belief in brands.
2. Decline in Consumer Trust
Trust plays a pivotal role in consumer buying decisions. Yet, less than half of consumers trust their brands, revealing a discrepancy between customer expectations and brand perception. This trust deficit extends across sectors, including banks and insurance companies.
Consumer trust in banks’ support during economic downturns is worryingly low. Likewise, high premium costs and data management issues have resulted in customer unrest in the insurance industry.
Trust is crucial for loyalty, especially in financial services. Before the pandemic, retail banks and insurers kept their market position by fulfilling their promises.
However, the landscape is evolving as new competitors are providing appealing options in these usually dominated markets. The FCA’s Consumer Duty also tackles bad industry habits like price walking, causing many to leave. Tactics from financial service providers often make customers focus on cheaper prices rather than added value.
3. Changing Expectations and Value Perception
Companies must adopt strategies similar to those of new market entrants to enhance customer retention rates. The concept of value is under more scrutiny now than ever before. This is primarily because of the global economic crisis, the pandemic, and high inflation rates.
So, it’s clear why customers now expect more and have stricter ideas of what “value” means. Consumers are becoming pickier with so many choices in the market and financial services.
However, the shift in attitude is not the issue. Companies that resist or fail to adapt are struggling. Notably, they are experiencing symptoms of poor customer loyalty, such as low customer retention.
Current Challenges in Cultivating Customer Loyalty in Financial Services
The way companies are dealing with new customer demands in the financial industry is unearthing their current problems.
Let’s delve into the challenges the financial service sector is facing:
1. Tech Upgrades
Tech is rapidly changing the financial services industry. Because of this, companies must grow with these changes to keep up, often needing major tech upgrades.
These improvements are for more than just keeping up with trends. Modern customers are increasingly demanding, and you must meet their needs. Today’s customers want more than what traditional services offer. They’re looking for easy-to-use digital solutions that are safe and convenient.
As many banks close their physical branches, most customers now use apps to manage their accounts. If the technology is not reliable or functions poorly, it won’t foster customer loyalty. Instead, it could cause frustration and make customers look for other options.
Service providers can improve their offerings by investing in tech upgrades and focusing on a digital-first approach. This could involve the use of more intelligent data analytic tools. Or, it might mean embracing fintech solutions or creating mobile apps for easier service access.
2. Standing Out in a Competitive Market
The tech industry is becoming more competitive. Crypto exchanges, modern banks, and FinTech companies are all standing out with their new ways of improving user experiences.
Digital currencies are emerging as an attractive alternative. They lure customers with their compelling interest rates. On the other hand, modern banks are carving out their niche by focusing on specific internet-based financial services.
FinTech companies are also making progress. They’re helping the move to digital banking and have even made reward programs for top UK banks. But, there are still questions about if moving from old-style to digital finance is enough.
Even with some doubts, FinTech is becoming popular with traditional financial services. At the same time, crypto exchanges and modern banks are making a difference by improving customer experiences.
3. Personal Services
Customers today crave experiences tailored towards their needs. As a result, banks have recognised this trend, offering rewards for shopping at certain brands. However, insurance companies need to step up and customise their offers more effectively.
They are aware that loyal customers are valuable. However, their main strategy is to entice new customers with low premiums. Sadly, this approach often backfires in the long-term for increasing customer loyalty. Overtime, clients end up facing increased costs when their term ends, leading them to look for other options.
The modern consumers are savvy. Their exposure to personalised services in various sectors shapes their expectations. This influence prompts them to take informed actions.
While it might be tempting for insurance companies to stick to their old ways, a change is worth considering. Adopting a different strategy could prove more beneficial in the long haul.
To enhance loyalty and ensure sustainability, these firms should pivot towards a more customer-focused approach. This strategy would help them meet the demands of today’s well-informed customers.
4. New Rules and Regulations
New rules and stricter regulations pose a challenge to financial services in keeping their customers. Adjusting to these changes may lead to service disruptions and could even result in higher costs. As a result, such an outcome might upset existing customers. Also, not explaining these changes well could make customer satisfaction.
Benefits of Customer Loyalty in Financial Services
Building customer loyalty can be a key step for a financial services company aiming to succeed. This is important for all businesses, but especially so in the financial services sector.
Let’s delve into these brief benefits of customer loyalty:
Build Strong Connections
Your marketing strategy should centre on building customer loyalty, not just boosting sales. Instead of just offering discounts, strive to deliver content and experiences that are relevant and valuable. Emphasise the values you share with your customers and team up with like-minded brands. This approach will help your customer engagement and reduce churn rates.
Drive Repeat Business
Building good customer relationships can increase your sales and help you beat the competition. Most times, repeat customers skip thinking it over and just buy straight away, usually spending more. The key is to create a unique digital marketing plan for each step of the customer’s buying process.
Increase Revenue and ROI
Drawing in new customers can be costly, up to five times more than keeping the ones you already have. This fact underscores the importance of customer loyalty.
Customers who are loyal often experiment with new products or services, thereby boosting their value over time.
Collect Important Customer Data
Unlike newcomers, loyal customers are often willing to provide feedback. Utilise these insights to enhance your website and perfect your measure customer loyalty program. Doing so can also serve as a magnet to draw in new customers.
Enhance Customer Retention
Keeping first-time customers is vital. By enhancing customer retention, you can notably increase your revenue. Customers who are loyal often stick around for longer and spend more with each purchase.
Strategies to Increase Customer loyalty in Financial Services
Cementing customer loyalty is no less than striking gold for a financial services company. However, it demands strategic planning and relentless efforts.
1. Implementing Relevant Reward and Partnership Programs
Finance brands can increase customer loyalty by giving specially designed rewards and discounts. Take for instance, a home insurance firm could offer vouchers for home goods to new policyholders. In contrast, those who hold car insurance might be gifted prepaid cards to buy fuel.
Loyal customers can also enjoy these perks, which effectively lowers their insurance premiums. Such a strategy motivates customers to explore other services that may be relevant to them.
Insurance companies can retain customers not just by reducing costs. They can also offer extra services. For example, bonuses such as windshield protection or free tire changes can draw in people who need car insurance. Using these strategies not only makes customers happier but also boosts customer acquisition.
2. Utilising Meaningful Rewards
Rewarding customers significantly can boost your strategies for gaining new clients and encourage customer loyalty. When you offer benefits to attract customers, it shapes what they expect from your brand. Sadly, a lot of firms don’t realise how important this first step is and resort to offering cheap premiums as their main lure.
On the other hand, companies in the financial sector should ponder over providing well-thought-out rewards and offers. These could include reward programs and cashback initiatives. Additionally, you can consider offering buy now pay later (BNPL) options and providing extra support with mortgages and loans.
3. Offering Cashback
Cashback rewards have become quite popular in the recent years. They are a proven tool for fostering loyalty, especially in banking. Keep in mind, it’s not only about the size of the cashback given, but also its relevance to the customer’s needs.
If you provide rewards that are genuinely valuable, they can meet the specific needs of the customer. As a result, this can greatly boost their loyalty and also strengthens their trust towards your brand.
4. Embracing the Buy Now Pay Later (BNPL) Model
The Buy Now Pay Later (BNPL) model has been a game-changer in the financial services industry. It offers flexibility during purchase and greatly enhances customer loyalty. Its rapid growth in the US and UK markets is largely because of its focus on customers. It provides good interest rates, generally determined by simple credit checks, other risk assessments, and payment conditions.
BNPL is a game-changer, attracting more people to insurance firms and lenders who use this approach. Even the e-commerce sector has felt its powerful influence.
Younger generations find it appealing for different reasons. Millennials, for instance, love BNPL because it’s adaptable. On the other hand, Generation Z values the self-service options it offers. Each group finds unique benefits in the model, explaining its rapid rise in popularity.
So, when you’re planning how to build loyalty, it’s important to think beyond just rewards and incentives for transactions. The customer experience you create is crucial. Think about why BNPL became so popular so quickly – it offers flexibility, easy access, and self-service.
5. Leveraging Chatbots and Live Support
In the financial services sector, trust plays a crucial role. Banks, investment holders, service providers, and accountants handle money. Because of this, they need to make their clients feel confident and secure.
Offering live customer support and round-the-clock chatbots can provide reassurance. It shows customers that they can always count on you for help and guidance. This constant availability for assistance can go a long way in building and maintaining trust.
During the pandemic, many customers believed that banks fell short of their expectations. A poll showed that 29% thought banks somewhat met their expectations, while 39% were unhappy. This shows how crucial gaining trust is for banks, especially during tough financial periods.
The Significance of Loyalty
Gaining the loyalty of your customers isn’t an overnight task. It takes patience and persistence. But, once you’ve earned it, you’ve gained a lifelong customer for your brand.
A key part of this process is to treat your customers with respect. Make them feel valued and appreciated. More crucially, ensure they are satisfied with the services or products you provide.
Always strive to better the experiences of your customers. Look for ways to refine and elevate their interactions with your business. Encourage them to become repeat customers.
Why? Because returning customers are the backbone of many small businesses. They are the ones who contribute significantly to the bottom line of these brands. So, it’s essential to keep them coming back for repeat business.
About Goldmine Media
Goldmine Media is a renowned, all-in-one financial services marketing agency. We’ve worked closely with driven clients for over twenty years to achieve their goals.
Our services include:
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As a company, we proudly partner with various clients, from major corporations to small and medium financial firms. These partnerships span across the globe, from the UK and abroad. So, be it the UK, USA, UAE, or Singapore, our team is always ready to meet your marketing goals.
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