Customer loyalty a missed opportunity for digital-first banks

26 October 2021 3 min. read

Jehan Sherjan, Insights Director at business advisory SRM Europe, outlines why customer loyalty – or more precisely, failing to build a loyal consumer base – is a missed opportunity for digital banks.

In March 2020 when the world was knocked off its axis by the torpedo that was Covid-19, much was spoken about the ‘return to normality’. Almost 18 months on, it’s almost universally agreed that many aspects of how we live will never go back to exactly how they were before. Amongst those shifts is how we interact with our bank or building society. 

Opening hours on the high street were reduced during lockdowns and for the hundreds of thousands of citizens who were shielding at home, physically visiting their local branch simply wasn’t an option. The opportunity for digital banking use to increase was clear. Indeed, estimations now place the percentage of UK consumers utilising digital banking at 73 per cent.

Pandemic Index

Based on this growth, it may be fair to assume that customer loyalty would have increased most amongst the UK’s pure digital banks. Our data, which forms part of SRM Europe’s Customer Loyalty research, however, suggests otherwise.

Whilst the traditional high street banks occupy half of the bottom ten performers as one might assume, it is only Starling Bank and Monzo as pure digital players that appear within the top ten. Indeed, Starling Bank has proven itself to be the stand-out performer and now stands almost neck and neck with second-place Nationwide, behind the top-performing brand, First Direct which has commanded the top spot for six of the past eight years.

Our research covers 28 of the UK’s leading retail banks and building societies and has been carried out since 2012. It covers a range of customer metrics with the aim of uncovering the factors that influence customer loyalty. The 2021 report covers three key measures that examine how highly the customer feels valued; how the brand has maintained expected service levels throughout the pandemic; and the timely and relevant communication of information between the brand and its customers.

The benchmark confirms First Direct as the brand with the strongest overall performance in all areas. Whilst Starling and Monzo claimed top ten places, Atom was placed at 11th and Revolut, at 17th, fared particularly badly relative to its digital peers.

Starling Bank has convincingly assumed its role amongst the leading pack, thanks to easy to use and functionally rich digital channels, a sense of relationship with its customers, and a strong pandemic performance. However, inconsistent performance in service experience and aspects of pandemic performance have negatively impacted the likes of Revolut and, to a lesser degree, Monzo.

As well as the pandemic experience, SRM Europe’s research also examines factors including experience, digital, emotional, and social and relationship that influence levels of customer loyalty towards the bank they use.

And the findings are clear. Critically, whilst digital experience and associated functionality are vital measures to get right, alone they do not equate to customer loyalty. Simply, consistent delivery across all key measures is vital to secure and maintain customer loyalty. Excellence in one area alone, even if that is the digital experience during a period when it has been much needed and indeed celebrated, simply won’t cut it.

What this tells us is that to maintain and grow loyalty, successful retail banking brands must provide a comprehensive focus on the customer beyond strong digital and transactional foundations. Where digital players have invested time and effort to develop the attributes of a relationship with their customers, they’re experiencing strong customer loyalty – in much the same way as other successful players (notably building societies and speciality banks) for whom the relationship element has always been so important, continue to invest in building a robust digital offer.