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Canadian Loyalty to Financial Institution Reveal ‘Soft Satisfaction’ 62% Open to Change

Survey Insights | April 9, 2024

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How digital transformation is influencing Canadian loyalty to financial institutions

The digital age is transforming the landscape of financial services, compelling Canadian financial institutions to reassess their strategies for maintaining customer loyalty. A recent survey by Abacus Data, conducted with 3,550 Canadians, shows the evolving relationship between Canadians and their financial service providers. With the imminent implementation of open banking legislation, this article looks at the current state of financial institution loyalty in Canada, offering insights into consumer behavior, preferences, and potential industry shifts.

How Consumers Look at Loyalty to a Financial Institution

Consumer loyalty to financial institutions refers to a customer's continued preference for and engagement with a specific bank or financial service provider over others. This loyalty can stem from various factors, including satisfaction with the institution's products and services, the perceived value these services offer, the quality of customer service, and the level of trust the consumer places in the institution. Loyalty is not just about a reluctance to switch to another provider; it often involves a deeper emotional connection, where the customer feels a sense of allegiance or commitment to their financial institution.

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According to the survey results, the top reasons for 'remaining with a financial institution' are:

  • 51% Long standing relationship
  • 46% Convenient branch / ATM locations
  • 44% Satisfactory customer experience
  • 42% Familiarity with Bank's online and mobile platform

Let's break it down further and look at the key dimensions typically characterize consumer loyalty in the context of financial institutions:

  • Trust is a foundational element where customers believe their financial institution acts in their best interest, keeps their money safe, and maintains confidentiality.
  • The contentment or satisfaction experienced or perceived from the institution meeting or exceeding customer expectations in terms of products, services, and customer support.
  • The convenience or ease of accessing and using the institution's services, including branch locations, online banking, and mobile apps, which can significantly influence loyalty.
  • Personalization of services and communications to individual needs and preferences, making customers feel valued and understood.
  • The frequency of engagement and communication between the institution and the customer, including feedback mechanisms, responsiveness to inquiries, and the overall customer service experience.
  • Loyalty programs designed to reward customers for their continued business, such as points, lower fees, or higher interest rates on savings accounts, which can enhance the perceived value of staying with an institution.

See:  Open Banking: Revolutionizing Financial Data Sharing

Loyal customers are likely to use more of an institution's products and services, recommend the institution to others, and are less sensitive to price changes. In the competitive financial services sector, fostering consumer loyalty is crucial for retaining customers and achieving long-term success.

Are Canadians Satisfied with their Bank?

According to the survey results, most Canadians—about 7 out of 10—say they're happy with their main bank. Also, 77% are happy with how easily they can access their accounts and do banking online, and 69% like the products and services their bank offers.  However digging into the details shows that people aren't exactly satisfied with their full experience:

  • Only about half or 52% of the people feel like their bank really values them as a customer
  • Only half  or 51% think their bank is looking out for their best interests when it suggests products or advice
  • People also have mixed feelings about whether the fees they pay are fair for what they get

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This points out a problem: It shows there's a big difference between what customers hope for and what they actually get from their banks, especially when it comes to personal attention. Banks need to focus more on making their customers happy, building trust, and making them feel valued. If they don't, they might lose these customers to competitors, especially as more choices become available in the banking world.

How about their willingness to switch?

The hassle associated with switching providers is a significant barrier, cited by 35% of Canadians. This includes the inconvenience of transferring direct deposits and updating account information, indicating a need for streamlined processes to facilitate customer mobility.

One of the survey's critical insights is the identification of the hassle associated with switching providers is a significant barrier, cited by 35% of Canadians. This includes the inconvenience of transferring direct deposits and updating account information, indicating a need for streamlined processes to facilitate customer mobility.  Some of the other top barriers to switching that were cited include:

  • 35% too much of a hassle / time consuming
  • 21% difficulty in transferring payments/deposits
  • 21% loyalty with current institution
  • 20% concerns about penalties or fees/fines for switching

As a follow-up question, consumers were asked about their willingness to switch if the process were more streamlined (aka Open Banking) and a total of 62% said that they would be open to switching.

Abacus data willingness to switch if the process were streamlined - Canadian Loyalty to Financial Institution Reveal 'Soft Satisfaction' 62% Open to Change

Image: Abacus Data survey

Keeping Customers Happy in the Digital Era

Key findings reveal a marked readiness among younger demographics to consider alternative financial services, hindered primarily by the perceived hassle and administrative burdens associated with switching providers.  Notably, many Canadians base their choice of financial institution on convenience and reputation rather than the financial benefits or service quality offered. This decision-making pattern suggests a market ripe for disruption, where open banking could catalyze a shift towards more informed and value-driven consumer choices.

See:  BoE Report: Open Banking Boosts Productivity, Competition

Key stakeholders can immediately focus on improving their offerings such as:

  • FinTechs and banks should streamline online onboarding, making it easier for consumers to switch or open new accounts, possibly through a unified digital ID system. This could significantly reduce the administrative hassle associated with switching providers.
  • Leveraging data analytics and the power of artificial intelligence, institutions can offer personalized financial products and services. Tailored solutions could attract those who may not have considered switching due to a lack of compelling alternatives.
  • Educational initiatives to improve financial literacy can help consumers make informed decisions based on more than just convenience or familial ties. This is particularly relevant for younger demographics who show openness to change.
  • Focus on improving the overall customer experience, from digital interfaces to customer service responsiveness. Satisfied customers are more likely to remain loyal despite the allure of alternatives.

How Canada's Open Banking Regulations Complement Current Consumer Trends

Open banking regulations are expected to streamline the process of sharing financial information between institutions with consumer consent, thus minimizing barriers. This facilitation could encourage more Canadians to consider alternative providers if the process is perceived as less cumbersome and time-consuming.

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By allowing third-party developers to access financial data through APIs—with consumer consent—it promises a new era of financial services characterized by increased competition, productivity, consumer choice and personalized offerings.

1. Enhance Competition and Consumer Choice

The survey's revelation of a significant openness among Canadians to switch financial institutions aligns perfectly with open banking's ethos. By facilitating easier data sharing and simplifying the transition between providers, open banking is poised to lower the barriers highlighted in the survey, potentially ushering in a wave of consumers ready to explore alternative financial services.

2. Drive Financial Innovation

Open banking's emphasis on data sharing and consumer empowerment could directly address the survey findings that highlight a preference for convenience over financial benefits. It offers Fintechs and traditional banks an unparalleled opportunity to innovate, providing consumers with solutions that offer real value, from personalized financial products to comprehensive management tools that enhance financial literacy and decision-making.

3. Address Barriers to Switching

The administrative hassle associated with switching financial providers—a significant barrier identified in the survey—could be mitigated through open banking regulations.

See:  Feds Promise Open Banking Laws in 2024 and to Broaden Access to Payments Canada

Streamlined processes for sharing financial information between institutions could encourage more Canadians to consider their options, making the financial landscape more dynamic and competitive.

4. Impact on Banks, Fintechs, and the Economy

For traditional banks, the survey and open banking present both a challenge to retain customers and an opportunity to innovate. Fintechs, on the other hand, stand to benefit significantly, as open banking levels the playing field, allowing them to offer new services that directly address consumer needs and preferences.  The broader implications for productivity and the economy are equally promising. Enhanced competition and innovation in the financial sector can lead to more efficient services, potentially lowering costs for consumers and businesses alike. This efficiency can contribute to economic growth by freeing up resources for investment in other sectors.

Conclusion

The findings from Abacus Data illustrate a 'turning point' for the Canadian financial services sector. As consumer expectations evolve, so too must the strategies of financial institutions. The emerging trend of openness to alternative providers, particularly among younger demographics, signals a shift towards a more dynamic and competitive banking landscape.

See:  Open Banking Regulation in the U.S. Strikes a Chord

Traditional banks and emerging Fintech firms must navigate these changes by fostering strong customer relationships, enhancing digital offerings, and simplifying the switching process. Doing so not only secures customer loyalty but also positions these institutions to thrive in the era of open banking.


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