Opinion Digital Banking

How traditional banks can fend off challengers with a ‘segment of one’ marketing strategy

Affinion's Karen Wheeler shares the secrets of competing with digital banks and other disruptors.

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Traditional banks have long dominated the industry but are increasingly coming under pressure from digital disruptors; up to a third of new revenue in the banking sector is being amassed by digital challengers, according to research published by Accenture recently. Barely a day goes by when we don’t hear of shifting market share. Berlin-based N26 launched in the UK last month with a 50,000-strong waiting list, while in September, Monzo recorded a £1bn valuation.

These industry disruptors, alongside Revolut,Atom Bank and Starling to name a few, have worried traditional players with their growth. Accenture’s report revealed a 63 per cent rise in new players in 2017 and this influx has even prompted some to launch their own challenger brands, such as BNP Paribas with Hello, Goldman Sachs with Marcus and Royal Bank of Scotland planning its own digital-only bank in the near future.

A meaningful relationship

Monzo has gained a reputation for exceptional customer service, so much so that its Net Promoter Score (NPS) of +80 is the highest of any UK bank, compared to the average of just +4. Most challenger banks have developed large groups of passionate fans by showing consumers that they are considering their views. Some have asked for help choosing names for new features or asked what new products they should develop, promoting a transparency and open culture that is attuned to a more modern way of thinking.

High street banks may have a long way to go before they can claim to be as open and innovative as some challengers, but providing a more personalised service can contribute to making customers feel valued.

Research suggests that if a business can become a meaningful part of a customer’s everyday life, long-term relationships are more likely to develop. This is achieved by making customers’ lives easier and delivering what is promised, which helps to convince them of the business’ worth. If a customer senses that “this company helps me when things go wrong”, they begin to move along the engagement journey from interest to loyalty. Treating problems with genuine empathy and showing sincere flexibility with respect to a customer’s finances will help banks to win and retain customers.

Focusing on the individual

These meaningful connections are very important for traditional banks in the face of digital challengers, so much so that marketing based on broad grouping by age, gender or any other parameter is no longer enough. Instead, marketers must begin to understand their customers as a ‘segment of one.’

The growth of sophisticated data-driven marketing has given banks new channels to collect data on their customers that allows them to understand a customer as a ‘segment of one’. This increase of available data gives them a better understanding of their customers’ behaviour, preferences and expectations better than ever before.

In the last two years alone, 90 per cent of the data in the world was created, showing the rapid rate at which data creation is increasing. By using complex algorithms and predictive models, banks can analyse the data to provide significant insight that can then be harnessed to develop products, services and marketing which is personalised for specific customers, rather than employing a broad-brush approach that does not engage the individual.  

Hyper-personalisation in action

Understanding their customer is one thing, but to compete with challengers, banks must use this knowledge to add value to their service. They can now access vast amounts of data, obtained from multiple touch points, which offers them an unprecedented insight into their customers’ behaviour and enables them to offer rewards and experiences that are genuinely built for them. A highly personalised experience that offers customers value added services such as relevant store discounts or priority restaurant reservations will help to drive advocacy.

Monzo is a good example of a challenger that is changing the personalisation game. Analysing customer transaction data, it is able to offer financial advice based on their regular spending habits. When a customer’s energy bill increases, Monzo can suggest moving to a cheaper supplier or will identify other ways to save money. This kind of added value is where traditional banks need to take note and forget basic segmentation.

Challenger banks have made enough of an impact in the industry to make traditional players sit up and take notice. By improving customer engagement, banks can transform their role and become an active and positive force in customers’ lives, offering them products that genuinely make a difference to them. With challengers showing how a ‘segment of one’ strategy can work, consumers expect a new level of service that banks must attain to, or risk being left behind.

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