Building loyalty: Customer retention strategies for fintech

It’s much easier to fill a bucket that doesn’t leak. But with more competition and customers who are more discerning about where they spend and keep their money, retention in fintech can feel like an uphill battle.

In this article, we’ll look at:

• Customer retention metrics to track

• Why retention is so important for fintech

• Strategies for increasing retention 

• Retention FAQs

5 customer retention metrics worth tracking

Customer retention rate is a straightforward calculation that can help you get a baseline understanding of your performance now, and how it changes over time. There are, however, many other metrics that can be used to assess retention and get a more granular picture of where customers are churning, and how you can improve retention throughout the customer lifecycle.

1. Customer retention rate 

To calculate customer retention you will need to decide on a period of time (e.g. 30 days, a quarter, or annual) and look at the number of customers at the end of the period, minus the number of customers acquired during that period, divided by the total number of users at the beginning of the time period. When multiplied by 100, this will give you a retention rate shown as a percentage.  

While a 30-day or quarterly retention report is great for setting baselines and KPIs, it’s worth looking at how retention rates change over time, and how they change when different audience filters are applied. This can help you identify where in the customer lifecycle churn is most likely to occur, and if there are any critical actions or attributes that are common among retained users. 

For example, it’s common that churn happens within the first 30 days, and improving your onboarding experience can help turn that around. In another instance, you might notice that users who have not performed a critical action (e.g. linking their bank account) are more likely to churn. 

2. Customer churn

The inverse of retention is churn. To calculate customer churn, you need to look at the number of customers at the start of the period, minus the number of customers at the end of the period, and divide it by the number of customers at the start of the period. In other words, it’s the number of customers lost within the period, divided by the number of customers at the start of the period. When multiplied by 100, you’ll have a percentage of churn,

3. Monthly recurring revenue (MRR)

Monthly recurring revenue is one of the most critical metrics for subscription businesses. It shows how much revenue your product generates in a month, and can be used to forecast and measure growth. 

To calculate MRR, multiply the total number of paying customers by the average revenue per user (ARPU) per month. This will give you a total dollar amount.

4. Downgrade MRR

Retaining revenue is as important as retaining customers — so if you have a pricing model with multiple tiers, you’ll want to keep an eye on downgrade MRR to track any influxes in downgrades. 

To do this, take the sum of MRR across your customer base and subtract the sum of downgrades during that month. This will give you a total downgrade MRR dollar amount. 

You can also track total contraction MRR, which will include all revenue lost from cancellations and downgrades. To calculate this, you simply add downgrade MRR and churn MRR to get a total. 

5. Customer lifetime value (CLV)

Customer lifetime value (CLV) gives you an average total revenue number for customers. This gives you a baseline to work with when assessing loyalty changes over time (CLV increases over time) or identifying high-value customers. 

Calculating CLV for an individual customer is simple — you take the total revenue per month and multiply it by the number of months they’ve been a customer. There are several ways to find an average, the simplest being to multiply the average customer value by the average customer lifespan.

Why retention is so important for fintech companies 

Customer retention is important for any business. It is always more cost-effective to keep an existing customer around than it is to attract a new one, and revenue growth depends on new customers bringing in fresh revenue — not just replacing lost revenue.

Fintech faces some unique challenges that make retention even more important:

• High customer acquisition costs (CAC)

No industry is celebrating low customer acquisition costs (CAC) right now, but fintech companies face the highest CAC of any sector in SaaS — especially when it comes to B2B fintechs. In a report published by First Page Sage, fintech was shown to have a huge $1,450 CAC. For comparison, here are several CACs seen across B2B SaaS industries. 

With CACs that high, fintech faces even more urgency around retention than other SaaS sectors. Depending on your pricing model and tiers, generating ROI, much less growth, could take up to 12 months. 

• Growth relies on loyalty 

Within fintech, there are several sub-categories: Budgeting, crypto, insurance, investment, lending, and payment being four of the most common. 

Each of these categories has a different revenue model, but they have one thing in common — the longer a customer sticks around, and the more they use the app, the more potential for revenue. 

Here are some examples:

• For an investment fintech or “robo-advisors”, the fintech charges a percentage of total assets. So the more a customer’s wealth grows over time, so too does the potential to generate revenue from that customer

• In a transactional approach, the company makes money every time there’s a fund transfer or payment. The more transfers or payments, the more revenue generated.

• Budgeting apps are generally on a subscription model, and therefore require customers to stick around and refer friends 

In fintech, retention and expansion are even more closely tied to revenue, making them as important as acquisition. 

• Sustainable growth is essential for survival 

In a report from McKinsey & Company, it was reported that as of July 2023, “there were more than 272 fintech unicorns with a combined valuation of $936 billion — a sevenfold increase from 39 firms valued at 1 billion or more five years ago.” 

This explosion in activity was followed by a market correction that triggered a slowdown in funding and deal activity, meaning the fintechs that remained could no longer pursue “growth at all costs” or take massive risks. Instead, to stay competitive, McKinsey said, “they must run at a slower and steadier pace.” 

Sustainable growth is the path to survival for fintechs, and a big part of that is ensuring the customers you have stick around and continue to grow. 

Strategies for increasing retention

One of the benefits a fintech has is a wealth of user data. Use this to your advantage — identify which actions loyal customers are more likely to take and any attributes they share, and look at where in the customer lifecycle churn tends to spike. 

With this information, you can start to prioritize retention strategies right throughout the customer lifecycle.  

• Highly-targeted acquisition campaigns

Running at a slower, steadier, and more sustainable pace means your teams may need to get comfortable with fewer leads or new users coming through the door. But a decrease in quantity does not mean a decrease in revenue — if it’s done right, your fintech will grow a loyal, high-value customer base and new users will be additional revenue - not just replacing the revenue from your churned customers. 

Achieving this starts with getting clear on your ideal customer profile (ICP) or profiles, and using targeted, personalized campaigns to bring them in. For B2B fintech, an account-based marketing strategy may be the way to go.

Once you start to attract the right type of customers to your app and they become loyal, you’ll have opportunities to tap into their network — and their network tends to be full of people who fit your ICP, helping you to continue to drive retention and reduce CAC. 

• Map friction points across the customer journey

Friction mapping uncovers bottlenecks, concerns, and challenges customers typically face along the customer journey. These moments of friction are identified using a mix of product usage data, customer feedback data, results from in-app surveys, and heatmaps. 

Once these points are identified, you can get creative and figure out how to eliminate the point of friction. Some of the more common friction points, like onboarding, are outlined in the steps below and have fairly straightforward solutions that can be implemented, learned from, and iterated upon. Others may take you by surprise and require some creative thinking. 

The more friction you remove, the easier your customer’s journey from lead to loyalty will be. 

• Improve onboarding 

Start as you intend to go on by providing your new customers with an exceptional onboarding experience. A clear and helpful onboarding experience will help a customer experience value realization sooner, and the sooner they realize the value of a product, they are less likely to churn before their free trial or first month is up. 

Use your existing loyal customers as a starting place — identify which app actions they take or behaviors they exhibit early on, and use customer surveys to try to home in on when and why they saw the value of your product. 

These insights can inform a more strategic and effective onboarding flow that ultimately nudges a new customer to reach their ‘aha moment’ sooner. 

• Generate feedback — and action it

Generating customer feedback via CSAT or NPS, live chat, surveys, and feature requests is a worthwhile endeavor for any business looking to improve retention. But your customers will only stick around if they see this feedback is actioned. 

It will never be possible to give in to every whim and desire your customers' voice, but when an update or feature request has been requested by a large volume of high-value customers. prioritizing it can go a long way to ensure they stick around and grow with you. 

Similarly, feedback on things like customer service and brand perception can help you get clearer on positioning and ensure your customers feel seen and heard. 

• Build a loyalty program

Loyalty programs have been a mainstay for businesses for a reason — people like their loyalty to be rewarded, and when competition is rife it could be that pot of gold at the end of the rainbow that stops them from jumping to another app. 

To do this, you’ll want to consider what perks you can offer that your customer base will value, and what you can get in return. The exchange needs to be fair and sensical — for example, a customer who refers a friend should be rewarded with a significant perk, and ideally one with monetary value (i.e. a discount or a gift card). 

If a loyalty program doesn’t work in your business model, you can think of ways to surprise and delight loyal customers when they do things like reach milestones, write reviews, or share constructive feedback. Merch, discounts, participation in a beta testing program, feature sneak peeks, tickets to events, or sessions with financial advisors or experts will show your customer that their loyalty is appreciated while making them feel part of a bigger community. As a bonus, they may even be encouraged to organically share their positive experience with their network. 

• Improve your help documentation

Most customers want to help themselves before they reach out to a customer service representative since it tends to be the fastest way to get answers. Get feedback on whether articles are resolving their queries, and continually work on improving existing documentation while adding new articles for different features or updates. 

If you have a small team, get support staff involved with updates. Ortto’s knowledge base has a CMS that is incredibly easy to use, meaning updates can be made by any team member with access. This aids collaboration, and helps technical writers, support or success spend their time creating content, rather than just uploading it. 

• Offer live chat

In-app live chat or live chat with bot support can help ensure your customers’ questions get answered quickly. This can help retention in every industry as it eliminates friction and helps them get more out of your app, but in fintech, it’s even more critical. When people are dealing with money, whether investing, saving, or transacting, quick responses to their queries help them feel more at ease. Ultimately, live chat — preferably with human support agents at least through business hours — helps breed trust. And for fintech, building trust is a crucial component of loyalty. 

Customer retention FAQs

1. What is customer retention?
   Customer retention is a metric that measures a company’s ability to keep its customers over time. It is generally measured by calculating the number of customers lost during a given period of time, divided by the number of customers at the start of that period, and multiplied by a thousand.
   
   Custom retention can also refer to the campaigns and strategies a company implements to drive customer loyalty.

2. What is the average customer retention rate for finance?
   According to data published in Plotline, fintech apps experience a 30.3% day one retention rate, and an 11.6% day 30 retention. It is one of the stronger performing industries, partly because people need to supply more details or link a bank account as soon as they set up their account. 

3. What are the benefits of customer retention?
   Customer retention offers a more sustainable way to grow. You can save on acquisition costs, increase your bottom line and improve customer advocacy to create meaningful growth loops.

Final word 

For fintech, customer retention can be make-or-break. The good news is that retaining a customer is easier than attracting a new one, and more cost-effective too. It’s all about getting crystal clear on the journey your customer takes, where friction exists, and how you can improve their experience to inspire loyalty and advocacy.