These are disruptive times for the banking sector. Once the sole bastion of financial services, banks are now facing intense competition from newer entrants to the field. And they are grappling with eroding customer loyalty as customers are willing to try other financial services providers like fintechs if they get a better deal. About a quarter of consumers say they will transfer money out of traditional banks and into online banks or others who offer higher rates for savings or certificates of deposits (CDs). As a result, 43 percent of banks say they are experiencing an increase in consumer deposit competition in 2023. In 2021 only 37 percent had reported experiencing competition. This has put the spotlight on customer acquisition – this has moved to the top of the banking sector’s priority list in 2023, compared to last year when it came in at number three. But how can banks craft a winning customer acquisition strategy amidst increasing competition and changing customer requirements?
Targeting the Right Customer Segments
The first question for any business looking to step up its customer acquisition strategies is – which customer segments to target. And the second is – what does this customer segment want and how can we meet their requirements. Let’s start with the first one. When it comes to banking customer acquisition strategies, banks cannot afford to ignore either banking customers who are engaged with competition or brand-new customers just entering the formal banking domain. Older customer segments who already have ongoing relationships with other banks are more likely to have higher net worth and present a more lucrative opportunity for the organization. They also value an established banking system and are keen to engage with banks for their financial needs.
The second customer segment that banks must target is those individuals who are just entering the formal banking economy. This new generation offers long term growth prospects that organizations cannot afford to ignore. But the challenge here is that Gen Z is radically different from previous generations, including millennials, in terms of what they want and expect from any service provider. Banks must spend some time to understand the Gen Z customer. To begin with the Gen Z customer is a digital native. They have grown up with smartphones and uninterrupted Internet access and want to engage online with most service providers. 73 percent of Gen Z customers would switch banks for a better digital experience. Now while rapid digital transformation enables this generation to conduct some of their financial dealings online, they still must visit brick and mortar branches for certain tasks. A disconnect between the ease and convenience of a digital banking experience and an in person one is frustrating for the Gen Z customer.
What do Customers Want?
So, what do these diverse sets of customers want? It’s no surprise that Gen Z wants to be able to do more online – they want to be able to open and close accounts digitally, they want to be able to turn their credit cards on or off, and they want faster payments. Digital natives Gen Z expects a superlative and seamless digital experience. While most banks now offer online applications, many Gen Z users find them difficult, slow, or unintuitive to use and many prefer to visit a physical branch for their needs rather than continuing with a cumbersome online application. In fact, channel switching is a challenge for almost all customers across customer segments with most saying that they expect a better omnichannel experience from their banks. In addition, millennials, Gen X, and Boomers want better and ‘always on’ customer service. Continuous improvement of secure digital services is the only way to attract and retain new customers.
Delivering on the Personalization Promise
The one common thread uniting customer expectations across all segments is the demand for better personalization. While Gen Z is particularly vocal about expecting personalized offers, services, prices, and even financial advice, the older generations too want services, pricing, and offers that address their requirements at their stage in life. Irrelevant communication or engagement efforts from banks no longer cut any ice and given the plethora of options available in the market, can also lead to significant customer attrition. Banks must now sharpen their focus on first understanding customer requirements better and second, using this understanding to devise more hyper-personalized offerings.
To do this, they need to invest in intelligent powerful technology platforms that can break down organizational silos to present a holistic view of the customer relationship, and subsequently create and roll out hyper-personalized offers quickly and efficiently. A major bank added £71M in Annual Revenue by doing just this. They acquired a credit card issuer and gained 2.8 million new customers, 30% of whom already had a relationship with the bank. Unfortunately, the bank operated with a legacy system and had no view into the complete business of each customer across business lines. Modernizing core banking systems is expensive, risky, and time consuming. Instead, the bank chose to deploy a powerful third-party middleware solution that provided them with the holistic visibility into customer relationships they needed. The bank then used the insights to create and deliver compelling offers to the newly acquired credit card customers. They also used the platform to quickly identify those newly acquired customers who had no existing engagement with the bank and rolled out special discounts, incentives, and pricing offers to entice them into opening personal current accounts.
The business of banking is under pressure due to several factors ranging from the unprecedented pandemic disruption, to changing customer requirements, new competition, geopolitical events, and macro-economic factors. Acquiring new customers is the only way forward for banks to remain profitable in a challenging market. A better understanding of their prospective customers and their requirements, coupled with a razor-sharp focus on hyper personalized, seamless, and intuitive digital services are crucial for banks looking to expand their customer base.