Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- Customer retention in the UK mortgage segment is rapidly gaining importance, especially given the large number of fixed-rate mortgages that will come up for renewal in 2025.
- Delivering superior, personalised experience is crucial for customer retention—a diverse product portfolio, marketing and branding initiatives, lower prices, or glitzy channels are no longer adequate.
- Banks and building societies must implement retention strategies aimed at nurturing relationships by delivering hyper-personalised, value-added service at every life stage of the customer.
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Overview
The UK mortgage landscape is dominated by fixed-rate, short-term loans, which typically have a tenure of two to five years.
At the end of the term, homeowners either switch to different products or remortgage with different lenders to avoid an increase in interest rates. In 2025, an estimated 1.8 million home loans in the UK will come up for remortgage1, most of which carry a lower rate of interest. Needless to say, borrowers will shop around for better terms and look for the best deal that suits their circumstances.
As a result, UK banks and building societies may have to contend with significant customer attrition leading to loss of service income. Additionally, when customers move to another bank or building society, they often transfer their checking and/or savings accounts, credit cards, and other facilities to the new bank. Retaining customers has thus emerged as a strategic imperative for banks and building societies to avoid loss of income and market share. In such an environment, maintaining market supremacy will necessitate the adoption of effective customer retention strategies aimed at nurturing relationships through hyper-personalised, value-added service at every life stage.
The business case for retention
Based on our experience of engaging with global lenders, customer retention is typically 5 to 25 times cheaper than acquiring new customers.
It also offers cross-sell and up-sell opportunities. Consequently, even a small boost in retention, for example, say by 5%, can increase revenue by 25%-30%. Effective retention strategies can also help in high referral business as satisfied and happy customers are often the best brand ambassadors – they can recommend their bank to friends and family, resulting in the addition of new customers. This is in stark contrast to dissatisfied customers who switch to other banks, even if it is a tad expensive given pricing alone is no longer a differentiator in this highly commoditised market.
Given this, banks must switch from the current transactional approach to engaging with customers and focus on building deeper relationships that drive loyalty. This will require banks and building societies to continuously engage with customers and offer value-added services that go beyond transactions to create personalised value.
Clearly, customer retention is what UK banks and building societies must focus on. An important prerequisite to launching specific initiatives aimed at customer retention is to appreciate the difference between customer satisfaction and customer experience, conceptually. While customer satisfaction may be short-term or transactional, customer experience is a more all-encompassing concept–the sum of all interactions till date, and more. Customer experience management is largely about personalisation—anticipating customer expectations and needs as they evolve and crafting tailored offerings to suit their specific context is key to delivering delight.
Difference between customer satisfaction and customer experience
Satisfying basic needs results in customer satisfaction while customer experience is the sum total of all interactions a customer has with a bank. It goes beyond delivering a service or resolving an issue. Accessibility, relevance, and transparency are the three pillars of customer experience (see Figure 1), and banks and building societies must take steps to build the capabilities needed to deliver on these asks.
Figure 1: The three pillars of customer experience
In our experience, the primary reason for UK mortgage customers to switch lenders is the lack of personalised experience. This is corroborated by what our customers have said over the course of numerous engagements, which is, that the inability to design personalised offers is one of the main challenges they encounter in customer retention.
Anticipating customer expectations and needs
Banks’ and building societies’ relationships with their customers are mostly transactional—interactions are limited to exploring the financial condition of prospects to check if borrowers are eligible for a home loan. Unless customers miss a repayment or banks want to cross-sell or up-sell, customer engagement is intermittent. Furthermore, banks fail to consider life milestones such as marriage, the birth of a child, higher education of children, medical expenses, and job loss or change of job that occur in customers’ lives.
Banks and building societies should continuously engage with customers, understand their needs specific to the life change they are navigating, and proactively craft personalised offers. For example, the marriage or birth of a child could mean that the customer may need to renovate his home or buy a larger house—banks and building societies must proactively step in and offer to restructure the existing mortgage loan or facilitate a new one.
Figure 2: Life events and daily needs where banks can support customers
Figure 2 shows key areas where banks and building societies can support customers at important phases in their lives. Evolving into a ‘friend in need’ can prove beneficial for banks and building societies by instilling loyalty and driving customer advocacy—this is in line with the reciprocity principle in customer psychology which states that customers feel obligated to return a favour or act of kindness.
Areas of intervention
Let us examine areas where banks and building societies can take targeted action to drive customer retention and avoid churn.
Enhance digital self-service capabilities to enable customers to manage their mortgage loan accounts and payments. This service should be available anytime, anywhere and will eliminate the need for customers to call or connect with contact centers or branches for basic needs. With this facility, customers should be able to track repayments, view account statements and history, change contact information, apply for redemption, remortgage, or product switch, and more. Superior customer self-service, delivered round the clock, can improve customer retention in turn allowing service representatives to focus on deepening relationships.
Many customers do not track their payments or plan proactively so that they are often caught unawares when a deadline looms or a new event occurs. Banks can step in by providing advisory services to help customers achieve their homeownership goals. This could take the form of providing the latest property prices, interest rates, and other insights; alerting them when deals are about to end; and supplying over payment or prepayment calculations to check potential interest saves and term reductions. Banks could also offer advisory to help customers in personal financial management and what-if scenario planning for the future.
Most customers are unaware of all the offers and deals available from their banks or building societies. Banks and building societies must educate customers on all the available products and the respective eligibility criteria, considering macro and micro economic factors. In addition, they must proactively reach out to customers with appropriate offers before they switch to other lenders. This could take the form of offering customers remortgage products when the interest rate changes, equity loans when the value of the property increases, home improvement loans, and bridge loans to enable them to move to bigger homes.
Mortgage borrowers are under pressure as they juggle rising living costs and loan installments. Unexpected events such as medical emergencies and job loss can add to the burden. To avoid arrears or late payments, banks and building societies must provide hardship assistance to borrowers. For short-term hardship due to medical emergencies, business downturn, and job change, payments can be deferred. For long-term hardship caused by loss of employment, death, natural disasters and so on, banks and building societies must identify support programs offered by the UK Government such as Support for Mortgage Interest or other rescue programs. Banks and building societies should ensure that the hardship assistance processes are smooth and fast. Delays and complexities will frustrate customers who are already distressed and may trigger a switch.
The 1.8 million fixed-rate mortgage loans set to expire in 20251 will be subject to new interest rates and the monthly payout is likely to increase. Coupled with higher cost of living and a sluggish economy, many borrowers may miss mortgage payments in the next six months.
Banks and building societies must introduce a flexible repayment plan that allows borrowers to make variable payments into their mortgage loan accounts considering their monthly income and fluctuating financial situation. Loan management systems must be modified to adapt to the financial ups and downs of customers and ensure financial well-being. This can avoid arrears and increase customer satisfaction.
A significant number of UK homes were built decades ago necessitating huge expenditure on maintenance and improvement. Over the next couple of years, about seven million homeowners plan to upgrade and improve their homes—average spends are likely to be over £14,000.2 In addition, homeowners face difficulties in finding skilled and trusted workers to carry out repairs or improvements highlighting the shortage of skilled workmen in the UK.
Banks and building societies must create an ecosystem of trusted service providers to facilitate home improvement and repair at reasonable costs. Customers can provide reviews and ratings based on the quality of service from these service providers. Banks and building societies can recommend top rated service providers.
The way forward
The failure of banks and building societies to improve the mortgage experience can prove expensive as it can potentially result in loss of customers, income, and market share.
In the prevailing environment, customer experience management is largely about personalisation and value-added services—branding and marketing programs, a varied product portfolio, lower pricing, and glitzy technology channels will no longer suffice. Given the huge number of mortgage loans coming up for renewal in 2025, banks and building societies must take rapid action to fill the gaps in the process, which will be key to retaining customers and maintaining market supremacy.
References
1 IMLA, IMLA predicts healthy lending growth for 2025, greater intermediary business and more remortgaging, Dec 2024, Retrieved May 2025, http://www.imla.org.uk/news/post.php?s=2024-12-23-imla-predicts-healthy-lending-growth-for-2025-greater-intermediary-business-and-more-remortgaging
2 AVIVA, Seven million UK homeowners plan to renovate with average budget of £14,000 in next two years, Feb 2025, Retrieved May 2025, https://www.aviva.com/newsroom/news-releases/2025/02/seven-million-uk-homeowners-plan-to-renovate-with-average-budget-of-14000-pounds-in-next-two-years/
