Building loyalty within your customer base is essential as a platform for growth and in the face of the challenges from disruptors banks have no choice.

1. SEYMOUR SLOAN
IDEAS THAT MATTER
BUILDING CUSTOMER LOYALTY
IN RETAIL BANKING

2. IN AN INCREASINGLY COMPETITIVE MARKET, LOYALTY IS ES-
SENTIAL FOR GROWTH
Customer loyalty is the main profit driver for retail banks in developed markets. However, at Sey-
mour Sloan, we also see an additional element that is rarely included in the loyalty calculation. We
see customer confidence in competence a significant factor in both loyalty and the opportunities
it presents. The difference in cross/up-selling rates between customers that possess high confi-
dence in their primary bank and customers with low confidence is a healthy 15 percentage points
on average for developed countries and 11 points in developing countries.
We suggest loyalty is measured by two limbs; the proportion of defectors and equally importantly,
the number of customers that purchase additional products. The outputs will differ, but when com-
bined, will demonstrate the relative health of a bank’s relationship with their customers. If man-
aged successfully, customer attrition can be more than offset by improved cross-selling rates. As
such, loyalty is something a bank’s must value, cherish and manage as if it were the very oxygen
they breathe. In an intensely competitive market, maximising the customers you currently have is
of utmost importance. Successful banks excel at providing customers with the confidence to then
purchase additional products.
Below, we have identified the key elements we feel truly shape and drive customer loyalty.
Strength in these areas will make a significant difference in the relationship between banks and
their customers. These are the areas where competitors are seeking to establish competitive ad-
vantage and as such, cannot be ignored.
A Winning Formula for Customer Loyalty
Our experience has shown that customer loyalty is intrinsically linked to the following elements. It
is these that form the platform for effective cross/up-selling and the basis for improved customer
confidence, satisfaction and loyalty.
1. Focus on where you want to succeed and identify the challenges to overcome to
The reality of banking customers is that customers are not created equal. The inherent challenge
is that many banking transactions are common to all customers such as replacing lost cards. How-
ever, the value of a customer to a bank can vary widely, even within common transactions.

3. Each customer segment has different priorities, expectations and lifetime value for a bank. Re-
search in the US finds that older customers care more about branch location and quality of branch
staff, while younger customers place greater value on mobile device interactions and rely heavily
on recommendations from family, friends and colleagues. This is of particular importance as digital
developments pull younger and older customers apart in terms of expectations.
Leading banks create an excellent basic level of service that ensures all customers have their
needs met as a minimum. However, for high value customers, there are higher value (margin)
products on offer along with differentiated service channels and a premium level of service. Amer-
ican Express are excellent at providing premium services to their high-value customers offering
exclusive facilities through their concierge network.
Others have created entirely separate models for young adults. In Singapore, OCBC’s “FRANK by
OCBC” branches could pass for a hip clothing store. They offer edgy images on debit cards and
a simple savings account. However, the brand is low-cost. There are no cashiers and most of the
functionality is self-service and online.
Self-service has empowered low-income customers to access better value products through a
significant reduction in overheads. In Malaysia ‘lean’ branches are a growing sector serving the
low income customers. Self-service reduces the need to access branches. Increased digitisation
also means that the elderly or those unable to travel are able to manage their banking without the
pressure of visiting a branch, freeing them up to engage in other activities.
2. Design products with impact
The challenge with innovation in the retail banking market is that competitive advantage does not
last for long before being swallowed up through imitation. As such, there need for innovation is
great, but the incentive to do so is not as great. The market reality is that you cannot afford to be
left behind, and as such, banks must ensure that their products at least match the core features
and rates of their competitors.
Customers are more informed about product features like interest rates and fees, rewards, ease
of transaction and, for more complex products like wealth management, the quality of advice. This
has raised expectations from the customer side with banks rushing to catch up to customer ex-
pectations. Banks show significant variation in how customers perceive their product performance.
Among US banks, the share of customers who say their primary bank performs well or extremely
well on home mortgages ranges from 62% for the lowest bank to 97% for USAA.

4. In Australia, Westpac has differentiated its BT Super for Life superannuation account by allow-
ing customers to apply online and to see the account online alongside their current account.
St.George links its home equity line of credit to various interest offset accounts, making it easier
for customers to manage taxes and investments.
Whether with a current account, credit card or mortgage, the key is to strike the right price-value
balance for the target customer. And there’s a minimum menu of offerings necessary just to have
credibility in a category. Of equal importance is building products that give the customer confi-
dence that you are creating a good deal for them. With the rise of aggregators, customers can see
which providers are generous and those that are less so. This transparency means that caution is
advised when building products. The aim is to leave the customer pleased.
3. Accelerate the digital transformation
With the proliferation of digital technology in our everyday lives, it is difficult to imagine that some
banks may be slow in adopting digital banking. It is a platform that allows new channels of sales
and service as well as enhancing those that already exist. Even with excellent offline infrastruc-
ture, a poor online offering will be a massive competitive disadvantage to customers used to being
able to operate anywhere at any time. Speed and quality are of the essence when looking at digi-
tal solutions.
We are moving into a fully integrated omnichannel market where customers can define where and
how they engage with their bank. As such, banks must be flexible across their digital landscape as
well as in managing the separation between online and offline.
More than half of customers’ interactions on average took place through online or mobile chan-
nels, ranging from 75% in Norway to 38% in Mexico. But many banks could make more use of
the technology or steer customers towards adoption. Globally, fewer than half of customers in
developing countries and just over one-third of those in developed countries used smartphones or
tablets for their banking. The cross-country variation ranges from 60% in China to 17% in Belgium.
In South Korea, fully 56% of customers engage in mobile banking. Hana Bank has consistently fo-
cused on digital innovations, such as the ability to withdraw cash from ATMs via smartphone, with
only the phone number required, not an account number. Parents can also send money to their
children via their smartphones, and the digital currency works at many Korean retail outlets.
Mobile usage also varies within most national markets. Lagging banks and countries should be
concerned, because mobility continues to spur customers to recommend their bank. Mobile users
tend to be stronger brand advocates than people who don’t use mobile devices, and that premium
rises in countries such as China and Thailand.
As banking moves to an omnichannel world, the future of the physical branch remains an open
question. But two things have become clear.
First, too many routine interactions, like making a deposit, take place in the branch in many coun-
tries. Banks can no longer afford the cost structure that supports such interactions, which could go
through lower-cost, self-service digital channels. Globally, some two-thirds of branch interactions
consist of the routine, with only one-third being sales or service.
Second, branches in every market remain the dominant channel for starting relationships. Roughly
three-quarters of new account openings happen in branches.

5. During this omnichannel transition, success hinges on making digital channels convenient and de-
fect-free, and on converting branches to more sales-oriented operations. Nordea, one of the larg-
est Scandinavian banks, has shrunk and modified its branch network so that only 45% of branches
now manually handle cash, down from 85% in 2009, and they focus instead on advice and sales.
But banks must be sensitive to the cultures in which they operate. There are cultures that are hap-
py to operate digitally and remotely, whereas others have a legacy of accessing branches and this
is unlikely to diminish for a few generations yet. This means the rate of digital adoption will vary,
but what cannot vary is actually having an excellent online proposition to begin with.
4. Loyalty gives you the right to win more business—but you do have to ask for the sale
Banks that have customers that are regular brand advocates often have higher rates of cross-sell-
ing as well as higher retention rates. More importantly, they are more likely to buy the higher value
products as well, which come with higher profit margins.
However, cross-selling and up-selling are exactly that – selling. The additional opportunities will
not come to you. Instead, banks must use the goodwill they generate to sell the additional prod-
ucts to their customers. Our research shows that it is very much a cultural factor. In the US one-
third of additional products are sold, which reflects the sales-focused culture of the US. In contrast,
markets like Hong Kong will sell at a far lower proportion as sales are not as highly praised as they
are in the US.
Maybank in Malaysia has chosen to bundle products in a way that make it easy to sell them.
Customers apply once for all products and provide all necessary information at that time; they then
can activate and access products as needed, through the channel of their choice.
In Australia, Hong Kong and India, Citibank excels in onboarding and then cross-selling to custom-
ers, particularly in wealth management. Citibank mandates that every relationship manager raises
his or her customers’ share of wallet each quarter.
Some banks that are loyalty leaders perform less well on the sales metric, but the good news is
that their customers accept the right kind of sales overtures. Other banks have high selling scores
but lag on loyalty. These players will want to concentrate on adjusting the tone of their selling and
delivering a better experience after the sale.
5. Build branding that delivers more trust, less fluff
The importance of branding cannot be overstated. It is the main relationship the world will have
with a bank. It is normal for high satisfaction scores to correlate positively with brand strength. As
such, building your brand is important and at the heart of the approach is the need to build trust
and confidence.
Banks’ standing among regulators, legislators and the broad public took a hit in the years following
the financial crisis. In response, many banks have increased their advertising and other forms of
explicit marketing over the past few years, with the hope of restoring their image. The media has
also been vital in rebuilding confidence, highlighting various issues such as mis-selling, which forc-
es banks to improve at a rate they were not prior to the financial crisis. Increased customer advo-
cacy has now created greater risks around reputation, which means banks are approaching their
business with a focus on how customers engage with them.
Building awareness is valuable but lacks strength if it is not supported by an improvement in ca-
pability and products. They key thing is to communicate a strong story about what you deliver and
how you do so. These simple messages are the ones that customers can relate to. It is not enough
to communicate them; the organisation must live them and embody the values in all they do.

6. Hang Seng in Hong Kong, for example, promotes the attributes of a friendly, service-oriented local
bank. Hang Seng reinforces these brand attributes not only through activities with local neighbour-
hoods and universities, but also through convenient branch locations in the local transit system
and through staff training.
A customer-led, not marketing-led, perspective on the brand leads bank managers to spend their
time differently. Instead of asking brand questions (“Should we rebrand?” “What logo and tag-line
should we use?”), Managers will find it more effective to start with customer questions (“What do
our best customers say about us?” “How can we amplify that?”).
A few large incumbent banks have made meaningful progress on several of the five elements.
Consider JP Morgan Chase in the US. Of all the national banks, Chase posted the biggest sact-
isfaction scores in 2013, moving from the third quartile to the second quartile and opening a lead
over other national banks. That’s due to such factors as select investments in mobile technology,
a concerted effort to improve the customer experience and effective marketing to tell people how
the bank can simplify their financial lives. Those factors also combined to help Chase perform well
above average in winning new relationships and cross-selling to existing customers.
SEYMOUR SLOAN
Seymour Sloan deliver great ideas that drive progress. We help companies do things differently, delivering market
changing solutions.
We use the brightest and bravest minds to challenge convention and successfully deliver innovative solutions. We
believe in short-term engagement and long-term support. This is cost-effective for our clients and serves as a basis for
their continued growth.
© SEYMOUR SLOAN 2014

7. IDEAS THAT MATTER
SEYMOUR SLOAN