The emerging role of customer loyalty in the future of banking


As customer expectations continue to evolve, UK banks are under pressure to grow stronger relationships with their customers to boost loyalty. The Finance DNA report shows how this can be achieved by focusing on convenience-led innovation that improves the customer experience.

Customers are less loyal to their bank brand than they used to be. The cost-of-living crisis, rising inflation and interest rates have encouraged people to shop around for better deals.

Account switching reached record levels in the final quarter of 2022, with 376,000 customers moving to a new bank, according to Pay.UK. This trend continued into the first three months of 2023, with 341,075 switches.

Yet, despite the erosion of loyalty to high street bank brands, there are emerging forces in their armoury to help forge long-term relationships and loyalty among customers: a focus on convenience and the delivery of new services. Personalised banking, augmented reality, voice tech, and cybersecurity will each have a major impact on the sector in the decade ahead.

What soon becomes clear in the Finance DNA report, created in partnership with Foresight Factory, is that customers are demanding increasingly innovative and convenient banking services, and banks that are slow to develop these risk losing customers.

The research shows that, as we move through the 2020s, contactless payments will continue to rise at the expense of cash, digital payments will become the default, and e-wallets will increasingly bypass traditional banks.

This is demonstrated in the steady rise of consumers using their smartphones as payment devices. In 2022, 32% of British people indicated that they used their mobile device to pay for an item at checkout, rising to 56% among Gen Z consumers.

Rising demand for convenience

At the same time, it's clear that time pressures are weighing heavy on the shoulders of many customers. The report highlights how 36% of UK consumers feel under time pressure in their everyday life, rising to 55% of Generation Z. The findings also reveal a rising willingness among people to pay more in exchange for saving time.

With this demand for convenience in mind, Lloyds Banking Group partnered last year with Bink, a fintech company which provides payment card technology, to connect customers' bank accounts with retailer loyalty programmes. Benefits include reduced time and hassle when managing multiple loyalty cards, together with faster checkout at tills.

Despite the convenience involved at these new payment borders, work will need to be done by banks to address customer concerns over both privacy and security. Reassuring consumers that they'll have more choice but that their money and personal details are safe and secure.

There's also a requirement across the business to ensure that innovations in services and customer experience don't alienate consumers. This means striking a balance between identity verification and necessary checks to prevent fraud. A recent report from McKinsey highlights the potentially negative impact on customer loyalty where new products are launched without sufficient emphasis on compliance and its impact on customer experience.

The investment revolution

The radically shifting nature of investment will also provide banks with a loyalty opportunity. Interest in new opportunities - such as cryptocurrency and "meme stocks' is growing among customers - and banking brands are working to introduce more responsibility and safety into new types of online investing.

Perceptions surrounding these new products is not always positive but banks have an opportunity to provide reliable information to existing and potential new customers on how to successfully invest their money. This will involve educating consumers about risks, facilitating community discussion and encouraging long-term thinking before introducing digital investment offers.

In the second half of the decade, according to the Finance DNA report, these concerns will be addressed by banks providing services such as financial therapy and more accessible and engaging online advice.

We'll also see rising use of AI to build loyalty over time. Investment advice becoming ever-more personalised and AI solutions opening this to larger parts of the population, not only the wealthy, due to lower costs compared with a 100% human advisor offer.

Banks will be supported by customers on this. The Financial DNA report highlights that more than one in three consumers (and over half of Gen Z) already show an interest in investment services that uses AI to automatically decide where to place their money.

We can expect banks to build on advances made already by the insurance industry. Longer-term, automated claims are becoming increasingly hyper-personalised as technology facilitates claims to be triggered and verified in real-time against the precise risks that the insurance policy covers.

Banks will introduce similar measures to raise convenience for customers while providing access to next-generation investment. These steps, alongside ongoing communications to educate, reassure and build awareness, will open new loyalty avenues for brands.

Check out our Finance DNA report for more insights.