Does Customer Experience Really Drive Shareholder Value?

Bank customers often complain about their service experience.  Bankers try to improve their customers’ experience, but success is elusive.  For the few banks that achieve service excellence, there is a treasure at the end of the rainbow: higher shareholder value.


It is intuitive and logical that satisfied customers deliver higher profits and growth.

Satisfied customers:

  • Keep higher balances

  • Open more accounts

  • Have longer tenures

  • Refer the bank to their friends

As a result:

  • Acquisition/sales costs go down

  • Revenues per customer increase

  • Operating costs per customer decrease

  • Visibility and intelligence into each household increases allowing for:

    • More targeted cross-sell offers

    • Better credit risk assessment

It is a virtuous circle!

But can we quantitatively prove this effect?  How significant is it?

To answer this, we conducted a Net Promoter Score (NPS) survey.  We found that the strongest driver of NPS was the existence of memorable positive (or negative) experiences:


We then asked ourselves: given the above, should Negative Experience Management (i.e., understanding what drives negative experiences and fixing it) be a top priority for bank’s management? Can customer experience (CX) be linked to shareholder value-creating behaviors?

Our study says: definitively yes!

Customers who had memorable positive or negative experiences took actions that affected multiple shareholder value drivers.


Customers with memorable positive experiences:

  • Increased balances

  • Opened more accounts

  • Decided to stay longer

  • Referred to friends and family

Those with memorable negative experiences did exactly the opposite.

These are not simply customer intentions, but actual actions taken.



 Satisfied customers with positive experiences are shareholder value stars:

  •  Lower acquisition costs

    • Cross-buy is free:  Happy customers don’t even wait for a cross-sell offer; instead they “cross-buy” on their own.

    • Cross-sell is cheap:  Even if customers have to be actively marketed to, marketing costs for cross-selling are far lower than acquiring new customers.  There is no cost to buy lists.  The response rates are higher requiring smaller/cheaper campaigns to reach the same goal.

    • Fewer customers to replace (with full marketing costs):  Every additional defecting customer increases the annual sales goal by one, in order to acquire a replacement.  Since these replacement customers are “new-to-bank” customers, the acquisition costs are the highest.  Additionally, the higher the number of unhappy defecting customers, the more likely one of them will negatively influence a prospective customer who will be on the receiving end of the bank’s marketing offers.

    • Higher percent of new customers stay:  As a global benchmark, 30% of new retail bank accounts are either closed or inactive 12 months after being opened.  This is almost always due to service failures or service omissions.  These “incomplete sales” are effectively a hidden marketing cost.  A 30% year 1 defection rate effectively means that the acquisition cost per account for the remaining 70% is actually 43% higher!

    • More referrals:  Satisfied customers don’t keep their feelings to themselves.  Whether proactively, or in response to a question from a friend, family member, or colleague, satisfied customers become a de facto free sales force.

  • Higher revenues / revenue growth

    • Direct result of higher balances:  Customers feel more comfortable concentrating their deposits and consolidating their debt in a single bank when they are happy.  The more positive the customer experience, the more likely customers will react by concentrating / increasing their balances.

    • Cross-buy:  Satisfied customers are more prone to purchase their next product from a bank they are already satisfied with.  This behavior increases the likelihood for a longer-term relationship as more products mean stronger anchors and higher exit barriers.  The longer a bank’s existing customers maintain their accounts, the higher the bank’s growth rate since new sales are accreditive as opposed to replacing defecting customers.

  • Lower operating costs

    • Customers become expert users:  Longer tenured customers tend to ask fewer questions to front line staff, which means lower staffing costs in the branches, call centers, and chat channels.

    • Fewer customer errors:  Related to the above, longer tenured customers will also make fewer errors in handling their accounts which means there is less rework for the bank to correct them.

    • More customers self-serve:  Over time customer learn how to use self-service channels which are cheaper than full-service ones.  “New-to-bank” customers will take time and focused bank efforts to be steered to lower cost self-service channels.  In the meantime, the bank will have to pay for the extra capacity in the expensive full-service channels, and also pay for the cost of training / steering customers to change their transaction behaviors.

  • Better marketing effectiveness:  High-transaction, satisfied customers provide the bank with a broader view of their purchasing and transactional behaviors as well as that of their households’.  This heightened visibility allows for tailor-made, more effective, and more efficient marketing offers.

  • Lower credit risk: By better knowing their customers’ historical income and expense flows, banks can better assess risks and reduce future delinquency rates and credit losses.

Why is achieving great CX so hard?

The answer: it’s naturally endemic to banking.  By definition, banks exist to manage risk: credit risk, operational risk, interest risk.  Operational risk in particular continues to increase as new channels, new products, and new features are introduced.  The only way to manage risk is to develop policies and procedures that will limit the ability of “bad guys” to cause damage to the bank or to its customers.  The problem is that these same policies and procedures ­– almost always restrictive in nature – also affect the “good guys”.

For example, an online banking session that logs out automatically after 10 minutes of inactivity, constantly asks the customer for a token code, and has multiple daily transaction limits, could certainly stop or at least limit the damage a fraudster could cause.  However, these same rules can frustrate an SME customer who is trying to make multiple payments while simultaneously making accounting entries and reviewing invoices.

The challenge of balancing the policies and procedures that raise barriers to control the “bad guys’” ability to damage the bank’s shareholders and customers, while minimizing the disruption to a smooth, easy/simple/fast customer experience, is the holy grail we should aim to reach.

Unfortunately, every breach, every fraud event, every operational loss, causes an internal demand to implement new policies and new procedures to prevent them from recurring in the future.  This barrage of new policies and procedures deteriorates customer experience.

To make matters worse, new policies and procedures are often introduced without taking a holistic view on the entire body of existing policies and procedures.  This results in conflicts and inconsistencies across channels and/or products. 

Regulators don’t help either.  They’re conditioned to respond to every major incident with a new regulation to avoid it happening again.  That is their mission, and they serve it well. 

However, around the world, regulatory culture does not focus on customer experience.


What should we do?

  1. Since regulations and risks are an inevitable fact of life, the hard work is to design policies, practices, and procedures (P/P/P) that: (a) respect compliance with regulations and internal risk management, but (b) also focus on the customers and their experience.  For example, in the case of online banking:

  • Forcing an online session to log out after 10 minutes of inactivity is OK, but maybe 2 minutes before automatically logging out, a countdown clock should appear alerting customers of the imminent online session end, and asking customers if they want to prolong their session.

  • Requiring the use of a token is OK, but such a higher-level security step could be confined to particular high-risk actions (such as sending an international wire to a newly added account) and not for simply logging in to check balances, or to make payments that are not “out-of-pattern” (e.g., paying a utility bill with the exact same account number as in prior months).

  • Simple algorithms can override daily limits if e.g., the payment is to a known / recurring payee.

2. No matter how well you design P/P/P, things will happen. For example:

  • Sometimes there is an unintended consequence of a well-intended P/P/P.

  • Sometimes a CX-damaging P/P/P emerges organically, without going through the right approval processes (e.g., a quick “temporary” fix for an urgent problem that gradually becomes permanent).

  • Sometimes a new P/P/P conflicts with a pre-existing one creating confusion.

Fixing these problematic P/P/Ps that will emerge in the future, requires a perpetual process that “listens” to the customers’ complaints and addresses their voices.  It also requires a culture that from the CEO to the most junior banker is sensitive to customer experience.