Innovation is increasingly driving consumers to switch financial institutions. In fact, research from Resonate revealed that there are 5.6 million people in the U.S. who plan to switch banking providers in the next 12 months.
Resonate’s study also shows that people planning to switch financial institutions are 16 percent more likely than the U.S. population to value innovation when selecting financial services products. That correlates directly with “better online and mobile banking services” being a top reason for consumers who will opt to change financial institutions.
For many financial institutions, this could be alarming — but it could also be an opportunity.
Digital Tools Critical to Attract and Retain Customers, But They Must Be Innovative
In today’s digital world, it makes sense that consumers have a strong preference for outstanding mobile tools and experiences — making it critical that financial institutions meet these demands before their existing customers decide to make the dreaded switch. Additionally, competition among financial institutions for deposits has been heating up. Every financial institution is looking for ways to attract and retain customers.
To attract new customers that may be looking to switch, financial institutions must deliver on this preference for digital tools. But it requires more than just offering a mobile app — it needs to be innovative. Most financial institutions today have some type of digital offering, but they still lack the functionality and features consumers desire.
The million dollar question then becomes, what does “innovation” look like? This requires understanding what consumers really want and appealing to those needs.
Relationship-based versus Transaction-based Customers
First, it’s important to understand what drives loyalty. For the most part, financial institutions are viewed as transactional and rarely anything more, with nearly 80 percent of consumers viewing their financial institution as transaction-based, according to a 2019 report from Everfi.
Relationship-based customers, however, are typically more satisfied with their financial institution and are therefore more engaged. While this group only accounts for 12 percent of consumers, relationship-based customers tend to use three and a half products from their primary financial institution, compared to less than three for transaction-based. Clearly, the more engaged, the more profitable.
Financial Education Key to Loyalty
Financial education plays a major role in customer loyalty and gaining more relationship-based customers, as this group depends on their financial institution for advice and education to make better financial decisions. In fact, Everfi’s study revealed that two-thirds of relationship-based consumers say financial education is “an important factor when considering what institution to bank with.”
This is even more the case for the youngest generations. Millennials and the rising Gen Z group are hungry for financial guidance to give them greater confidence to make sound decisions.
This shouldn’t be surprising. Millennials especially carry one of the greatest financial burdens — student loans. With a staggering $1.5 trillion in student debt, this group wants financial education. In a recent PwC study, nearly 34 percent of millennials are unsatisfied with their financial standing, and 18 percent are “not at all” satisfied. More than half are concerned they won’t be able to pay back their student loans, including the 34 percent with household incomes greater than $75,000.
The reason for such concern is that millennials have not been well informed up to this point. Moneybox recently polled 2,000 18 to 35-year-olds, revealing that two-thirds of millennials say they’ve never been taught about financial planning, so they don’t know the best way to save or invest their money. Moreover, seven in 10 said they don’t know which financial products best suit their needs, and half of those polled said they don’t know what the advantages are of investing over holding cash.
Combining Financial Education, Savings Apps and Rewards
Financial and savings apps have seen a sharp rise over the last few years, and it should be expected to continue with new ideas bringing constant change to how consumers save money. For instance, there are apps that allow users to contribute to their account to improve their credit score. And, of course, there are apps that reward consumers through cash back.
But what about a savings app that rewards customers for improving their financial literacy by actually paying them to read educational articles or watch videos? After all, studies indicate that financial education leads to customer loyalty, so why not combine the two with a reward?
This is what Sparta, Michigan-based ChoiceOne Bank did. In January 2018, ChoiceOne launched a unique savings tool designed to attract and retain customers while building loyalty. Unlike any other savings app on the market, it actually pays users for engaging with content, creating higher user engagement for the financial institution and improved financial literacy for its customers with a reward. ChoiceOne’s customers simply watch an educational video or read an article from a library within the app, take a short quiz, and then money is added towards their savings goal as a reward.
Since offering the new savings app, ChoiceOne Bank has realized notable benefits. The financial institution has seen double-digit growth in users month-over-month. Additionally, total Plinqit deposits across all institutions have surpassed $300,000 and continue to grow. Also, many of ChoiceOne’s customers have already reached their goal, with the majority (80 percent) creating new goals to continue saving. Clearly, this new type of savings tool is proving to be highly engaging.
The financial institution’s employees have also noted major benefits. Customer are self-serviced, reducing the time and resources spent by employees to onboard. Additionally, because of the high engagement, cross-selling has become a more seamless process, allowing the financial institution to target customers with relevant product and service offerings.
“The difference between our new savings app — which actually pays users simply for reading or watching educational content — and a traditional savings account is the higher rewards and a better user experience,” said Adom Greenland, chief operating officer of ChoiceOne Bank. “Our customers love it and keep saving and engaging. We’re helping them reach their goals and foster stronger relationships, evidenced by the number of account openings and the amount saved.”
Creating a Win-Win Strategy
As financial institutions look to improve customer loyalty, they must consider what consumers want, especially as many look to switch.
First, they want a better digital experience beyond just a simple banking app. Second, they want financial literacy and the tools to make better financial decisions. This is particularly the case for millennials who are concerned about heavy student loan debt. Related to debt, millennials and consumers across all generations are looking for better savings tools with rewards.
By combining all of these, financial institutions like ChoiceOne can create a winning strategy by delivering a modern savings app that pays users for engaging with educational content. Financial institutions benefit from greater engagement and consumers benefit from extra money coupled with greater financial awareness — it’s a win-win.