Importance of customer loyalty programs in financial services sector

Reported by: |Updated: September 9, 2016

Financial services firms looking to keep their customer base engaged are starting to explore personalization as a competitive differentiator. This strategy is helpful as a marketing tactic to acquire new customers, but is doubly important for improving retention levels.

Anurag Saxena Country Head & GM, ICLP India,
Anurag Saxena Country Head & GM, ICLP India,

Thanks to social media and the digital revolution, customers now expect services in real-time. This has requiredbanks and credit card providers to focus their efforts on improving mobile and online services. And, as part of this, many have seen the value in exploring features tailored to their customers’ individual needs. Fortunately, the increase in the availability of rich data sets pertaining to behavior, interests, and motivations provides a significant opportunity to create these more relevant and personalized experiences.

At the same time however, people are becoming aware of the worth of their data. The saying that ‘if you aren’t paying for a product, you are the product’ has really struck a nerve for consumers – especially with regard to social media. Brands looking to use customer data to develop more personalized services must increasingly battle against a tide of opinion which, rightly or wrongly, purports that companies mainly collect personal data to pass on to third-parties or to bombard customers with additional marketing.

This is the struggle facing international banks and credit card firms as new loyalty and engagement programs based on large data sets come online. Brands must remain focused on building trust with their customers that their personal data is secure, and clearly demonstrate how they could benefit from more individualized services.

VALUE OF BENEFITS

The essence of a strong value exchange relationship between a business and its customer is one where the customer feels the benefits received are directly proportional to the data they have shared. A more personalized service is regarded as highly valued by consumers overwhelmed by generic communications and offers.

Real-time data pulled from various sources, including social platforms, point-of-sale, and financial transactions, all play a major role in helping brands define their customers’ behaviours and motivations. According to a Collinson Group survey of retail banking executives in 2014, developing a better understanding of customer lifetime value, and improving the use of customer data and insight actually ranked higher than investing in digital and mobile services, and further investment in branch infrastructure.

DATA PRIVACY

Of course, the issue of data privacy continues to make headlines with over 700 million data records compromised last year. TalkTalk and Sony were big casualties, bearing the brunt of significant reputational and financial damage, which act as a reminder of the existing risk. Up to now, the only obligation brands have had towards consumers regarding data has been enshrined by the law, with compensation only due to people if the rules are breached. However, in order for customers to continue to willingly share personal data, they will come to expect recompense for its use, loss or abuse. Data security is now a bare minimum, and if data analytics are to be deployed trust must be built now.

Brands must place the customer at the heart of their business models. The future of loyalty and customer engagement is about so much more than simply adding a few more enhancements to pre-existing rewards programs. The rapidly evolving relationship between brands and customers, the emergence of digital disrupters and developments in the regulatory environment mean that stasis is not an option.

TRANSPARENT WAY

We expect to see companies become far more proactive in accounting for how they store and use data, not just with regulators but directly to customers too. These measures will pave the way for a more transparent approach to data, which in turn will lead consumers to value those brands that have a proven track record with security and innovation. Global brands could even find themselves adapting loyalty and engagement strategies to reflect local attitudes to data sharing and privacy that may vary across territories.

In a world where data and the permission to make use of it, will separate the winners from the also-rans, striking the right balance between customer intimacy, and respect for privacy will become a key competency.

It is conceivable that the privacy/personalization pendulum will remain roughly at center for the next five to ten years. However, the level of scrutiny of how companies use customer data is likely to shift in the face of more frequent cyber attacks. The financial services sector must overcome this hurdle, and remain vigilant with the use and storage of personal data. Done correctly, the possibility exists to create a virtuous cycle where customers share even more data, allowing further innovation and personalized services to be developed.

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Anurag Saxena isCountry Head & GM, ICLP India, a company engaged in providing advice on customer loyalty programs



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