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Loyalty in Financial Services - UK - April 2014

“Financial services firms cannot expect their clients to exhibit loyalty when they feel that new customers are the ones getting the best deals. Indeed, most of the “loyalty” in the financial services market is due to customer inertia. Going forward, firms need to look at how they can reward long-standing customer relationships in order not to alienate the core of their customer base. Competing for new customers should not be a race to the bottom, especially as those who are more attracted to better rates or discounts will happily move again in the future anyway.”

– Stevan Obradovic, Financial Services Analyst

Some questions answered in this report include:

  • Which financial services firms have the most scope for improvement?
  • Is loyalty is a two-way street?
  • Do customers want tangible benefits for being loyal?

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • Financial services in context
            • Financial services among the worst rated when it comes to rewarding loyalty
              • Figure 1: Consumer perceptions of how well different firms reward loyalty, January 2014
            • Efforts to reward loyalty have yet to change consumer perceptions
              • Figure 2: Consumer perceptions of how well finance firms reward their loyal customers, May 2012 and January 2014
            • Supermarkets lead the way when it comes to loyalty scheme membership
              • Figure 3: Loyalty scheme membership, January 2014
            • Financial account switching
              • Car and home insurance are the two most widely switched products…
                • Figure 4: Switching of financial services products, January 2014
              • …and they are also the most frequently switched as well
                • Figure 5: Financial account switching, January 2014
              • Inertia in the current account market means that switching is relatively low
                • Reasons for switching accounts
                  • Cost and pricing drives switching behaviour, except in the current account market
                    • Figure 6: Reasons for moving financial services products, January 2014
                  • Attitudes towards loyalty in financial services
                    • Damning verdict on financial services firms
                      • Figure 7: Attitudes towards the approach of financial services firms to loyalty, January 2014
                    • Loyalty is seen as secondary to higher rates and better deals
                      • Figure 8: Attitudes towards the importance of loyalty to customers, January 2014
                    • Consumers feel that loyalty should be rewarded
                      • Figure 9: Attitudes towards consumer willingness to look for better deals, January 2014
                    • What we think
                    • Issues and Insights

                        • Insurers have the most scope for improvement
                          • The facts
                            • The implications
                              • Loyalty is a two-way street
                                • The facts
                                  • The implications
                                    • Most people want tangible benefits for being loyal
                                      • The facts
                                        • The implications
                                        • Trend Application

                                          • Pick ‘n’ mix rewards
                                            • Show me the loyalty
                                              • Mintel futures: Generation Next
                                              • Loyalty Across Different Industries

                                                • Key points
                                                  • Supermarkets come out on top
                                                    • Figure 10: Consumer perceptions of how well different firms reward loyalty, January 2014
                                                  • “Visual” and tailored discounts lead to positive perceptions
                                                    • Banks come out on top for financial services firms, but that does not mean much
                                                      • Utilities firms perform the worst, closely followed by insurers
                                                        • Younger clients much more likely to rate banks favourably
                                                          • Older clients have a higher appreciation of locality
                                                            • Almost two years on and not much has changed in terms of customer perceptions
                                                              • Figure 11: Consumer perceptions of how well finance firms reward their loyal customers, May 2012 and January 2014
                                                          • Loyalty Scheme Membership

                                                            • Key points
                                                              • Clubcard and Nectar card schemes have helped to push supermarkets into an unassailable lead
                                                                • Figure 12: Loyalty scheme membership, January 2014
                                                              • Entry of Tesco Bank into the current account market has potential to disrupt
                                                                • Credit cards offer scope for improvement
                                                                  • Insurers struggling to promote loyalty
                                                                    • Reward scheme participants have much more positive opinions about firms
                                                                      • Figure 13: Consumer perceptions of how well different firms reward loyalty, by credit card and bank loyalty scheme membership, January 2014
                                                                  • Switching of Financial Products

                                                                    • Key points
                                                                      • Car and home insurance are the most widely switched products
                                                                        • Figure 14: Switching of financial services products, January 2014
                                                                      • Older and affluent consumers more likely to have switched providers
                                                                        • Figure 15: Number of financial services products switched, by age and gross annual household income, January 2014
                                                                      • Credit card loyalty scheme members much more likely to have switched providers
                                                                        • Figure 16: Switching of credit card providers, by credit card loyalty/reward scheme membership, January 2014
                                                                    • Length of Time since Last Provider Switch – By Financial Product

                                                                      • Key points
                                                                        • Insurance products again top the list
                                                                          • Figure 17: Financial account switching, January 2014
                                                                        • Cash ISA and saving account switching is also relatively frequent
                                                                          • Current accounts are extremely ‘sticky’
                                                                              • Figure 18: Switching of current accounts, January 2014
                                                                            • Mortgage provider switching is relatively infrequent
                                                                            • Reasons for Switching Financial Products

                                                                              • Key points
                                                                                • Current accounts
                                                                                  • Customer service slightly more likely to drive switching behaviour
                                                                                    • Figure 19: Reasons for moving current account providers, January 2014
                                                                                  • Current account switching service and new entrants to the market
                                                                                    • Branch closures are not a big driver for switching activity
                                                                                      • Savings account/cash ISA
                                                                                        • Introductory and bonus rates are helping to drive switching
                                                                                          • Figure 20: Reasons for moving savings account/cash ISA providers, January 2014
                                                                                        • Older and more affluent customers keeping an eye on rates
                                                                                          • Car and home insurance
                                                                                            • Price, price and price
                                                                                              • Figure 21: Reasons for moving car or home insurance providers, January 2014
                                                                                            • Customer service and the quality of product
                                                                                              • Mortgages
                                                                                                • A better deal can lead to long-term savings in the mortgage market
                                                                                                  • Figure 22: Reasons for moving mortgage providers, January 2014
                                                                                                • Credit cards
                                                                                                  • Switching is heavily driven by new and better deals
                                                                                                    • Figure 23: Reasons for moving credit card providers, January 2014
                                                                                                • Attitudes Towards Loyalty in Financial Services

                                                                                                  • Key points
                                                                                                    • A damning verdict on financial services firms
                                                                                                      • Figure 24: Attitudes towards the approach of financial services firms to loyalty, January 2014
                                                                                                    • Find the right balance between rewarding loyalty and attracting new custom
                                                                                                      • Figure 25: Switching of financial services products, by agreement with the statements ‘Financial services firms tend to offer better deals to their new customers’ and ‘Financial services firms take their customers for granted’, January 2014
                                                                                                    • Building societies continue to stand out from banks
                                                                                                    • Importance of Loyalty to Consumers

                                                                                                      • Key points
                                                                                                        • More people want better rates than loyalty schemes
                                                                                                          • Figure 26: Attitudes towards the importance of loyalty to customers, January 2014
                                                                                                        • Very few see the point in showing loyalty to financial services firms
                                                                                                        • Consumer Willingness to Look for Better Deals

                                                                                                          • Key points
                                                                                                            • Clients believe that firms can put more effort into rewarding loyal customers…
                                                                                                              • Figure 27: Attitudes towards consumer willingness to look for better deals, January 2014
                                                                                                            • …but many also believe that it is important to do your own research
                                                                                                              • Perceived hassle of research and switching leads to customer inertia
                                                                                                              • Target Groups – Consumer Attitudes Towards Loyalty

                                                                                                                • Key points
                                                                                                                  • Apathetic consumers present the biggest target group
                                                                                                                    • Figure 28: Target groups, January 2014
                                                                                                                  • Apathetic – 33%of the sample
                                                                                                                    • Forgiving – 20% of the sample
                                                                                                                      • Fed-up – 22% of the sample
                                                                                                                        • Engaged – 25% of the sample
                                                                                                                          • Switching behaviour is higher among fed-up and engaged consumers
                                                                                                                            • Figure 29: Switching of financial services products, by target groups, January 2014
                                                                                                                          • Forgiving customers more likely to move because of service
                                                                                                                            • “Buying” loyalty
                                                                                                                                • Figure 30: Reasons for moving savings accounts and/or cash ISAs, by target groups, January 2014
                                                                                                                            • Appendix – Loyalty Across Different Industries

                                                                                                                                • Figure 31: Consumer perceptions of how well supermarkets reward their customers, by demographics, January 2014
                                                                                                                                • Figure 32: Consumer perceptions of how well local shops reward their customers, by demographics, January 2014
                                                                                                                                • Figure 33: Consumer perceptions of how well coffee shops/restaurants reward their customers, by demographics, January 2014
                                                                                                                                • Figure 34: Consumer perceptions of how well pubs reward their customers, by demographics, January 2014
                                                                                                                                • Figure 35: Consumer perceptions of how well airlines reward their customers, by demographics, January 2014
                                                                                                                                • Figure 36: Consumer perceptions of how well mobile phone companies reward their customers, by demographics, January 2014
                                                                                                                                • Figure 37: Consumer perceptions of how well banks reward their customers, by demographics, January 2014
                                                                                                                                • Figure 38: Consumer perceptions of how well credit card companies reward their customers, by demographics, January 2014
                                                                                                                                • Figure 39: Consumer perceptions of how well insurers reward their customers, by demographics, January 2014
                                                                                                                                • Figure 40: Consumer perceptions of how well travel firms reward their customers, by demographics, January 2014
                                                                                                                                • Figure 41: Consumer perceptions of how well utilities firms reward their customers, by demographics, January 2014
                                                                                                                            • Appendix – Loyalty Scheme Membership

                                                                                                                                • Figure 42: Most popular loyalty scheme membership, by demographics, January 2014
                                                                                                                                • Figure 43: Next most popular loyalty scheme membership, by demographics, January 2014
                                                                                                                                • Figure 44: Other loyalty scheme membership, by demographics, January 2014
                                                                                                                            • Appendix – Switching of Financial Products

                                                                                                                                • Figure 45: Most switched financial services products, by demographics, January 2014
                                                                                                                                • Figure 46: Less switched financial services products, by demographics, January 2014
                                                                                                                                • Figure 47: Number of financial services products switched, by demographics, January 2014
                                                                                                                            • Appendix – Length of Time since Last Provider Switch – By Financial Product

                                                                                                                                • Figure 48: Financial account switching – Current account, January 2014
                                                                                                                                • Figure 49: Financial account switching – Savings account, January 2014
                                                                                                                                • Figure 50: Financial account switching – Cash ISA, January 2014
                                                                                                                                • Figure 51: Financial account switching – Car insurance, January 2014
                                                                                                                                • Figure 52: Financial account switching – Home insurance, January 2014
                                                                                                                                • Figure 53: Financial account switching – Credit card, January 2014
                                                                                                                                • Figure 54: Financial account switching – Mortgage, January 2014
                                                                                                                            • Appendix – Reasons for Switching Financial Products

                                                                                                                                • Figure 55: Reasons for switching current accounts, January 2014
                                                                                                                                • Figure 56: Reasons for switching current accounts, January 2014 (continued)
                                                                                                                                • Figure 57: Reasons for switching savings account/cash ISA, January 2014
                                                                                                                                • Figure 58: Reasons for switching savings accounts/cash ISA, January 2014 (continued)
                                                                                                                                • Figure 59: Reasons for switching car or home insurance, January 2014
                                                                                                                                • Figure 60: Reasons for switching car or home insurance, January 2014 (continued)
                                                                                                                                • Figure 61: Reasons for switching credit cards, January 2014
                                                                                                                                • Figure 62: Reasons for switching credit cards, January 2014 (continued)
                                                                                                                            • Appendix – Attitudes Towards Loyalty in Financial Services

                                                                                                                                • Figure 63: Agreement with the statement ‘Financial services firms take their customers for granted’, by demographics, January 2014
                                                                                                                                • Figure 64: Agreement with the statement ‘Financial services firms tend to offer better deals to their new customers’, by demographics, January 2014
                                                                                                                                • Figure 65: Agreement with the statement ‘Financial services firms are more interested in rewarding loyalty from wealthier customers’, by demographics, January 2014
                                                                                                                                • Figure 66: Agreement with the statement ‘Financial services firms are all the same when it comes to rewarding customer loyalty’, by demographics, January 2014
                                                                                                                                • Figure 67: Agreement with the statement ‘Building societies are better at rewarding loyalty than banks’, by demographics, January 2014
                                                                                                                            • Appendix – Importance of Loyalty to Consumers

                                                                                                                                • Figure 68: Agreement with the statement ‘Better rates or cheaper products are more important to me than a loyalty scheme’, by demographics, January 2014
                                                                                                                                • Figure 69: Agreement with the statement ‘A loyalty scheme wouldn’t stop me from looking around for a better deal/product’, by demographics, January 2014
                                                                                                                                • Figure 70: Agreement with the statement ‘It’s worthwhile to stay loyal to a financial services firm’, by demographics, January 2014
                                                                                                                                • Figure 71: Agreement with the statement ‘It is difficult for financial services firms to reward loyal customers’, by demographics, January 2014
                                                                                                                            • Appendix – Consumer Willingness to Look for Better Deals

                                                                                                                                • Figure 72: Agreement with the statement ‘It is important to personally research for the best deals, rather than to rely on firms to offer you the best products/rates’, by demographics, January 2014
                                                                                                                                • Figure 73: Agreement with the statement ‘Financial services firms should make more effort to reward long-standing customers’, by demographics, January 2014
                                                                                                                                • Figure 74: Agreement with the statement ‘It is too much hassle to constantly look for better deals and change providers’, by demographics, January 2014
                                                                                                                            • Appendix – Target Groups

                                                                                                                                • Figure 75: Target groups, by demographics, January 2014
                                                                                                                                • Figure 76: Attitudes towards loyalty in financial services, by target groups, January 2014

                                                                                                                            Companies Covered

                                                                                                                            • Alliance Boots UK Retail
                                                                                                                            • American Express UK
                                                                                                                            • Lloyds Banking Group
                                                                                                                            • Nectar
                                                                                                                            • Sainsbury's Bank
                                                                                                                            • Tesco (UK)

                                                                                                                            Loyalty in Financial Services - UK - April 2014

                                                                                                                            £2,195.00 (Excl.Tax)