IBM Study: Customer Loyalty Shrinking For Banks at a Time When Relationships Matter Most

Bankers aren’t doing as well as they think when it comes to customer trust, loyalty and creating a personalized banking experience. A new IBM  study reveals there are serious gaps between how banking executives believe they are doing, and how their customers really feel. Among retail banking executives surveyed, 62 percent think they are delivering an excellent customer service but only 35 percent of retail customers agree — a 27 percent gap.

This could mean steep challenges ahead for banks as they become increasingly dependent on customer loyalty to compete. Only 30 percent of customers believe they are receiving a personalized customer experience, while 45 percent of bankers indicate they think they are delivering on that promise.

The results of a global banking and consumer study by the IBM Institute for Business Value, Banking Redefined: Disruption, transformation and the next-generation bank, found that while banks can satisfy the most basic customer demands, banking executives are far too optimistic on many fronts. Customers don’t believe their banks are providing differentiated or personalized service, and for the most part, they would readily change banks.

This is a wake-up call for banks faced with increasing competition. As other industry players including financial technology firms, mobile payments companies and startups begin to replicate banking functions, traditional banks will be forced to find new ways to differentiate themselves. However for banks that recognize early on that the value is shifting away from banking services to the deep customer relationships they have carefully built over decades, this could be a time of opportunity as bank ecosystems shift dramatically.

  • Customer Loyalty and Trust are Not What They Seem –The study indicates customer trust is also overestimated by banking executives. As many as 96 percent of bankers believe their customers trust them more than other non-bank competitors – yet only 70 percent of customers agree. And fewer still, 67 percent of customers, trust their primary bank compared to other bank competitors. Likewise there are gaps in the area of customer loyalty – 48 percent of banks think they are doing a good job encouraging strong customer loyalty while only 35 percent of customers agree.
  • Social Media Isn’t All That – Bankers may also be surprised about the use, or lack thereof, of social media. Bank executives surveyed believe social is key and 54 percent expect to foster social communities among customers and prospects in the future. But only 18 percent of customers expect to engage this way. Customers are also less interested in learning about products and services via social media than bankers would like to believe.
  • Mobile Banking is Driving Satisfaction –50 percent of customers are satisfied with the way banks answer questions accurately. And overwhelmingly, customers are encouraged by the use of mobile apps. 80 percent believe their banking mobile apps are user friendly and 86 percent believe they are easy to use. Bankers and customers alike agree on the growing importance of mobile banking, yet only 10 percent of banking executives believe the majority of transactions will be conducted through mobile devices in the future. Forty-one percent of customers expect their transactions to be conducted on a device in the next three years.

Faced with emerging competitors who may be able to replicate banking functions better and at lower cost, banks today have several choices. They can pretend it isn’t happening and be cannibalized by their competitors; they can try to compete in low-margin services, acting as a processor for various organizations; or they can recognize the incredible value in their customer relationships and build a powerful ecosystem around them. For example, TD Bank Group, one of the largest banks in North America, pursued a social transformation promoting collaboration across the bank and with a wider set of partners and the fintech community. TD Bank has achieved substantial success in its collaboration initiatives, with thousands of communities created comprising well in excess of a million network connections.

Canadian bank, Tangerine, specializes in technology-enabled customer experiences. Recently they rolled out a new app that allows customers to report feedback on Tangerine apps simply by shaking their phone. The speed at which the new app was made available was cut by more than 90 percent, and it delivered thousands of pieces of valuable customer feedback in a matter of days.

“Traditional concepts of what a bank does will change fundamentally and permanently,” said Likhit Wagle, IBM Global Industry Leader for Banking & Financial Markets. “Bankers will no longer be bankers in the traditional sense. The most successful banks will be focused on collaboration, agility, innovation, analytics and above all on going beyond digital and transforming into becoming a Cognitive Bank.”

Banks will need to use their leadership to build broad portfolios of partners and deliver compelling banking experiences and services to their customers. It is these deep relationships traditional banks have with customers that will allow them to position themselves as the principal gatekeeper to their customers, creating an ecosystem of even better services and experiences.

The new study from IBM was based on a survey of 1,060 banking executives in 38 countries and 1,600 banking customers in the United States, Germany, United Kingdom, Singapore and China.