For the European banks, truly loyal customers no longer exist, according to a report published by independent market analyst, Datamonitor. The report, 'Customer Loyalty in European Banking', says that family affinities and regional identity are fading fast, meaning that only satisfied customers stay with one bank.
According to Datamonitor, the banks themselves are largely responsible for this apparent change in consumer attitudes, as innovative players unveil enticing offers and bank consolidation.
And, despite the fact that many believe customer service to be the key differentiator, few banks are expected to be able to keep their offer compelling while delivering this to its full extent.
No frills
The report suggests that today's consumer wants value for money from their bank, and that a 'no-frills' strategy could be an effective answer to the immediate problem.
As consumers are more prepared to shop around to find better deals, they are also holding financial products at more than one provider simultaneously. In countries where this is too expensive to do (such as Italy), consumers tend to look for a better deal by switching from bank to bank.
Shopping around
Consumers are now shopping around for financial products in the same way as they would for one-off purchases such as consumer goods or cars. Every financial product, whether a current account, a loan, or an investment, is scrutinised as an isolated product. Poor value for money or inadequate customer service is usually quickly followed by a switch to another provider.
According to Datamonitor, this trend shows no sign of abating soon. In Spain, for example, the mega-mergers that have created two giant retail banks - BBVA and BSCH - have done much to drive consumers away. Meanwhile, innovative players (such as Catalonian savings bank la Caixa and US card monoline MBNA) have come in to entice consumers with new offers as well.
Is loyalty dead?
Overall, bank loyalty amongst European consumers has been decreasing for a number of years. It is, according to Datamonitor, most pronounced in the UK, Spain, and Italy, where bank 'shopping around' is 44% higher than the average for Germany, France and the Benelux.
The results of a survey carried out by Datamonitor indicate that it is above all the strong competition between large high-street banks and the entry of new competitors across different financial product lines which has driven this trend.
The 'service' buzzword
Banks across Europe already recognise that decreasing loyalty is becoming a problem, with 70% of bank executives seeing customer loyalty as a top priority.
But, while customer service is often cited as the most important driver for customer satisfaction in financial services, should it be the primary focus if consumers are mainly looking for better value for money? Datamonitor's comparison of consumer data with the results of its industry opinion survey suggests that banks over-estimate the importance of service to their clients.
The European banks' short and long term strategies should be switched around, says the report. Currently, service offensives are only put into second gear when banks are faced with acute loyalty problems. However, the effect of these on customer satisfaction will be negligible in the short term.
Now that consolidation has driven Europe's retail banks toward larger and more impersonal structures, much of service delivery depends on high-technology CRM (customer relationship management) systems, and it is questionable whether this will be able to replace or improve upon the 'personal touch' completely in the near future.
"When presented with a choice between a vague service promise and a cheaper product right now, consumers often go for the latter option," noted Datamonitor's financial services analyst (and author of the report), Gunter Seymus. "Service only serves in the long term as a 'push factor' that can drive customers away when minimum standards are not respected. In this sense, banks may want to take a leaf out of the airline industry's book and think about a 'no-frills' way to give consumers the better deal they really want."
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