One of the biggest struggles facing the retail bank today is customer retention. If you are a ‘glass half empty’ person, then you will prefer the phrase: ‘customer churn’. Either way, for any bank, especially retail banks, holding onto the current customer base is a number one priority. 

A lot is written about how the banks struggle to achieve this and those of us who work within the financial technology space understand that the many, many excuses can be whittled down to some simple facts: it is easier to implement a strategy based on customer acquisition (especially for the marketing departments) and it is exceptionally hard to break down the internal silos within banks that would allow a cross-enterprise single view of the customer. However, I would contest that one of the main challenges the banks aren’t aware they face is understanding what really makes their customers tick. 

Now at this point retail bankers will throw a mountain of statistics and analysis from market research studies that contradict that statement. And they would be absolutely right to do so but only from the context of their customer as a banking client. In other words, they will fully understand the financial changes that an individual faces during their life, they will be savvy to how a customer wishes to bank and which channels are favourable to various types of people and so the list goes on. However, this approach fails to take into account both the sort of services that retail banks are putting in front of their customers and some essential lessons that the banks could take from other equally customer-centric industries. 

To start with the first - the way in which banks present themselves to their customers - it is clear that the banks are slowly breaking down the walls of single ownership of the customer. In other words that the bank will only talk and present services that are solely from their organisation. Instead we, the customer, will increasingly see other organisations marketed to us alongside and by the bank. At ATM cashpoints we already see adverts from a range of different organisations and this will increase considerably as the banks recognise this sort of activity as an additional revenue stream. We are also witnessing the banks collaborating with other organisations, to offer  pre-paid cards loyalty cards and, in the case of Barclaycard’s OnePulse, contactless cards including a transit application.

However, to get these sorts of services right, to make them of financial benefit to the bank and of perceived value (and not just an annoyance) to the customer, the banks have to attain a broader understanding of their customer outside of the banking environment. This takes me on to the lessons the retail banks could learn from outside of their industry, especially from the mobile phone sector. 

Given that the banks increasingly see the mobile phone as an important new channel to the customer, it is apt that they should be aware of what has made companies such as O2 such a success in this space. Although anyone who attended the recent FS Club meeting on the subject will know, the jury is very much out on how effective this channel will be for banks and when it is likely to become widespread.  

However, the banks can certainly learn from the mobile phone operators how a diverse understanding of the customer is so important. This applies at two levels which begin with the mobile phone operators’ desire to sell additional applications over the mobile phone – music, video, etc. – which are outside the core functionality of just being a phone. Basically, if the mobile phone operators are going to successfully promote the phone as a platform for such applications, they need to understand their customers beyond their use of the phone as a phone – i.e. appetite for music, and so on and so forth. 

At a more sophisticated level, mobile phone operators have understood that actually understanding their customers outside of the telephony world can also greatly enhance customer retention. By being more than just a mobile phone operator, brand loyalty will be increased. In the UK, where there are very few new customers for the operators to fight over, this is critically important for any customer retention and growth strategy. 

The leading light in this arena is O2. Anyone who has ventured into the resurrected entertainment wonderland of the former Millennium Dome, now The O2, will understand that being a mobile phone operator is less and less to do with phones. What O2 has done in The O2 is not just about enormous brand sponsorship but it is also about making the simple act of being an O2 customer worthwhile. In other words, if you are an O2 customer, you have a better experience at The O2. You are treated like a VIP, or at the very least you can have a far better time than anyone with a phone from a rival operator. What has this to do with phones? Nothing. What does it have to do with customer retention by understanding what is attractive to customers outside of their phoning lives? Everything. 

So, will the retail banks understand that they need to evolve their relationship with their customers outside of the banking environment? I think they will for the simple reason that it will always be cheaper to hang onto a customer than to go through the exceptionally expensive act of finding ways to attract new ones. But for the retail banks to do so it will require a gargantuan shift in the way in which customers are viewed and the relationship the bank is prepared to have with its customer. At the end of the day, the banks must make customers feel good and privileged to be with their bank because they know that the banks genuinely understand them.  

However, this is a long way from where the average banking relationship is today. Instead, banks concentrate on pushing their products, services and brand onto an ever more cynical audience. There is little discernible attempt made to demonstrate sympathetic understanding of the customer and to genuinely inspire brand loyalty. Until banks can crack this challenge, then the customer retention/churn dilemma will continue to plague the industry.