The following is a guest post from Jordan Glazier, CEO of Wildfire Systems.
The entire financial services industry must compete to retain customers. Even the significant disruptors to established finance — fintechs — now face challenges.
Other fintechs, armed with newer tech, must position themselves to attract a more loyal following.
Financial technology innovation constantly evolves, necessitating financial services organizations (FSOs) to develop their tech capabilities while improving user experiences. Payment organization PSCU, in its “2021 Eye on Payments” study, found nearly eight out of 10 survey respondents agree or completely agree that they want to do business with a financial institution that knows them personally.
Fintech organizations, capitalizing on the online and mobile shortcomings of the traditional financial ecosystem, have already changed how consumers invest, borrow, save, and transfer funds through digital services.
Some of the diverse types of non-bank-produced fintech include mobile wallets and peer-to-peer payment apps, such as PayPal, Venmo, Square, Apple Pay, and Google Pay; funding platforms, including Kickstarter, GoFundMe, Indiegogo, Patreon, CircleUp, and LendingClub; and Robo-advisory services, such as Betterment, Ellevest, and SoFi Invest.
Fintechs join FIs seeking customer retention
The PSCU study also noted that technology giants like Amazon, Netflix, and Spotify, among others, have introduced consumers to extreme personalization when shopping online, ordering groceries, watching TV, or listening to their favorite podcast — so it should come as no surprise that consumers now expect extra attention from financial partners too.
Similarly, fintechs that supercharged customer engagement and personalization now recognize consumers, even long-standing customers of a particular brand, are more digital than ever. They look for the best deals, even when considering online financial services.
So not only must FIs compete with fintechs for customers, but it sets up a challenge for any fintech providing its financial services to compete for consumers with other fintechs in the same vertical.
The competition for customers should intensify as more financial services options appear. Per Statista, the number of fintech startups, as of November 2021, reached 10,755 globally, with some 41% in the Americas.
Banking on customer loyalty
Since the pandemic, more than 75% percent of consumers have changed their buying habits, according to McKinsey & Company, which correspondingly discovered a shift in brand loyalty, with 39% changing brands or retailers, and 79% intending to explore options. In addition, McKinsey’s found loyalty programs can help offset the ongoing willingness among consumers to try new brands.
Introducing a loyalty program could help solve the dilemma faced by fintechs and FSOs seeking to strengthen the connection to customers. A loyalty program as a customer retention tool can foster long-lasting trust, shield customers from competition, and boost digitization efforts.
The Electronic Transactions Association also suggested using loyalty programs to nurture long-lasting regulars. Contemporary loyalty programs integrate mobile payments, rewards, and e-commerce technology to entice customers to return.
Rewarding fintech customers
The key for financial service organizations is to incentivize online interactions, deliver loyalty programs that add value to their peoples’ lives, and provide a robust customer retention instrument offering more attractive deals than competitors.
Tearsheet acknowledged that fintechs have already traveled down this loyalty road by getting more aggressive and creative around debit card rewards programs. After the 2009 financial crisis, financial institutions pulled back on their debit card rewards programs. With the growing popularity of fintechs and challenger banks, new rewards programs began re-emerging in the debit card space.
Rewards have also become a big part of financial services. Capital One, for example, constantly hypes its rewards program (Capital One Shopping), and in 2019 PayPal acquired Honey Science Corp. with its suite of money-saving tools, including rebates and rewards programs.
Fintechs, like financial institutions, have another loyalty driver at their disposal to help replace dwindling revenue streams and provide financial rewards to customers, which drives customer loyalty and increases the share of the wallet. That alternative comes in shopping rewards and cashback driven by e-commerce.
PSCU’s survey also found that 91% of all respondents shop online at least a few times per month, and nearly one in three shops online at least once a week or more. Integrating an e-commerce shopping rewards program could help fintechs build new income sources and underpin customer retention and loyalty through customer benefits, personalization, and digitalization.
FSOs have dabbled in customer rewards programs such as offer walls and card-linked offers. But these have several disadvantages, including a high level of effort to integrate and deploy and low customer participation.
Rewards funded by merchants are not new. When a customer makes an online purchase, merchants often pay the referring source a small percentage of the sale. Merchant-funded rewards are one of the most impactful tools available to financial service organizations that seek to increase revenue and create repeated positive interactions for their customers, thus increasing loyalty.
Fintechs that provide personalized experiences and a relevant, tangible, and easy-to-maintain e-commerce-based loyalty program drive their rewards through customer retention and new merchant revenue streams.