Why loyalty is becoming retail banking’s next competitive battleground

As switching becomes easier, Canadian banks must create meaningful experiences that give customers a reason to stay.

In brief

• Customer loyalty is becoming harder to earn as switching gets easier.
• Banks need to remove friction across the customer journey.
• A connected strategy across infrastructure, relationships and intelligence can help create long-term value.

For Canadian banks, the real competitive battleground is no longer just products, branches or even digital channels. It comes down to a bank’s ability to create everyday value around how customers save, spend, borrow, pay and manage their financial lives. The organizations that recognize these signals and adapt accordingly are most likely to build loyalty — or even convince consumers to make a switch.

These findings are even more consequential given the fact that new industry competitors are actively reducing and eliminating barriers to switching. With loyalty no longer informed by traditional fees or costs associated with switching or the inconvenience of making a move, every customer interaction has become an opportunity to build trust and sustainable resilience.

Earning customer primacy demands sharper investment choices

Industry players with the clearest choices, strongest economics and greatest ability to capture more money in motion across the customer journey are poised to win in this complicated, slow-growth environment. To make progress in this direction, financial institutions will need to be much more strategic about where to invest and how to differentiate.

That means maintaining a strong focus on:

1. Infrastructure
   Winning here requires operational excellence, platform thinking and the ability to monetize and scale volume, rather than simply deepen relationships.
   
   
2. Relationship
   Winning here depends on a deep understanding of customer needs, selective human engagement and becoming the primary financial partner, rather than just a product provider.
   
   
3. Intelligence
   Winning here takes the ability to help customers achieve better outcomes, often proactively, by using AI, analytics and automation as core capabilities, not add-ons.

Canadian banks can’t afford to concentrate on any one pillar at the expense of the others. The organizations that reshape the future of retail banking will be the ones that connect infrastructure, relationships and intelligence to remove the friction customers have tolerated for too long. That means aligning strategy, operating models and workforce capabilities around the full customer journey. Banks that do this well will be better positioned to earn loyalty, deepen relationships and create long-term value.

As Canadians look for reasons to switch, banks must give even better reasons to stay

Canada’s banks are approaching an inflection point. Competition is poised to shift from who owns the customer to who deserves to serve the customer. That’s a very different game, and potentially a very exciting one for Canadian consumers and the retail banks that meet them where they are.

EY Canada Retail and Consumer Banking

We can help you understand how Canadian industry, competition, regulation and customers are changing. Then, we develop and deploy the operating model, personalization, workforce and AI-driven tech transformation necessary to succeed over the long term.

Summary

As barriers to switching continue to fall, loyalty is becoming a defining factor in retail banking. Institutions that can reduce friction, respond to customer needs at the right moment and connect infrastructure, relationships and intelligence across the customer journey will be better positioned to strengthen customer relationships and create long-term value.