How Consumer Banks Will Survive This Recession

The Looming Economic Storm: How Consumer Banks Will Survive This Recession

Sago surveyed more than 3,000 customers of the 20 leading financial institutions in the U.S. Explore our five key findings from the 2022 US Banking Industry Loyalty Report, created in collaboration with Apex Scoring System.

Should Consumer Banks Shift Their Perspective When Addressing Internal Challenges?

Consumer banks are looking at a strong likelihood of an economic recession in the wake of the COVID-19 pandemic. Rising central bank interest rates are eating into lenders’ profit margins, hamstringing opportunities for growth.

Consumer banks are under increasing pressure in all areas:

• They are facing greater scrutiny from regulators and investors.
• Cultural and political issues are pushing companies to take sides (virtue signaling).
• Digital-first challenger banks are disrupting the status quo for legacy banks.
• People and technology are not aligned, leading to friction.
• They are facing skills and labor shortages (“the Great Resignation”).

To overcome this, banks need to improve alignment with market conditions, in addition to consumer behaviors and expectations. The solution is to look outward, rather than inward.

Legacy consumer banks should focus less on managing internal resources, and more on listening to their customers externally. Apex suggests banks should “listen like they are wrong” to reveal important clues and to get down to the root of the problem. Right now, legacy consumer banks are stuck on surface-level issues.

Is Consumer Loyalty the Key to Survival for Consumer Banks?

Consumer loyalty is important as it etches the line between repeat customers and one-off customers. This does not mean loyal bank customers will continue to engage in their normal banking business as pre-recession rates. It does mean banks who can keep customers even mildly engaged will fare better than those who do not maintain relationships through the recession.

Four simple steps to cultivate customer loyalty:

• Develop market-leading banking products and services.
• Communicate via marketing materials to the right audience and show them how you target their exact pain points when banking.
• Deliver what you say you deliver in your marketing materials, in the customer experience (CX), and in your banking services.
• Continuously improve your service offerings by using market research insights and marketing technology (MarTech) tools, in alignment with market preferences.

The main takeaway here is that, as a bank, you have a relationship with your customers. Consumers already generally know what you offer. They need a reason why they should use your services over competitor offerings when times get tough.

So, make their why your thing!

Five Key Takeaways Reflecting the Current State of Consumer Loyalty in the U.S. Banking Industry in 2022

A large part of consumer loyalty is determined by the emotions felt along the customer journey. If customers feel frustrated using your banking services, they might vote with their feet and opt for a competitor’s product.

Leverage these key takeaways from the 2022 US Banking Industry Loyalty Report to drive customer loyalty.

1. Consumers Want a Forward-Thinking, Affordable Banking Experience

Legacy consumer banks should take notes from challenger banks in the U.S.

Challenger banks excel at creating forward-thinking and affordable banking experiences.

They do this by leaning into digital-first experiences and by following consumer feedback rather than industry status quos. New technology is introduced for the benefit of the customer experience (CX), not to optimize the bank’s bottom line.

For legacy banks, this reflects a growing apathy toward traditional banking services. Stagnant innovation has created an opportunity for new competitors who innovate while also making banking cheaper. Meanwhile, legacy banks are now viewed as outdated and expensive.

2. Consumers Want Uncomplicated Money Management

Managing money is complicated, and the last thing consumers want is their bank to further complicate the process. This suggests a need for simplification.
Challenger banks have focused on market trends such as simplifying their services. This alleviates anxiety and uncertainty felt by consumers, providing a better CX than legacy banks.

Legacy banks should follow the innovators and aim to reduce the complexity of their service offerings. This could include adding more functionality to banking apps like budgeting and saving automation, as well as streamlined access to customer support for faster incident resolution.

3. Consumers Expect Dependability and Respect from Banks

Legacy banks are not viewed as dependable or respectful, which is leading to a loss of credibility among customers. These emotions are being underserved as consumers express a need to be treated as human — not just as a bank balance.

4. Consumers are Not Feeling Joy When Banking

Legacy banks fail to evoke a sense of joy in their customer base. Meanwhile, challenger banks achieve the opposite and create joy for customers. Some of this is the novelty and innovation seen from challenger banking services. Otherwise, better customer service experiences and reduced complexity are big factors.

Mostly, this lack of joy reflects growing apathy and disillusionment with legacy banking providers. Therefore, legacy banks should identify opportunities to cultivate joy using market research and redevelop their banking services in alignment with the emotional needs of consumers.

5. Consumers Don’t Just Want Predictability; They Need It.

Over 75 percent of consumers say “predictability” is the most important driver of loyalty. This means predictable banking services are no longer a nice-to-have; consumers regard them as a necessity.

This ties back into “say what you do, and do what you say.” Customers want to trust and depend on your words and your services. To cultivate this, legacy banks should make it very clear what consumers can expect when interacting with the brand and its services. Start by under-promising and over-delivering. Then increase your promises and deliver according to newly defined expectations.

Consumer Banks Can Beat the Recession with Help from Sago

A looming recession is a threat for consumer banks. To overcome this threat, legacy banks need data and insights on the market to guide their next steps.

Sago is a global research partner for consumer banks that need quantitative and qualitative data collection support. Our experts collect and process this data to generate actionable insights on the banking industry using our suite of quantitative, qualitative, and sample solutions, or through our self-serve platform, Methodify.

Market research helps legacy banks improve their operational alignment with the emotional needs of their customer base. Other benefits include greater focus on customer-centricity in the wider business strategy and better customer experiences through targeted product and service improvements.

To book a consultation with Sago for your next research project, get in touch today.