Digital disruption in finance: How to understand your online tribes and respondby
PayPal, TransferWise, Zopa, Fidor – nimble digital brands are radically disrupting financial services. Whilst traditional banks are investing heavily in developing and promoting their own digital services, there is a need to recognise the differences in how consumers choose to use digital channels. Investment in digital is essential; not only to drive efficiency and cut costs, but to reach new customers as increased competition and technology change the nature of the sector.
Alternative choices for managing money mean that retaining and rewarding customers in a way which reflects their personal preferences and motivations is more important than ever to ensure brand loyalty. To help understand these differences, we recently surveyed 4,400 affluent middle class consumers (within the top 10-15% income bracket) in Brazil, China, India, Italy, Singapore, the United Arab Emirates, the UK and USA. This group is increasingly valuable to brands as they have been shown to have the power to influence other consumers. The research identifies four global “tribes”, or groups of people, who share common traits which cut across age, gender and international boundaries:
1. Prudent Planners are motivated primarily by family and altruistic goals. Three quarters of this tribe cite spending time with family as their top indulgence. As the largest proportion within the affluent middle class, this group will represent around 2 billion consumers by 2030 and is well-represented in the USA, UK and Italy. They are valuable customers but are less motivated by material products.
2. Stylish Spenders are a small but influential tribe representing 8% of the affluent middle class globally. Over half are under 35 years of age with 32% earning over $190,000 a year and this group is particularly prominent in China and the United Arab Emirates. Despite their spending power, this group is the most loyal to brands they trust, participating in an average of five loyalty programmes and feeling loyal to up to eight companies.
3. Mid-Life Modernists stand out for their enthusiastic use of technology, with 90% spending more than five hours a week using their smartphone and 45% spending over 20 hours a week of their leisure time online via a computer. As a result, digital experience has a significant influence on this group and businesses which invest in this area can create powerful advocates amongst this tribe. This tribe is most prevalent in India and Singapore.
4. Experientialists want unique, money can’t buy experiences and exclusivity rather than standard products and services. This group is most likely to enjoy experiencing different cultures and use travel as a way of keeping in touch with friends and family and is prominent in China and the United Arab Emirates. Experiences such as spending on holidays, dining out and luxury foods are also a priority.
What does this mean for financial services brands?
Delivering a great digital experience is essential in order to remain competitive in the financial services market, attracting and retaining new customers. Using Big Data to better understand behaviour provides the opportunity to deliver timely and contextually relevant marketing, and to connect with customers’ emotions. Each of the tribes shows distinct preferences in how it uses technology and what it expects from their digital interactions. It is more important than ever to address how these consumers wish to engage with their banks.
Prudent Planners continue to value face-to-face interactions as well as digital services, so retaining this as an option is key for this sizeable segment. This is particularly important in areas such as banking, where branches are closing and there is a shift towards online and mobile services. Metro Bank in the UK caters for this group, emphasising its branch experience while still offering online banking and apps, which suit other tribes. Banks should also think about the best way to reward these consumers, as they are more interested in experiences rather than pure monetary rewards.
Stylish Spenders expect companies to know who they are and offer highly tailored offers and content. As a result, they can be powerful advocates for brands which develop relevant and engaging digital experiences. Banks should look to build services with responsive platforms, as well as applications that provide access to account details and financial planning services.
Financial brands need to think carefully about how they deliver digital experiences in China and the UAE, where this group is most prominent. Programmes like Barclays video banking for its premier customers are appealing to the stylish spender, where they are able to have a face-to-face conversation with an adviser via their smartphone or tablet wherever they are in the world.
A seamless experience across digital channels is important for Mid-Life Modernists, the most active users of smartphones, tablets, smart TVs and apps. In the US, 90% of consumers use their mobile phone for ten hours or more per week; and our research indicates a growing trend among consumers who use mobile applications for banking services (this is highest in India at 59%). This tribe is interested in modern, sophisticated digital design and a seamless handover as they move between these different channels.
In the US American Express has recently enabled customers to use its reward points to pay for Uber, illustrating a smooth transition between brands and an incredibly convenient experience for users. Banks are currently missing an opportunity to reduce the cost of their loyalty programmes by managing their own reward and redemption programmes. These programmes offer banks an opportunity to increase their revenue streams, allowing them to raise their card fees. Customer benefits like lounge access, card assistance and insurance solutions need to be offered on mobile applications and sites to ensure a truly omnichannel experience. Research by Cognizant has shown that more than 40% of banking happens through a mobile application, and that the quality of this experience is the reason why a third of consumers will stay with their bank.
Experientialists ‘live for the moment’ and expect fresh content, regular updates and unique experiences from their financial service providers. Marketing has traditionally focused on geographical or demographic segmentation but digital is making it easier to segment activity based on customer behaviour and common attitudes. It also makes it easier to focus on the customers who will have the biggest impact on the business and for many financial services, travel and luxury brands, this is the affluent middle class consumer.
How to respond
Understanding the nuances and variations in how consumers choose to use online channels is important in the rush to digitise financial services. There are however some commonalities which all financial services brands should consider:
1. Personalised service: despite significant investment from banks in digital and customer systems, 83% of UK consumers still feel that their bank does not know or understand them and less than a third feel they receive a high level of personal service. Personalised and consistent communications, rewards and service regardless of how customers choose to interact with a bank is important for the affluent middle class globally. Our research has found that customer engagement improves by a third amongst individuals who ‘feel understood’ by their bank and a further third for those who say they receive a seamless multichannel service – whether in person, by phone or via digital channels.
2. Recognition and reward: our research found that not being rewarded for loyalty is the biggest frustration for affluent middle class consumers, cited by two thirds of respondents, ahead of poor interest rates and charging unnecessary fees. Many banks offer standardised, purely transactional loyalty programmes which rely on traditional points-based rewards and lack the emotional appeal to build loyalty. Optimising digital channels to modernise how customers are recognised and rewarded is key.
3. Choice of reward is important in boosting loyalty: we are seeing companies in other sectors, for example mobile operator, O2, offers a wide range of rewards and the option for consumers to choose what value they derive from a brand relationship. This includes a breadth of offering from concert tickets to unique, money can’t buy experiences, which appeal to the changing motivations of mass affluent consumers. Some banks still tend to think of rewards which relate to other financial services or points-based programmes. Experientialists “live for the moment” and expect brands to offer unique experiences to maintain their interest. Meanwhile the Prudent Planners appreciate rewards which they can share, which offer longer term gain and which can also be extended to their family. The younger generation in particular display emotional motivations that are altruistic and believe that brands should take action to show wider social responsibility. Offering charitable redemption offers appeal to this audience.
4. Simplify redemption: a well put together and effectively delivered digital experience has real potential to offer immediate rewards to valued customers and a common perception is that many current loyalty programmes make it hard to earn enough points to access the best returns and that redemption processes are too complex. Giving customers greater flexibility in how they access rewards will enhance the experience and differentiation of a programme. For example, enabling consumers to pay with cash, points or a combination of both and offering mobile wallet style services allows for accessible and convenient redemption. Many financial services brands do not have a platform which enables this degree of flexibility and rethinking systems to offer this approach can greatly improve engagement and loyalty.
5. Real-time engagement: Social media and mobile services encourage an ‘always-on’ attitude and mean consumers continually expect fresh content from reward programmes. There is an opportunity for card providers to offer real-time, tailored promotions and redemption at the moment of purchase online and in store. This boosts customer loyalty and offers brands the opportunity to build greater connections with their customers. In return, financial services providers can track spend, understand who their best customers are, and motivate behavioural change. This can be jointly funded by merchants who benefit from increased footfall. Customers realise value from frequent use of their bank card, and the perceived value of the loyalty programme is greatly increased. Smartphones, apps and digital experiences are highly valued by Mid-Life Modernists and offering promotions and price comparisons via mobile devices, particularly those that can benefit a whole family, is an effective way to engage with them.
If financial services brands address the points above, there is a real opportunity for the mass affluent consumers, to become powerful brand advocates. Our study found that the affluent middle class are willing to reward organisations which cater for their personal motivations, and financial firms can cater to these at various points of customer interaction as long as there is value exchange for customer participation. Nearly three-quarters (72%) are willing to make a repeat purchase from a brand they feel loyal to, 70% would recommend that brand to friends and family and 53% will choose a particular brand even if it is more expensive – directly impacting the bottom line and driving customer loyalty.
Christopher Evans is director at Collinson Group.
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It's not a very old concept that you need to understand your customer better in order to present them with a better solution or service. These days as people are becoming better travelled, it would just make sense to ensure that the finance options that are available to people also become more savvy and dedicated to their needs.