Complex Made Simple

Traditional banks are reimagining the race to the top

With the disruption now faced by the whole industry, banks face a once-in-a-generation opportunity to truly engage with customers and find unique ways to add value and differentiate themselves

Digital experiences must be rolled out in the context of existing infrastructure Digital transformation allows financial services brands to be more interactive with their customers Loyalty programs are one of the most effective ways for financial service providers to engage with clients

By: Sanjit Gill – General Manager – Middle East at Collinson

Consumers may be reluctant to fully rely on challenger banks, as they still perceive the cost of switching to be high, and coupled with a ‘flight to safety’ amid economic turbulence, many have been hesitant to move all of their financial matters. However, the convenience of a digitally-native, seamless customer experience means that their cards are finding their way into more digital wallets. These relative newcomers are increasingly being used for day-to-day purchasing, as tech-savvy consumers recognize the advantages that up-and-coming fintechs can offer. For sure, traditional banks are still feeling the threat of these challengers, and many are trying to understand both the nature of the challenge and how they can respond to it.

For example, many new banks have the distinct advantage of not being tied to legacy systems, and as such have the ability to run more agile, mostly cloud-based operations. They also have the advantage of a blank slate when it comes to building reputations for customer service, without the added burden of staffing and maintaining physical branch networks. As such, it’s unsurprising that digital banking has seen more uptake during the pandemic, resulting in increased market share for challenger banks.

With the disruption now faced by the whole industry, banks face a once-in-a-generation opportunity to truly engage with customers and find unique ways to add value and differentiate themselves.

The challenge for traditional banks will be to ensure their payment cards hold the top spot in consumer wallets, helping them to fend off competitors while increasing transaction volume. Some regional banks, alert to the competitive threat, have launched standalone neobank brands, including Emirates NBD’s Liv and Mashreq Bank’s Mashreq Neo. To truly stay ahead, however, traditional banks will need to rethink customer engagement, with targeted programs responding to consumer demands for simplicity, transparency, and value.

 Driving Customers to Digital Channels

Even prior to the pandemic, financial service providers had been focused on reducing costs – as evidenced by the closure of bank branches, reduction in staff numbers, and the implementation of new efficiency-focused technology. Increased use of digital channels, from websites to apps and even social media, can help further as they reduce the need for physical branches and call centers. Yet for traditional banks, this can be difficult to implement, as digital experiences must be rolled out in the context of existing infrastructure.

Digital-native banks, on the other hand, have never had to deal with physical branches – this means that their digital capabilities are integrated across the board, making for a more consistent and intuitive customer experience. Traditional banks can take cues from what fintechs are doing in terms of which experiences are more popular with consumers, before committing to transformation projects – but in any case, the goal should be to drive customers towards the most frictionless (frequently digital) channels, to future-proof their business.

 Using Data and Rewards to Drive Engagement

Digital transformation also allows financial services brands to be more interactive with their customers, facilitating better engagement – however, this requires unique customer data to better understand their behavior and anticipate their needs, a challenge that can often be made more complex by data privacy regulations restricting the level of granular insight that a bank can gain.

As payment transactions are often the most frequent interaction a customer has with their bank, loyalty rewards are an effective way to obtain more than just transactional spend data; it incentivizes the customer to use a particular payment card more often; ideally exclusively. In the MENA region, miles rewarded by airlines, are an extremely effective method used by banks to promote repeat spending and cement loyalty. The more a customer spends on their card, the more points they can trade in for airline miles, which are then used to avail of discounted or free flights or seat upgrades. Another example of this would be a co-brand card between a bank and an airline, where the earning of miles is autonomous and spends on your card are automatically converted into miles of the partner airline.

Loyalty programs these days are not limited to just travel rewards, although these are still very popular. Instead of having an array of card products with singular reward propositions, the best programs in the region have recognized that having a singular card proposition for earning, but a multitude of reward options, is what customers want. For example, giving their customers the choice to redeem for cash-back, shopping vouchers, online shopping brands, pay their utility bills and the option to donate to a charity of their choice, are just a few of the options giving their customers full control of how they redeem and get rewarded. 

This type of active participation in a loyalty program presents an opportunity to engage customers with marketing communications and personalized rewards matching their preferences and spending patterns. Not only do these rewards raise perceived switching costs, as the customer would be sacrificing an opportunity by not continuing to use the card to earn further rewards or gain prestige, they also enable credit card issuers to earn more through the increase in transactions.

 What’s next for this industry/sector?

Against a backdrop of fierce competition and revenue stream reduction, it is imperative to engage more interactively with customers.  Loyalty programs are one of the most effective ways for financial service providers to do this while differentiating themselves in an already crowded market. To fully leverage customer data opportunities, they can choose to work with a specialist payment-linked rewards provider to integrate payment information and rewards program data in a digital loyalty commerce ecosystem.

This is exactly what First Abu Dhabi Bank (FAB) is doing with FAB Rewards, its enhanced and improved customer loyalty program developed in partnership with Collinson. FAB Rewards is unique in that it enables program members to earn points not just on card expenditures, but through interactions as diverse as taking out a personal loan, registering with digital banking channels, maintaining an average monthly account balance, and salary transfer. Points can also be redeemed for the broadest range of benefits, including store vouchers, point-of-sale discounts, dining-out experiences, flight and hotel bookings, cash-back, and even to pay utility bills.

Brand engagement through personalized offers and incentives are key to winning over customers initially and can help put payment cards top of wallet and mind. The insights gained from this additional data can then help banks to create even further personalized and relevant real-time offers and rewards, thereby driving card use even higher – and demonstrating the real power of a rewards program.