Loyalty in digital banking: A generational approach
Driven by the pandemic, banks have pivoted their physical solutions to digital to serve financially stressed customers faced with record-setting unemployment and stock market concerns. Some banks have been more aggressive in their investment into customers’ digital experience and others have reluctantly stood up digital banking solutions. As the economy sets its eyes on recovery, banks will have to continue providing digital services to better suit evolving generational needs to build loyalty. Instead of going back to rewards programs that don’t work, executives should assess how they can create digital customer experiences that drive ongoing loyalty. As it stands, the banks that made significant investments into digital experiences have given themselves a head start in building post-pandemic customer loyalty.
The stay-at-home nature of the pandemic drove many customers to non-physical (digital or tele) banking solutions. According to research conducted by BAI, 50% of consumers are using digital banking products more since the pandemic, and 87% of them are planning to continue this increased usage after the pandemic. Across generations, digital banking behaviors are likely to stick in the post-pandemic world. As customers become more comfortable with digital banking, it is evident that the path to long-term loyalty is digital. Customer loyalties will be driven by which digital solutions best meet their unique set of needs. Even if customers are content with these digital banking needs being met, they are likely to switch loyalties for better digital experiences.
The need for the essentials
While it is exciting to ideate on leading-edge digital banking solutions like voice AI and prescriptive modeling, customers’ core needs should take precedent. When looking for digital banking options, customers prioritize foundational capabilities, such as mobile deposits, transferring funds, and checking account balances when looking for a digital banking solution. Customers are driven to digital banking over in-person options because of its convenient, secure, and time-saving nature. While Gen X, Millennials, and Gen Z were already using digital banking solutions, the pandemic has driven many Baby Boomers and older to increase their use of this technology. Across all generations, the top four most desirable features in digital banking address these benefits—mobile check deposit, viewing statements and account balances, transferring funds between accounts, and bill pay.
Before diving into the generational nuances with digital banking needs, banks should focus on the essentials. Delivering these basic features provides a frictionless customer experience for the routine activities customers across generations are performing most often. Customers might have been patient with challenges in basic functionalities during the onset of the pandemic, but they are unlikely to remain patient with banking institutions that do not match their needs. Banks should continually reassess how their ability to deliver the basics matches up to their customers’ expectations and the offerings of their competitors.
The need for a catered user experience
An “experience gap” is the negative difference between customers’ expectations and the experience they get from the financial product and service. If the experience is significantly worse than expected, it can lead to decreased customer loyalty, negative reviews, and even customers dropping the brand. With generational differences in customer expectations, banks should remain versatile in meeting these overall needs.
According to the Digital Banking Report Research, the top three items that will have the most positive impact on customer experience are digital app user experience (UX), personalization, and financial education and advice. Consider that the Baby Boomers, a generation less likely to be using digital banking pre-pandemic, found themselves lacking knowledge about how to effectively use these digital platforms. Roughly 70% of customers learned to use their financial services providers’ digital services on their own. This need for education can be addressed with effective digital onboarding, such as how-to videos on common things they might do.
Millennials and Gen Z have a strong and growing appetite for financial education on topics such as debt, investments, and budgeting. Compared with older age groups, younger Americans are more likely to say that the COVID-19 outbreak is a major threat to their personal financial situation but not a major threat to their personal health. For millennials and Gen Z, financial literacy resources should feel personalized and relevant to their preferences. Digital budgeting apps like Mint, Goalsetter, and Cleo have seen success with personalized financial insights, custom budgets, and spend tracking across all accounts to make it easy for users to build and maintain their budgets. Traditional banking institutions can learn from these platforms to provide their younger users with financial education that is bite-sized, easy to understand, relevant, and accessible anytime and anywhere.
The need for flexibility
While the pandemic drove record high unemployment numbers, it was the younger generations that saw the most unemployment and/or reduced hours. Younger Americans are reporting that the COVID-19 pandemic has negatively impacted, or even wrecked, their financial stability at rates almost twice as high as their baby boomer parents. Almost 9 out of 10 Millennials—much higher than any other generation—were worried about paying bills and loans, with the greatest concern being over credit card bills.
To remain flexible in rapidly evolving economic environments, banks created communications channels through apps and websites that once took place in their physical branches. In less than a month, Wells Fargo Digital and its line of business teams partnered to introduce a number of new digital capabilities to expand the toolbox of Wells Fargo Online. The new features included online requests for mortgage payment deferrals, digital applications for the small business Paycheck Protection Program, expanded support for customers to deposit stimulus payments, and higher limits for mobile deposits.
In addition to flexibility in communications, customers also increasingly desired flexibility with payments. During the pandemic, older millennials gravitated to Buy Now Pay Later (BNPL) options, considered as a last resort option for other generations, as part of an array of credit tools. Amongst older millennials, BNPL usage saw a 28% increase. They found that BNPL options increased their purchasing power while helping them keep their monthly expenses within budget. With consumers expected to spend an estimated $680 billion globally using point-of-sale installment payments over e-commerce channels by 2025, banks need to consider this shift in customer expectation.
An emerging customer need for banking solutions that are flexible and address their evolving needs leads to space for banks to meet these needs. This demand has been met with polarizing strategies. Banks that address these needs are better positioned against this demographic than banks that do not.
Versatility leads to lifetime loyalty
Failing to address the needs of customers in a digital banking world risks eroding customer trust and the relationships banks have worked hard to build over the years. Supporting customer needs and adding value in meaningful moments and generational journeys builds the foundation of emotional loyalty over time. Creating a personalized digital banking experience that spans generations is a necessary investment banks must make if they are to maintain customer loyalty. Banks that are paralyzed by the technology, strategy, and process questions risk losing momentum to traditional and digitally-native competitors that have fully embraced digital banking experience as a key driver in customer loyalty.
About the authors
Amish is a Strategy Consultant at PK and an MBA graduate from the University of Illinois – Chicago. He is a data-driven, customer-centric strategist helping clients better understand and create delightful experiences for their customers. His experience involves designing and implementing marketing strategies, UX design, sales enablement strategies, future customer experiences, data strategies, and change management processes. Prior to PK, Amish primarily worked in the retail industry in an analytics & business strategy capacity.
Jodi Rausch serves as Director of Integrated Loyalty Solutions at PK. She has deep experience developing, transforming, and managing differentiated loyalty programs, customer marketing activities, and customer experiences driven by data, customer insights, and financial rigor. She enjoys building and growing relationships with internal teams, clients, and end customers to best understand their needs and exceed expectations.Tags: Brand Loyalty, Customer Loyalty, Loyalty