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The Key to Banking Success: Competitive Rates or a Great Customer Experience?

Keys to Banking Success

The Key to Banking Success: Competitive Rates or a Great Customer Experience?

Competitive interest rates are used to influence both the market value of bank assets and the customer’s ability to repay their mortgages and other loans. Because a change in interest rates can affect the cost of borrowing as well as bond and investment yields, financial institutions tend to be careful about any rate change. Keeping interest rates competitive is imperative for a financial institution. Not only do low rates drive investment into the stock market, they can increase the amount of loans taken out to finance corporate operations. A sudden change in interest rates can mean rippling effects for banks which have larger amounts of debt.

If the Federal Reserve lowers rates, this could see investments being affected. According to Forbes, the Fed is likely to reduce rates in light of current global economic uncertainty. Americans investing in the stock market through their retirement plans could be exposed to the lower rates, thus experiencing a smaller return. On the flipside, there would likely also be an uptick in customers taking out mortgages given the potentially lower rates. The conclusion? Rates are variable and have heavy influence from the government and changes like these can impact customer acquisition. It’s up to financial institutions to make sure they communicate any changes to their customer base, and this can be done through a strong customer experience.

Ernst and Young found excellent customer experience to be the top driver for customer retention with bank rates and fees coming in a close second. Their conclusion was clear: competitive rates are important, but banks with better customer experience strategies are likeliest to enjoy the greatest success.

The Importance of customer experience

Where does an effective customer experience strategy come into play amidst all of this? A strong customer experience serves to complement the competitive interest rate banks promote. Overall, competitive rates by themselves influence the monetary reasons as to why customers choose a bank. However, banks can convince a customer to remain loyal to them or even see client recommendations spike through their creation of a positive customer experience.

Building Trust

While competitive interest rates are crucial to increasing customer acquisition numbers, building trust in your brand determines whether clients stay or go. The impact of referrals and customer reviews is more important than ever. In an Ernst and Young survey, the financial stability of a bank was a reason 60% of respondents saw it as trustworthy and transparent. 56% cited the way they were treated as an indicator of whether a bank could be trusted or not. In light of the fact that 76%of customers are likely to recommend a company they trust to their social network of friends and family, building a trustworthy brand is essential to gaining more customers.

Creating an Omni-channel Experience

With technology at our fingertips, customers expect no less than a streamlined customer experience from the moment they become a customer at your bank. The numbers speak for themselves: 75% of borrowers prefer if their mortgage experience is an omni-channel one. An Internet Retailer study found that companies with a robust omnichannel strategy retains 89% of their customers as opposed to 33% without a strong one. The same strategy rings true for the finance industry. We see that competitive rates and an effective omni-channel experience are not mutually exclusive. In fact, an omni-channel customer experience acts as a crucial value-add to competitive interest rate offerings.

Personalizing the Customer Experience

New technologies have empowered banks and resulted in a more collaborative relationship between banks and their clients. More direct pathways between financial institutions and their clients have lead to banks evolving their strategy of focusing on the numbers into one where the individual customer is the focal point. With 86% of customers willing to pay more for a better customer experience, banks stand to garner larger customer acquisitions by establishing a high level of individualized client care for each customer. Personalization can come through offering products based on the customer’s preferences, knowing each customer’s financial needs, and offering communication options based on customer preference.

Ultimately, by branching beyond competitive interest rates into better customer experience, banks like PNC, USAA and Chase move strongly towards increasing their customer acquisition numbers. Using a combination of trust, omnichannel marketing, and customization of products, other banks can follow in their stead and benefit financially, improving their reputation among their clients and look beyond simply interest rate numbers to retain loyal customers.