Head Vs Heart: Which Wins When Customers Choose Banks?

Customers have never had more choice when it comes to selecting the providers, brands and services to help them manage their lives. Nowhere is this truer than in the banking industry, but what takes precedence in that choosing, logic or emotion? Here Karen Wheeler, UK Country Manager at Affinion analyses current trends and provides Finance Monthly with a detailed outlook on this key customer conundrum.

We’re witnessing a global trend of consumers faced with a vast number of providers, all vying for their attention with big-budget advertising campaigns and attractive offers such as cash incentives to switch current accounts. HSBC for example has been offering £200 ‘golden handshakes’ to new customers throughout March. But although banks are competing desperately to retain their customers, the arrival of new Open Banking APIs are set to make it easier than ever for customers to switch banks, with the first stage of the implementations having gone live this month.

Moreover, the traditional landscape of high street banks has also been disrupted in recent years with the emergence of FinTechs able to adapt quickly to incorporate the latest in digital innovation. Consequently, it’s never been a more challenging time for banks to attract new customers and keep existing ones loyal. When you consider how integral banking is to everyday life – in the UK, the British Bankers Association revealed customers logged onto banking apps 4 billion times in 2015 – it’s crucial that providers understand not only how consumers like to engage with their services, but the factors which influence their choice of bank in the first place.

A global view of customer engagement

With this in mind, we recently commissioned global research with Oxford Brookes University to uncover what influences customers to choose their banks – as well as what makes them stay. The aim of the study was to develop a comprehensive model that maps the path a customer takes from their first interaction with a brand, to the point at which a company has become a meaningful part of a consumer’s life.

The Customer Engagement Model can help banks understand the rational and emotional attitudes of their customers which can then inform the development of product propositions, marketing programmes and user experiences to increase their connection with the customer. The evolution of customer engagement is not linear, but dependent on a complex mix of motives, attitudes, experiences, and satisfaction – all coming together to influence the customer’s overall assessment of the products and services they choose and buy.

As well as banks, we investigated customers’ relationships with their mobile phone provider and favourite retailer to compare how engagement varies by industry. Perhaps unsurprising given its association with leisure time, retail came top for customer engagement, with banks in the middle and telcos lagging behind.

So, what do banks need to understand about how customers form their brand perceptions, and how can they build on this to enhance engagement and, ultimately, promote feelings of loyalty and advocacy?

Emotional versus rational – which is more important?

The study shows that the journey of customer engagement begins with a very rational decision but, as we move further towards commitment and loyalty, emotions play the bigger role and achieving engagement becomes more difficult. It seems the rational part of the decision-making process is crucial to the initial stages of investigating, considering and comparing providers (where are the branches located? How do the interest rates compare?) – but emotional factors are also critical.

For banks, in the battle of ‘head versus heart’, it seems the heart wins – the influence of family and friends were revealed to be the most important factors when it comes to customers choosing a financial provider. In fact, banks were the highest-scoring industry in our study for customer recommendation to family and friends. Consumers perceive their relationships with money to be important and, consequently, care about where they put their money and pay close attention to what banks say and communicate.

Banks do not skimp when it comes to investing in their marketing and advertising campaigns - it’s estimated that US financial institutions will spend $9.08 billion on digital advertising this year, up 12.1 per cent from 2016. But our study found that, crucially, family influence is surprisingly more powerful than advertising when customers are deciding where to bank, with more than half of customers (55%) following their parents and other relatives. Therefore, this ‘hand me down’ mentality could mean the difference between having a customer for life – or not at all.

Why does customer engagement matter for banks?

So, why is it important for banks to understand the emotional components of the decision-making process? Our research showed that customers exhibiting the highest scoring levels of engagement are consistently emotional in nature and the lowest scoring statements are rationally driven. Critically, the most engaged customers are more likely to stay with a brand for longer, spend more and recommend to family and friends – the primary aim of any bank.

Advocacy is the highest point in the evolution of the path to customer engagement, but the most significant in terms of customer value because it can only come from a customer who is completely immersed in the relationship. It is also the hardest outcome to achieve as it is dependent on the overall experience, interactions and perception the customer has built of the business up until that point. Satisfaction and trust are boxes banks need to tick before customers will think about recommending them to others.

The power of the customer marketer should not be underestimated as an invaluable tool for banks when it comes to attracting new customers. This means they must nurture their relationships with their existing customer base, but also look to extend influence in their lives to build engagement and hopefully secure loyalty and recommendation. In an industry where the customer’s heart wins over their head, advocacy should be the ultimate goal for banks.