By Karen Wheeler, Vice President and Country Manager UK, Affinion

The world of retail banking has undergone rapid and significant change in recent years. There have been a number of factors behind this transformation: accelerations in technological capabilities, heightened customer expectations, the rise of challenger banks – and dealing with the persistent, ominous threat of cyber security attacks.So, what are the main challenges affecting banks now – and what can they do to build engagement and loyalty in an increasingly competitive industry?

What steps is the government taking to address competition in banking?

Over the past couple of years, there has been an increased focus from the government and industry bodies on how not only banks attract new customers – but also how they store, manage and share customer data.

In August last year, the Competition and Markets Authority (CMA) took steps to address how banks are attracting new customers. The CMA concluded that the older and larger banks, which still account for the large majority of the retail banking market, “do not have to work hard enough to win and retain customers and it is difficult for new and smaller providers to attract customers”.

The CMA’s main recommendations were to introduce measures to accelerate digital innovation in the UK banking scene, and stimulate competition between banks and make them work harder to win over customers.

Of course, small and nimble start-ups such as Atom have a head start on digital transformation. The challenge for traditional banks is breaking free of the archaic processes and bureaucratic shackles that prevent them from adapting at the same pace. However, they have the advantage when it comes to brand recognition and awareness; a familiar sight on the high street, they have the opportunity to leverage the trust and brand credibility they have spent years investing in.

What impact will Open Banking have on customer loyalty?

Back in September 2015, the HM Treasury set up the Open Banking Working Group to explore how data could be used to help people transact, save, borrow, lend and invest their money. This resulted in the introduction of the Open Banking Standard, which began to be rolled out earlier this year.

This legislation is set to make it easier for customer to compare and contrast products and services.And, perhaps most worrying of all for banks – it will make it simpler to switch providers, as customers will be able to compare and contrast products and services more easily.

At the heart of the Open Banking Standard is the mission to ensure that, when it comes to making financial decisions, consumers are fully aware of the choices available to them. Banks have been given a deadline of early 2018 to implement the new measures – so time is ticking to not only bring infrastructures in line with new compliance, but invest in a long-term strategy which encourages customers to stay loyal.

Can banks turn the threat of cyber security into an opportunity?

We’re living in a data-rich age; IBM estimates that 90% of the data in the world today has been created in the last two years alone. An unfortunate consequence of the move to digitised customer and business information means that cyber security hacks are now an everyday occurrence. Just last week,saw a hacking crisis on a global scale as 150 countries were affected by the WannaCry ransomware attack – including the NHS.

For banks, there is a monumental responsibility to keep their customers’ sensitive data safe and secure. However, there is also an opportunity for banks to capitalise on the trust customers instil in them. For example, offering protection solutions that help protect customers’ online identity – not just with their banks, but across their entire online footprint.

According to our research, The Connected Customer, banks that offer protection solutions have a more engaged customer base.  People who take out products that help them alleviate their cyber concerns tend to be more engaged and, ultimately, more loyal. As a result, they look to sources they trust for reassurance but also education and guidance in navigating these dangerous waters.

 Why does customer engagement matter for banks? 

The aim of our research was to uncover what influences customers to choose their banks – as well as what makes them stay. With a dizzying amount of choice available, we wanted to understand the journey customers take from their first interaction with a bank, to the point at which the provider has become a meaningful part of a consumer’s life.

The evolution of customer engagement is not linear, but dependent on a complex mix of motives, attitudes, experiences, and satisfaction – all coming together to influence the customer’s overall assessment of the products and services they choose and buy. An important lesson for banks to take note of is the most engaged customers are more likely to stay with a brand for longer, spend more and recommend to family and friends – the primary aim of any bank.

It’s undoubtedly a challenging time for banks to stand out, and they are faced with the dual challenge of attracting new customers, and keeping their existing customer base loyal. It’s therefore more important than ever that banks both meet and understand their customers’ expectations – and find new ways to build trust and engagement and pave the way to loyalty and advocacy.