By Daniel Bailey, VP of EMEA at Amplitude
Consumers have long been seeking modern, accessible, and affordable financial services, forcing historic financial institutions to innovate or lose out to the competition of the rapidly growing fintech industry. While fintech companies have seen strong market investment over the past few years, the current economic environment poses a threat to this explosive growth. As fintech organisations manage rising interest rates, soaring inflation, industry-wide layoffs, and dwindling consumer confidence, it’s no surprise that leaders are looking for the keys to unlock retention and growth in the current market. When there isn’t much to invest with, it becomes even more important what you choose to invest in. To keep happy customers and gain new ones today, fintech leaders must turn their attention to the digital product, and the growth it can unlock for their business.
Investing in product innovation
Even when investment resources are limited, invest in your product. To many, this may seem counterintuitive. Instead, sales and marketing campaign investments seem like a wise choice or a quick win. But money spent on sales and marketing does not compound over time, however, money spent on product does. An investment into product innovation today not only keeps existing customers happy, but helps fintech organisations stay ahead of the competition — both from new peers in the market and legacy financial institutions going through a digital transformation.
The most successful fintech organisations understand that their product can become their number one revenue driver. In the era of product-led growth, average products can’t hide behind strong sales and marketing. This is especially true in the fintech industry, with just a 16% app retention rate, well behind the general app market average of 35%. Winning a crowded market like the fintech space today doesn’t just require good products, but great ones. So for the moment, forget about doubling down on sales and marketing. Your energy and investment should go to your product—it’s your most efficient distribution channel, especially when resources are limited.
Keeping customers on board
Acquiring new customers is not an easy feat and can quickly become expensive. In addition to low retention rates, fintech apps and tools are known for their high customer acquisition costs. In periods of economic decline, organisations must place emphasis on retaining existing customers. At its core, retention is about creating and understanding habits. How many users keep returning to your product? How many have churned? Why? Finding new ways to increase customer loyalty remains a key challenge for the industry as a whole, and not just in turbulent economies.
Today’s users are flooded with apps, often leading to fickle attention spans. To avoid customer churn, organisations need to show users value immediately and during each interaction, as the average app loses 80% of its users within the first three days. In order to have a better understanding of how customers are — or are not — engaging with a product, it is critical to align on some key performance indicators. This of course includes metrics like churn rate and overall retention rate, but organisations should go a level deeper. Looking at data around voluntary versus involuntary attrition (think a customer cancelling a subscription versus a customer’s credit card expiring and billing information lapsing) helps understand the conditions in which churn occurred. With retention, look at metrics like N-day retention, which measures retention on a set day, looking at how many users performed a specific action on day 1, day 7, and so forth. This KPI is especially helpful for fintech organisations looking to create weekly or daily habits within their user base.
Don’t allow the customer experience to become a black box. Today, if customers are forced to adapt to technology, rather than technology adapting to them, they’ll leave. Today’s crowded fintech market remains a battle of customer retention, especially given consumers’ economic concerns. By aligning on KPIs and leveraging data to better understand the customer experience, fintech companies can build long-term loyalty and increase customer lifetime value, driving profit, not just retention.
Driving growth through experimentation
Like with product investments, during an economic crisis, it might be tempting to slow down experimentation, if not halt it altogether. But experimentation is another critical area of innovation that must be prioritised by fintech organisations. Experimentation creates crucial new opportunities for growth, as well as exposes initiatives that aren’t performing well. This allows teams to cull these initiatives faster and prioritise time and effort on those that are more successful.
Fintech startupClearScore wanted to increase conversion to its new paid-for product, ClearScore Protect. ClearScore leveraged experimentation to access critical customer behaviour data to better understand how its customers were interacting with its products, prompting the company to increase testing and experimentation by more than 400%. By experimenting with funnel analysis, ClearScore was able to follow the customer journey and see how users were navigating certain pathways. This level of visibility enabled ClearScore to identify problem areas where users were tending to drop off. The team also found that users within certain financial and demographic groups were more likely to subscribe, and that users who interacted with certain areas of the free product were more likely to upsell. With this added clarity into user journeys and behaviours, ClearScore was able to position the product to specific users and refine its messaging to encourage conversion. Within 12 months of launching ClearScore Protect, the team doubled its subscription rate.
All industries — not just in the fintech world — are undoubtedly faced with challenges in today’s market. But this does not mean it’s time to stop innovating or experimenting. It does, however, mean fintechs should look very closely at their investments and the corresponding ROI. Understanding how product changes are impacting the customer experience will not only support retention, it will also help move free users to paying customers, and paying customers to brand ambassadors. In the fintech industry there will always be larger macroeconomic trends at play, whether that is changes in consumer behaviour, new regulations, or climbing interest rates and inflation. The companies who embrace this change, set flexible strategies, take risks, and learn from their experiments will be the ones to win out.