January 9, 2020
Since its debut in 2003, The Net Promoter Score (NPS) has become a widespread management tool to measure the level of a company’s customer satisfaction. In fact, ⅔ of the Fortune 1000 companies have started using this metric to optimize their customer retention process.
However, the reliability of NPS scores gets tricky when it comes to the lending bank sectors. There are lots of factors that contribute to this ambiguity. Moreover, the entrance of technological giants in the lending game (like Apple Cards) is becoming a subject of discussion among experts as well. These companies have historically had the highest NPS scores, with Apple reaching as high as 72 in 2016. In this blog, we will aim to decipher if it is indeed possible to have equally high NPS scores in the lending business where the experience of saying ‘no’ to the customer is implicit to keeping the business running.
Before we move ahead, let’s take a quick look at what Net Promoter Score (NPS) really is. The idea of NPS was developed by Fred Reichheld, Satmetrix, and Bain & Company. Fred coined the idea in his Harvard Business Review article called the "One Number You Need to Grow." Eventually, he went on to write a book on the same topic titled ‘The Ultimate Question’.
The score follows a rather simple pattern. The NPS surveys ask the employee or customer to rate how likely they are to recommend the company to a friend or a colleague. Thereafter, they divide the customer/employee into 3 categories depending on their response:
1) Promoters- These are the customer or employees that are enthusiastic about your product/ lending service. They are loyal to the brand and advertise it likewise.
2) Passives- These are the customers that feel a rather ‘hot and cold’ sentiment with your company. They are not especially discontented but they do have a chance of defecting to a competitor simply because they have a lacklustre relationship with your bank.
3) Detractors- Customers that are unsatisfied with your lending service and are highly likely to defect to your competitor if they provide them with better customer service.
A recent study by Numr showed that the banking sector tends to have lower scores as compared to technological, ecommerce and hospitality sectors. In fact, Kotak bank topped the list for Indian banks with a score of 68. It was shortly followed by HDFC with a score of 67.
On the other hand, the coffee giant Starbucks gained a score of 77 while fitness chain Cultfit manages to get a score of 75.
The numbers are universal across countries. In this section, we take a look at some of the factors that are the reason behind such a stark contrast in the NPS scores of the financial sector and the other industries.
One of the most important factors that shape the NPS score of financial sector industries is the delivery of ‘NO’ experience. Ecommerce and tech giants have always followed the golden rule of ‘putting the customers first.’ However, as companies like Apple are recently finding out, the financial sector can not work on the same principles. There are a lot of data regulation and rules regarding the limitation of credit that prevents FSIs from responding to every customer demand.
Recently, Apple was embroiled in a controversy where people accused them of offering a much higher credit limit than their counterparts. Apple, however, deferred the responsibility to Goldman Sachs who responded explaining that a customer’s credit limit is based on factors like personal credit scores, their previous debts and credit history (how the debt is managed). Again, there are financial privacy issues involved here that do not allow banks to disclose the company policies. It is instances like these that might affect an FSI company’s NPS score. In fact, it is recurring more and more as tech giants try to move into the lending business.
The stakes for FSI companies are extremely high when compared to the hospitality and retail sectors. In such a situation, customer service has to go far and beyond to handle tricky situations.
Recently MIT Sloan covered a story on how USSA transformed the customer service sector of FSI companies. They addressed the changing customer demands by optimizing the process for customers that have been in a car accident. They allow the customers to instantly attach photos, voice recordings to their insurance claims, the process of which can be initiated remotely.
However, due to these high stake situations, customers might feel a higher level of dissatisfaction when the service is not up to their expectations.
The data analytics capability of the financial services sector is a great influencer of the sector’s NPS score. Experts say that improving data analytics capability will be a very important element for providing better customer experience in the near future. In fact, studies show that 99% of respondents consider it a key element in understanding customer requirements.
There have been several cases of banks increasing customer retention with the help of data analytics processes. Recently, McKinsey published a blog that detailed how a European bank optimized its customer retention techniques by using machine learning algorithms that predicted which currently active customer was likely to reduce his/her business with the bank. Moreover, another US bank used data analytics to create 15,000 microsegments in its customer base. This was done through a study of factors like credit card statements, key characteristics, transactions etc. This helped them to increase their customer purchase intent by three times.
However, most banks deal with a lot of problems when venturing into the data analytics process because they find it difficult to scale these returns. In fact, the financial impact of these analytical effects bears insignificant results in the short term. Hence, most executives consider it as a sideline to the traditional business of financing, investments and transactions and payments. Sectors like ecommerce, marketing and professional services see significant and quick results due to data analytics processes. On the other hand, companies in the financial sector need to continue with these processes for a long while before they see any significant results.
Studies state that omnichannel banking leads to an increased customer engagement rate of 18% compared to the 5.4% engagement on single channels. While sectors like ecommerce, consumer service and IT find it easier to move to an omnichannel approach, financial brands face harder problems.
For starters, experts like Jason Bates, the co-founder of Monzo and Starling Bank stated that the idea of omnichannel is ‘doomed’ because it is based on false assumptions. He argues that all channels are not equivalent or interchangeable as digital trumps offline transactions any day.
The omnichannel approach in the banking sector is just focusing on upgrading the existing way of financial transactions. When in actuality, they need to optimize their evolution to a truly digital-first approach. Moreover, studies have shown that customers do less care about channels in the financial sector, and more about solutions, ease and transactional simplicity. Most importantly, imbibing the omnichannel approach in the banking FSI requires ninja-level complexity.
Customers today are increasingly becoming tech-savvy and expect a personalised and targeted banking experience. Consequently, companies in the financial sector cannot afford to live in a vacuum as the correlation between NPS and profitability is increasing. Evidently, the financial sector still has room for a lot of improvement when it comes to NPS scores.
This post was authored by Sandeep Srinivasa and drafted by Etee Dubey.