Customer loyalty in the retail financial sector is falling away, and the average lifespan of a mortgage is falling with it, according to a recent report, 'The price of loyalty in financial services', by professional services firm, KPMG.
As consumer concerns over the economy, the housing market, and personal debt increase, KPMG warns that retail banks will have to contend with rising levels of customer churn, making it very hard to maintain the profit growth seen in previous years. As a result, cost-income ratios may rise, and banks will need to guard against increasing provision for bad debts.
To illustrate the problem, KPMG's research among lenders, credit card providers, and retailers has found that the average life of a mortgage has fallen from around seven years to nearer five years, while the average life of a credit card is between two and five years.
Loyalty slipping
KPMG also found that retail banks' management information systems, despite major investments, are still not giving them the degree of information needed to maximise customer relationships.
And, despite the fact that customer loyalty seems to be about as low as it can get, the issues of loyalty and retention are still held relatively low down the management chain, being viewed more as sales and marketing issues than being issues for the board of directors.
Some of the key findings from KPMG's recent consumer research include:
- Only 16% of borrowers said that they positively expect to keep their mortgage with their existing lender if they move house.
- Some 70% of respondents said they would consider remortgaging with a different provider without moving house.
- Only 6% said that feelings of loyalty or guilt might prevent them from remortgaging through a different provider.
- What appears to be customer loyalty is often simple apathy, as 54% of respondents said that remortgaging was "too much hassle for too little gain".
- On the issue of retail loyalty cards, 46% of respondents said they still shop wherever is most convenient, and only 2% said they always stayed faithful to their loyalty card provider and never shopped around.
- Some 29% of the consumers surveyed said they would rather have lower prices in shops than loyalty cards.
"Competition in the financial services market is driving rates lower and lower, and margins are very thin. In this context, retaining existing customers becomes more important than ever," noted Simon Walker of KPMG. "Banks must work very hard on ways of building customer loyalty. As well as keeping their pricing extremely keen, they also need to find ways of differentiating themselves from their competitors over the long term."
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