Asia-Pacific banks suffering from decreasing customer loyalty

63% of survey respondents have more than one product outside their main bank.

Asia-Pacific banks are perceived to be falling short on customer loyalty, according to new research, Retail banking in Asia-Pacific, released by Ernst & Young. Banks are missing growth opportunities as existing customers shop around for better deals from their competitors.

Of the over 4,700 retail banking customers across Singapore (16%), China (34%), Hong Kong (16%), New Zealand (17%) and Australia (17%) who were surveyed, many respondents feel unappreciated, unrecognized and under-rewarded by their main bank, according to an Ernst & Young report.

The research found that 63% of the respondents have more than one product outside their main bank. Only 26% have more than four products and 20% have only one product with their main bank. The low levels of product holdings could mean opportunities for banks to sell new products to existing customers, yet it also reflected consumer concerns regarding concentrating their financial products with a single bank.

Liew Nam Soon, Asia-Pacific Financial Advisory Services Leader, Ernst & Young, says: “There is declining customer loyalty to the main bank as people move towards developing relationships with multiple providers based usually on who can offer them the best deal and returns. It is less about switching banks than going to different institutions when new needs arise. Thus it makes sense for banks to adjust their value propositions through a combination of product bundling, pricing and access to value-added services to give existing customers the incentive to give them more business. To enhance customer loyalty, banks can look at institutionalizing the client relationships by moving towards some form of discretionary management and provision of trusted advisory services that are tied to the banks and not solely to the Relationship Managers. Another way is to increase the customers' holdings of sticky products such as loans and less liquid investments."

Even then, according to the research, customers with multiple products with their banks feel their loyalty is not appreciated or sufficiently recognized. While 62% of the respondents believe their banks are aware of their multiple product holdings, only 29% of them feel they are being rewarded for this loyalty. Almost 80% of the respondents indicated they would value a loyalty program.

“Multiple product holders are likely to have higher expectations on being rewarded for their support for the bank. Banks will need to be innovative in recognizing their loyal customers before they decide to shop around. Not only can they consider real rewards through savings and value-added services, they need to ensure that the loyalty is visibly acknowledged through key interactions and communications.” Liew Nam Soon adds. “Effective customer loyalty is about making customers feel special and their needs understood by the bank. To achieve this, a superior customer experience that is consistent across all channels is required. Also, just as with product and service bundling, loyalty programs must be integrated and aligned to the value proposition, although costs need to be managed and differentiation can be difficult.”

The survey also showed that the loyalty expectation gap is contributing to low advocacy scores across the region. Only 28% of the respondents stated they would recommend their main bank to others while 32% will not recommend at all. The low level of advocacy does not however translate into high levels of switching. Customers are currently being restrained by inertia and apathy, with only 6% of the respondents having changed their main bank in the last 12 months.

Liew Nam Soon continues: “While banks may continue to hold on to their existing customers for now, there is always the risk of switching triggered by proactive competition. More importantly, banks need to rethink how they can drive multiple and new product uptakes by existing customers to improve the revenue per customer, which can then be re-invested into improving the customer experience and loyalty programs.”

“Today, most banks already have the people, process and technology in place or under development to enable customer engagement. The challenge now is to effectively integrate the customer strategies and capabilities, supported by sophisticated customer analytics and insights, so as to deliver effective interactions with customers at all touch-points to drive loyalty and the propensity to buy other services,” Liew Nam Soon concludes.