Customer Retention in 2018

By Kylee Wooten

Though customer loyalty in some other industries has declined in recent years, when it comes to banking, it appears most people are content staying put. Since the financial crisis, customer satisfaction with financial institutions has reached record highs. According to a survey conducted for Bankrate, the average U.S. adult has used the same primary checking account for nearly 16 years, and more than a quarter of people hold onto their checking account for more than 20 years. However, banks still need to guard against any losses, as their customers’ expectations—along with competition for their business—increases. Reasons why some customers do decide to abandon their financial institution vary, but there are some common themes among those shopping for a new bank that institutions should note.

Why do customers switch?

The number one reason customers switch banks surprisingly has little to do with their bank’s performance—that reason is because the customer is relocating. In fact, 61 percent of people have switched for a reason other than dissatisfaction with their current bank, according to a report by Bank Clarity, a division of the Sells Agency. Life circumstances—such as moving, changing jobs or changing marital status—are three of the top reasons people switch banks.

While some of the reasons customers switch are outside of a bank’s control, there are still a number of factors the bank can manage. When customers are dissatisfied enough to switch banks, for example, the top cause is fees. High fees are an especially hot-button issue for millennials and low-income Americans. In a FICO survey, 45 percent of millennials cited high fees as their main reason for switching banks. ATM fees and overdraft fees have continued to increase over the years, as noted by Bankrate. This is connected to low interest rates and regulatory changes that had taken a bite out of banks’ profits, causing them to lean more on fees as an income source.

Where do customers go next?

Though bank customers are often relatively loyal to their institution, that doesn’t mean they haven’t considered other options. The same report by Bank Clarity found that over half of survey respondents said that if they had to change banks today, they already had a bank in mind that they would switch to. So why is that other bank top of mind? Most commonly (27 percent), those consumers already had a secondary relationship with that bank, according to the same report. Other top reasons included:

  • Convenient locations (16 percent)
  • The customer had heard good things (12 percent)
  • The customer had family or friends that used that bank (10 percent)

Banks should make efforts to seize cross-sale opportunities and guard against the forming of secondary relationships, as these might open a direct line of escape if a customer decides to switch.

Keeping an eye on the next generation.

It feels like every industry has been hyper-focused on attracting and retaining millennials for some time. Millennials are on the cusp of surpassing baby boomers as the largest living adult generation in the country. This group should be paid special attention when it comes to efforts around retention.

While bank customers as a whole are slow to switch banks, millennial customers were the most likely to switch their primary bank in the past year, according to Gallup data. In fact, a study commissioned by Kasasa and conducted by Harris Poll found that 8 out of 10 of millennials would switch banks if one offered products with more or better rewards, such as cash back, high yields and refunds on ATM withdrawals. There is good news for community banks looking to capture or retain this particular audience too: millennial switchers are as likely to consider banking with a local bank as they are to consider banking with a big national bank.

When it comes to ways that banks can win and keep their millennial customers, they should first consider and predict millennials’ problems. According to Gallup, millennials are more likely to say they’ve had a problem with their bank, but they’re the least likely generation to actually report their problem to their bank. For banks, this means proactively predicting and tracking potential customer problems. One common complaint is fees, like overdraft fees. Being able to predict customer behaviors that lead to overdrafting or other fees can help your institution to develop measures to proactively reach out to customers before a potential issue arises. Another commonly cited way banks can appeal to millennials is through advanced mobile and digital features, such as seamless banking apps and easily understood analytics and reporting.

Key takeaways for community banks.

So what are the characteristics that actually set banks apart from each other? The Bank Clarity report suggests that even with the rise of technology and the new mobile services banks offer, service is still what matters most to bank customers. Thirty percent of survey participants said that service quality is what sets their bank apart, followed by 25 percent of respondents who noted their banks’ convenient locations. Community banks have traditionally been known for their superior customer service and strong relationships with customers. This should reinforce the importance of bolstering customer service and maximizing resources to support customers.

While special attention should be paid to having digital product offerings and anticipating the needs of millennials and other groups most likely to switch, there is still a substantial number of customers that are at a bank looking for bread-and-butter offerings. Provision of positive, personal human interaction remains a vital differentiator for institutions across the board.

At the end of the day, financial institutions that provide competitive offerings, proactively work to resolve customer issues and communicate clearly with those choosing to bank with them are most likely to retain their current customers, as well as appeal to new prospects.

Kylee Wooten is a content marketing and social strategist at Sageworks, a financial information company.

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