Key Considerations for Measuring Customer Loyalty

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Retail banking has particularly been affected by the shift to the digital delivery of products and services, given its sheer magnitude and importance.

The global coronavirus pandemic significantly accelerated banks’ adoption of digital channels and led to critical behavioral changes for customers. Banks now need to determine which shifts are here to stay and which could revert, to some degree, to pre-pandemic levels.

Strategic Resource Management conducted a detailed survey in July 2021 that offers a snapshot of customer attitudes at a particularly interesting moment in time. Sixteen months of dealing with Covid-19’s realities had created a degree of equilibrium; thoughts of a return to “normal life” had begun to enter the conversation. This cross-section provides a view into the likely permanence of customer mindsets, helping financial institutions better understand customers’ perceptions of, and feelings toward, the institutions with which they bank.

Several noteworthy takeaways:

  • US financial institutions performed well in loyalty and engagement, though credit unions performed the best. Although the roughly 5,000 credit unions in the United States comprise a small number of overall banking assets (8% based on June 30, 2021, data from the credit union and banking regulators), its member ranks remain exceptionally loyal and engaged. While some community banks enjoyed similarly high ratings, other institutions should take note of credit unions’ success and consider following some of their tactics.
  • Charlotte, North Carolina-based Truist Financial Corp. ranked very high for customer perceptions of care, value for money and understanding customer needs. The product of a 2019 merger between BB&T Corp. and SunTrust Banks, the $541.2 billion bank embarked on a significant brand awareness campaign that emphasized financial wellness and a holistic level of care for the customer’s financial life. While the largest banks often excel in terms of resources and digital tools, they are frequently viewed as more transactional. Truist does not fit this stereotype – its customer ratings demonstrate that they place great importance on emotional connection, similar to credit unions and community banks.
  • Chime ranked poorly on engagement and loyalty. While other digital brands lagged in this area, Chime ranked at the bottom of both dimensions. It has done an excellent job of building market awareness and initial enrollments but has fallen short converting new customers into more meaningful relationships. The company faced backlash last summer following reports that it suddenly closed several customer accounts. Few respondents treat Chime as their primary transaction account; the absence of a branch network may be a contributing factor. But the company could still shift public perception. By teaming with a brick-and-mortar presence — mimicking PayPal Holding’s approach in partnering with Discover Financial Services to achieve point-of-sale ubiquity — Chime might overcome concerns about access. 
  • Great service remains the biggest factor behind customer loyalty. When asked for their top reason for choosing and staying with a given institution, great service led the pack. It outpolled product quality, ease of use and personal recommendations. Beyond that, subtle yet interesting differences emerged. Location, value for money and loyalty programs moved up the pecking order when customers decided to stay with a provider. The order of “reputation and trust” and “doing what they say” swapped positions — arguably because customers can now assess an institution’s behavior firsthand rather than relying on reputation. This may also explain why brand values gained prominence in the research.

Attracting and retaining customers is instrumental to a financial institution’s relevance. It’s what ultimately fuels its success. Banks must determine why customers partner with organizations, why they stay with them and why they leave. Taking this into consideration and keeping a close pulse on what behavioral changes are permanent will help financial institutions form stickier, longer-lasting customer relationships.

How Banks Kept Customers During the Pandemic, Even Commercial Ones

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Digital transformation and strategy are examined as part of Bank Director’s Inspired By Acquire or Be Acquired. Click here to access the content on BankDirector.com.

Despite closed branches and masked interactions, the coronavirus pandemic may have actually improved customers’ relationships with their banks. They have digital channels to thank.

That’s a shift from the mentality pervading the industry before the pandemic. Business lines like commercial lending seemed firmly set in the physical world: a relationship-driven process with high-touch customer service. The Paycheck Protection Program from the U.S. Small Business Administration completely uprooted that approach. Banks needed to deliver loans “as fast as possible” to their small commercial customers, says Dan O’Malley, CEO of data and loan origination platform Numerated during Bank Director’s Inspired By Acquire or Be Acquired. More than 100 banks are currently using the platform either for PPP applications or forgiveness.

The need for rapid adoption forced a number of community banks to aggressively dedicate enough resources to stand up online commercial loan applications. Sixty-five percent of respondents to Bank Director’s 2020 Technology Survey said their bank implemented or upgraded technology due to the coronavirus. Of those, 70% say their bank adopted technology to issue PPP loans. This experiment produced an important result: Business customers were all too happy to self-service their loan applications online, especially if it came from their bank of choice.

“Self-service changes in business banking will be driven by customer demand and efficiency,” O’Malley says, later adding: “Customers are willing to do the work themselves if banks provide them the tools.”

Digital capabilities like self-service platforms are one way for banks to meaningfully deepen existing relationships with commercial borrowers. Numerated found that borrowers, rather than bankers, completed 84% of PPP loan applications that were done using the company’s platform, and 94% of forgiveness applications. That is no small feat, given the complexity of the application and required calculations.

Those capabilities can carve out efficiencies by saving on data entry and input, requesting and receiving documentation, the occasional phone call and the elimination of other time-consuming processes. One regional bank that is “well known for being very relationship driven” was able to process 3,000 “self-service” PPP loan applications in a morning, O’Malley says. Standing up these systems helped community banks avoid customer attrition, or better yet, attract new customers, a topic that Bank Director magazine explored last year. Already, banks like St. Louis-based Midwest BankCentre are reaping the gains from digital investments. The $2.3 billion bank launched Rising Bank, an online-only bank, in February 2019, using fintech MANTL to open accounts online.

The impetus and inception for the online brand dates back more than three years, says President and CFO Dale Oberkfell during an Inspired By session. Midwest didn’t have a way to open accounts online, and it wanted to expand its customer base and grow deposits. It also didn’t want to replicate the branch experience of opening an account — Midwest wanted to compress the total time to three minutes or less, he says.

Creating the brand was quite an investment and undertaking. Still, Rising Bank has raised $160 million in deposits — as many deposits as 10 branches could — with only two additional employees.

“We didn’t spend the dollars we anticipated spending because of that efficiency,” Oberkfell says.

Midwest BankCentre is exploring other fintech partnerships to build out Rising Bank’s functionality and product lines. The bank is slated to add online loan portals for mortgages and home equity lines of credit — creating the potential for further growth and efficiencies while strengthening customer relationships. He adds that the bank is looking to improve efficiencies and add more tools and functionality for both customers and employees. And how are they going to fund all those technology investments?

Why, with the fees generated from PPP loans.