How Net Promoter Score Measures Consumer Loyalty for Banks and Credit Unions

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Consumer loyalty is an essential indicator of success for banks and credit unions, as consumers who are loyal are likely to remain customers for longer, cost less to service since they have fewer complaints, purchase more products, and generate referrals. There are many ways to measure consumer loyalty, but one of the most common is the Net Promoter Score (NPS), which is used today by 65% of the top 200 global companies, as well as many retail banks and credit unions.

In this blog we’ll discuss what NPS is and how it relates to financial institutions like yours.

What is Net Promoter Score?

Net Promoter Score (NPS) is a methodology that measures consumer loyalty, developed by Satmetrix, Fred Reichheld and Bain & Company. Beyond simply measuring consumer loyalty, extensive research has found a high correlation between the NPS and the sales and profitability of banks and credit unions, making it a highly beneficial performance metric to measure.

Net Promoter Scores are simple to calculate. First, customers are asked the following two questions:

  1. On a 0-10 scale, how likely is it that you would recommend us (or this product or service) to a friend or colleague?
  2. What is the primary reason for your score

Then, the responses to the first question are divided into three groups:

  1. Promoters: These are customers who answered 9 or 10, and are highly likely to recommend the company.
  2. Passives: These are customers who answered 7 or 8, and are somewhat likely to recommend the company.
  3. Detractors: These are customers who answered between 0 and 6, and are less likely to recommend the company.

To calculate the company’s aggregate Net Promoter Score, the percentage of detractors is subtracted from the percentage of promoters.

NPS and financial institutions

As mentioned earlier, there is a high correlation between Net Promoter Score and the sales and profitability of banks and credit unions. For instance:

  • The lifetime value of a consumer who is a promoter is 2 to 2.5 times higher than that of a detractor.
  • Detractors are 2.3 times more likely to leave an institution than a promoter.
  • Institutions with an NPS over 60 have 25% higher growth than institutions with an NPS below 60.

If you already measure Net Promoter Score, you may be wondering how you compare to other similar institutions. Here are some industry averages:

  • Credit unions: 58 (2014)
  • Banks: 34 (2013)
    • Direct banks: 64
    • Regional banks: 21
    • National banks: 16

Want to learn more about Net Promoter Score and how it can benefit your bank or credit union? Download our latest whitepaper, How Banks and Credit Unions Can Use Technology to Improve Consumer Loyalty. And if you have any thoughts or questions, be sure to share them in the comments section below!

By Brian Carmody November 03, 2015 0 Comments

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