Maintaining and retaining profitable customer relationships have become more critical than ever for banks to survive in today’s competitive market.
It is especially true in the European context, where PSD2 and Open Banking regulations, along with the growing ecosystem of neo banks and fintech companies, have levelled the playing field for the banking industry.
These developments against the backdrop of weak profitability amongst banks, stringent regulatory requirements, low interest rates and uncertainties surrounding Brexit, make the task of customer retention even more challenging.
Moreover, banks have to not only had to keep up with the rapidly evolving e-commerce influenced customer experience and expectations, but also meet the technological requirements to cater to this growing need. It is no surprise then, to see more than 100 digital banking software deals reported in Europe since 2018, an increase of 30% on the number recorded between 2016-17. Multiple statistical studies in the past have shown that the cost of acquiring a customer is higher, often pegged at 5x, compared to the cost of retaining a customer. Additionally, the unit economics of maintaining a customer account and customer lifetime value play a critical role in the long-term profitability of a bank.
While banks aggressively pursue their objective to acquire new customers in today’s highly competitive European market, this whitepaper paper aims to highlight the growing importance of customer retention which is critical in today’s market, maybe even more so than acquiring new customers.