Earlier this month I attended American Banker’s Best Practices in Retail Financial Services Symposium. The event reflected the current challenge banks are facing in light of regulation and competition- trying to a strike a balance between growing wallet share while increasing customer retention.
The “Drivers and Implications around Customers Who Switch Banks” session was particularly interesting. Michael Beird, Director of Banking Services Practice at J.D. Power & Associates referenced a report, 2012 U.S. Bank Customer Switching and Acquisition Study. The study compared the bank segments that lost customers in 2011:
- midsize banks lost the most customers last year, followed by
- big & regional banks, and then
- small/community banks. (1)
I was surprised that midsize banks experienced a higher attrition rate than larger banks. Larger banks – including Bank of America, Citibank, and other nationals – have fallen under heavy public scrutiny for their proposed fee increases and other un-customer-centric policies. Therefore I would have expected the largest banks to experience the greatest customer flight.
Many of the larger banks have acquired new customers through the use of promotions and cash incentives. This might explain why they retained customers – they tend to have more sophisticated customer marketing and loyalty programs in place that reach and impact the customer at the right time and place. Beird also noted that regardless of bank size, more than 50% of all customers who said fees were the main reason to shop for another bank also indicated that their prior bank provided poor service.
As with all types of service, customers weigh the prices they pay against the value of their experience. Some are creatively tackling service with spa-like services, longer hours, or treats for their customers’ four-legged friends. But we know the answer to reducing attrition – regardless of the size of the bank – is improving the customer experience overall.
(1) Big banks are defined as the six largest financial institutions based upon total deposits as reported by the FDIC, averaging between $180 billion and above. Regional banks are defined as those with between $180 billion and $33 billion in deposits. Midsize banks are defined as those with between $33 and $2 billion in deposits. Small/community banks and credit unions are an aggregate of all other banks.