Five steps for improving customer loyalty in the banking industry

Fostering customer loyalty is a fundamental aspect of any banking strategy and is essential for retaining customers and delivering high-quality services that compel them to buy more. Improving the customer experience is a critical priority, yet banks today face many technological and cultural challenges that are holding them back.

With the emergence of digital-first startups, the business landscape in the banking and capital markets industry is more competitive than ever. Optimising the customer experience is a critical focus for banks as the industry faces changing customer expectations; increased competition; technology innovation; ever-growing government regulations; environmental, social and corporate governance considerations; and external factors such as the COVID-19 pandemic.

Today’s consumers expect seamless multichannel access to services, and banks are challenged to create meaningful and personalised banking experiences to attract, serve and retain customers. It has also become imperative for banks to have a single view of the customer while taking an omnichannel approach that is green, clean and secure.

Customer loyalty is fleeting these days, which makes customer retention harder than ever. Depending on the industry, the cost to attract a new customer can be five times more expensive than keeping an existing one, and research by Bain & Company asserts that in financial services, a 5% increase in retention produces more than a 25% increase in profit. The threshold for customers to switch banking providers is going down, making it crucial for banks to offer innovative services and digital experiences that will win customer loyalty.

Dealing with the legacy burden

Traditional banks are hamstrung by the burden of legacy IT. To optimise customer experiences that will translate to increased loyalty, banks need to address the issue of how best to deal with legacy systems and applications. Many traditional banking and financial service providers are running business-critical applications on very old systems. Also, banks historically have operated in silos where there is a disconnect between the corporate office and the branch network, whereas from a customer perspective, they need to be able to look across the organisation holistically.

Dealing with this legacy burden becomes more difficult when there are multiple systems for different products and services and the customer experience layer is overlaid on top of that. This often requires banks to build a complicated middleware piece to take all the data and manipulate it, then use that data to enable customer interactions in an optimal way. This can result in too much complexity and make it difficult to get a single view of the customer or to rapidly go to market with new products and services.

Startup competitors are at a distinct advantage because they don’t have complex legacy infrastructure to deal with. To be competitive, banks must be able to go to market in days, not months. To contend with the complexity, banks need to not only build a single view of the customer, but also ensure there’s a secure IT environment that allows for rapid delivery of new products and services.

Data is the lifeblood of the banking industry, and that data needs to be used to drive interactions with customers. A DXC paper defined data metabolism as the ability to serve up relevant data and insights to the right people at the right time and speed, and, crucially, to optimize decision making. Data needs to be ready for consumption, providing your organisation with energy, but if your metabolism is unable to consume it, your organisation will be anxious and unhealthy.

From this perspective, legacy systems are extra weight on traditional banks that hinders their ability to process data and convert it into energy. Part of the change that’s required is knowing how to improve the data metabolism of your organisation to make decisions much faster and in a way that’s driven by data rather than by gut feeling or the opinion of the highest-paid person.

Banks are challenged to find the best ways to address the increasingly evolving purchasing journey, as well as customers’ frustrations around certain interactions, regardless of channel. At the same time, banks need to foster customer loyalty by demonstrating good citizenship and doing the right thing, such as making their branches greener.

Five pillars that drive customer loyalty

How can banks meet the many challenges they face? They need to begin by identifying the different technology capabilities required to better serve customers. First, cloud-based and data-driven services are foundational for addressing today’s challenges. Banks need to focus on developing new capabilities like comprehensive observability, orchestration and automation that are integrated to make everything work together to achieve business value.

Improving the customer experience is intertwined with improving customer loyalty. In banking, greater customer loyalty is achieved by offering relevant products and services that are easily accessible via mobile-friendly platforms, while providing superior customer service. To drive customer loyalty and, by extension, improve the customer experience, banks should focus on five pillars:

1. Understand your customers. It is critical that banks have a one-to-one relationship with — and really understand the needs of — their customers. Part of knowing your customer is knowing how to engineer data and data platforms so you can integrate various siloed data sources together. Still, understanding your customer means nothing if you can’t do something with that understanding.

From a data perspective, banks should employ predictive analytics to take advantage of the customer data they have and translate it into actionable insights. Then, they need to take those customer insights and embed them into their business processes. For example, sales data can be analysed to identify purchasing characteristics and then used to target particular services to a customer. Conversely, data can be used to determine whether a customer relationship is at risk.

2. Make it easy. Giving customers a frictionless experience by providing multiple digital channels for making transactions is just one part of making the banking experience easy and seamless. Banks need to use technology to their advantage, such as by automating back-office processes to improve the efficiency of common tasks (for example, opening a new account).

With customer relationships increasingly taking place online, it is crucial for banks to provide a seamless mobile banking experience. This means developing apps that are easy to use and require the fewest number of steps possible. Because some customers still prefer to conduct business at a branch, you will also need to offer a pleasing omnichannel experience, and use effective technology to manage transactions across all channels.

3. Make it relevant/personal. Not only do banks need to make the customer experience frictionless; that experience must also be personalised. The customer experience landscape is forever evolving, so if your infrastructure and services are not keeping pace, you’re going backward.

The banking industry has entered a new era of personalisation. Banks need to have a holistic view of the customer and understand the full context of customer interactions. If, for example, a customer is nearing retirement age, banks should offer products and services that are helpful to them, rather than simply bombarding them with weekly messages about a free trial. Gaining a holistic understanding of the customer and translating that into actions is a closed loop, because those actions will lead to more data and that data will lead to even better understanding.

4. Make it human. Amid all the technology and automation, keep in mind that your customers are human and that it’s essential to provide them with a natural, pleasing customer experience. For example, chatbot interactions should be designed as conversational rather than making your customer feel like they’re under interrogation.

Making it human is about deploying technology such as voice recognition to analyse a customer’s tone of voice in order to identify whether they’re saying one thing but really trying to communicate something different. And always remember: AI is only as good as the human who implements it.

5. Provide safe hands. Banking customers want to feel that their accounts are safe and secure, but there is a growing desire — especially among younger customers — to engage with a brand that isn’t just about banking, but that strives to do the right thing. Sustainability is top of mind among customers, meaning that banks run the risk of losing market share if they don’t place a strong emphasis on addressing environmental, social and corporate governance issues.

Supporting a well-planned sustainability agenda doesn’t just reduce costs; it also drives customer loyalty when a bank goes beyond simply meeting government regulations to provide value to society as well.

Fostering customer loyalty

Banks that successfully infuse humanity and personalisation into their digital interactions can forge strong customer connections, build loyalty and trust, and drive growth. Enhanced digital experiences will improve customer loyalty and open opportunities to introduce new products and services. This starts with engaging new customers to create and optimize new revenue streams with AI-enabled products and services that are personal and relevant to customers.

NatWest Group in Scotland is a good example of a bank that used advanced technology to introduce new services to customers. DXC Technology helped NatWest completely digitise its check-processing system by transforming it from high-maintenance capture devices to smaller, more efficient desktop scanners. As part of the transformation, DXC helped enable automated fraud detection based on machine learning and AI technologies. Customers are seeing the benefit of having their funds available within 1 or 2 days, as opposed to up to 6 days under the old system.

The power of cloud computing should be tapped to help banks meet customer needs. For example, cloud can be used to help process and store customer data or support transactional systems. At DXC, we apply a cloud right approach to help companies decrease time to market and improve agility, scalability and stability. This approach focuses on achieving the right mix of on-premises and cloud infrastructure to manage workloads and applications.

How DXC can help

DXC has decades of experience providing advanced technology solutions to banking and capital markets companies across the globe. Applying our experience and systems integration expertise, we make complicated things easier in the following ways:

• Simplify. Banks need to know how to differentiate themselves in a complicated market. By helping organisations simplify their technology landscape, DXC allows banks to focus on what they’re good at and what they should be focusing on: their customers.
• Modernise. DXC is able to not only manage and simplify the technical complexity and transform that into a lower-cost operation, but also modernise the business landscape by overlaying value-adding technology such as business process services. This means banks can leverage our technology and investments to enable emerging technology such as machine learning to introduce innovative products and services to their customers.
• Accelerate. The value that an IT partner like DXC provides is the ability to integrate complex technology solutions to address the right business priorities that drive growth. For example, DXC helps banks create a data layer that combines various data sources to get a better understanding of the customer, then we use engineering to embed those insights into business processes. Those processes are then automated, making them much more consistent and cost effective.

In the age of instant gratification, using technology to meet the needs of customers and keep them happy is a higher priority than ever. An improved customer experience in banking can be powered by data and enabled by technology. When a positive, useful customer experience is delivered with empathy, this builds customer loyalty, which lays the foundation for future success.

Learn more about DXC and Banking & Capital Markets.