Customer loyalty has become an ever more important issue across European retail banking markets, according to a survey and report from independent market analyst Datamonitor, which found that customers in the UK and the Nordic countries are the least loyal to their banks.
The survey revealed that 98% of branch managers in the UK agreed that customers shop around for financial services products more than they used to a few years ago.
Higher churn rates
Customers are increasingly looking at their financial services providers not as life-long partners, but as providers for a short span of time.
"As a result, lenders must put solid strategies in customer retention and acquisition in place if they want to succeed both in the short and long-term," said Maya Imberg, financial services analyst at Datamonitor, and author of the report.
Branch managers surveyed believe that an increase in consumer awareness of financial services products and the growth in online banking are the principal reasons for customers shopping around more.
Consumer awareness to blame
Almost three quarters (73%) of UK branch managers attribute customers shopping around more to a rise in consumer awareness. Across Europe as a whole, the next most popular contributing factors include the growth in online banking and an increase in competition between established players.
Customer loyalty to banks varies across Europe. For credit cards, personal loans and mortgages, Datamonitor's branch managers survey suggests that customers in the Nordic countries and the UK tend to shop around most, while those in Italy, Spain and Austria shop around the least.
Drivers of disloyal behaviour
The UK is one of the most competitive and developed retail banking markets in the world, with highly aggressive players and cut-throat pricing. Customers have much to gain by shopping around as they can make significant savings by doing so. Moreover, the market is not new in terms of development so customers are used to shopping around and have done so for many years now.
Customers in the Nordics very often use the internet to compare prices across providers, as well as to eventually apply for products (with the exception of mortgages, which are generally sold in-branch). However, it must be said that a large proportion of Nordic customers do tend to stay loyal to their main provider, much of which can be attributed to the limited number of major players in the market and the limited extent of competition (up until recently) in these markets.
Declining customer loyalty is a long-term issue for lenders. Datamonitor believes that the customer loyalty issue will get worse for lenders in the long run, as competition intensifies and European integration continues. And even if the level of customer loyalty still differs across markets today, all markets are currently seeing loyalty levels decreasing.
According to the report, because recruiting new customers is so much more expensive than retaining existing ones, it is imperative for lenders to design an efficient and viable customer retention strategy. In the meantime, lenders will need to make the most of acquisition strategies as an increasing number of customers are going to change providers.