Growing Your Bank’s Customers During (and After) COVID-19

It’s become increasingly harder for financial institutions to create and retain their customers. For example, due to the higher customer acquisition costs in the banking industry, it can take two or more years for the average bank or credit union to profit on a new customer/member. Adding to this complexity, once a new customer is created, it has become even harder to retain them over a two-year period. Here are some key banking retention statistics to consider:

  • Customer churn rates hover around 11%. Yet the annual churn rate on new customers hovers around 20–25% during the first year.
  • Banks spend approximately $200 to acquire a new customer, yet their average customer generates $150 in revenue annually.

A bank’s profitability is linked directly to their customer’s lifetime value—the longer the customer relationship, the higher the chance the customer will become profitable. But with nearly one-quarter of new customers closing their accounts and more than one in 10 current customers defecting to another financial institution, a significant attrition problem exists in the banking industry today. 

So, how can you drive new business while retaining customers?

Importance of Customer Loyalty

Customer satisfaction is a measure of how products and services provided by a company meet or exceed customers’ expectations. Customer satisfaction signifies how much customers “like” your financial institution and how happy they are with your products and services. On the other hand, customer loyalty is determined by the degree of a customer’s intention to recommend your bank to others and continue investing in products and services.

Customer loyalty is more difficult to earn than customer satisfaction, as it requires regularly exceeding your customers’ expectations. Consequently, not all banks can successfully earn customer loyalty. Ultimately, failing to prioritize customer loyalty can lead to customer churn and lost profits. To keep customer retention rates high, banks must search for opportunities to foster customer loyalty.

Issues With Tracking Customer Retention

Monitoring hidden defections can help banks distinguish loyal customers from satisfied customers. A standard defection is when a customer closes all of their accounts at your bank or credit union and leaves for another financial institution. A hidden defection is where customers simply leave their existing accounts open, but open a new account at a different bank or credit union. Hidden defections make customer attrition challenging to manage and highlight the importance of customer retention optimization—but what’s the best tactic to detect if your customers are considering defecting?

Many financial institutions are unaware of the extent of their customer retention issues because of blind spots in their retention efforts. Banks track client exits, which are the most visible form of attrition because they’re easy to monitor. Yet this approach doesn’t account for hidden defections that comprise the majority of customer attrition.

Hidden defections might not match the traditional definition of customer attrition, but the impact on your bottom line is still the same. Whether new users stop using their account, open a new account at a different credit union, or purchase financial services from another institution, the net result is the same. 

The good news is that banks and credit unions can reverse attrition and increase customer retention rates by studying their customer behavior and investing time and resources into customer relationship management.

Give Your Members a Reason to Stay

To keep customer retention high and attrition low, it’s imperative to find out what customers are at the highest risk of defecting and give them a reason to stay.

1. Find out when customers leave. Use customer data to track the customer journey from customer acquisition to departure to find out what point customers leave during the onboarding process. Analyzing when loyal customers depart can help you craft a customer retention strategy to target their pain points during the onboarding process and once they become a customer.

2. Predict which customers might leave. Apply predictive analytics to determine which customers are at the highest risk of defecting. Next, focus your customer retention strategy toward loyal customers who have a high customer lifetime value but are at risk of defecting. Can you move high-risk customers into new features or services like online bill pay, debit cards, freebies, or a customer loyalty program?

The best way to craft an effective customer retention strategy is to consider the following attributes of your existing customers: 

  • Length of relationship with your bank or credit union
  • Log of credit union visits, customer service phone calls, or live chat interactions
  • Types of financial products and cards owned, i.e., home mortgages, debit cards
  • Customer behavior, average order value, and transaction histories across multiple channels
  • Automatic payment, online bill pay, and web-based channel usage

Customer Retention Strategies for Banks

Members used to think that switching primary banks was a time-consuming, inconvenient task. Yet, according to Accenture, this perception has changed. Today, millennials believe switching banks isn’t as challenging as it used to be. 

So here are five ways to gain more members during and after the COVID-19 pandemic:

1. Start a newsletter email campaign. Encouraging customer interactions beyond branch visits can have a significant impact on the success of your customer retention program. Email marketing can help your bank foster long-term customer relationships. Newsletters also show long-time customers that you appreciate their business, and can build the goodwill needed to obtain referrals.

In your email newsletter, consider discussing industry trends, best practices for banking safety, or new features. Additionally, link to your social media profiles and send out quarterly customer satisfaction surveys.

You can segment your email recipient list based on the specific services your members are receiving. This approach allows you to create much more targeted content, resulting in higher conversion rates.

Many banks utilize a CRM to manage customer interactions.  These CRMs also allow financial institutions to design the e-blasts, segment their recipient list, and monitor the campaign’s effectiveness.

2. Send out customer satisfaction surveys. Customer surveys can significantly influence your bottom line by collecting valuable insights about customer behavior. By requesting customer feedback through customer satisfaction surveys, banks can:

  • Analyze customer behavior and user experience
  • Achieve an accurate understanding of overall customer experience
  • Identify and resolve urgent issues and weaknesses in the customer journey
  • Evaluate loyalty and customer satisfaction
  • Identify your customers with a high customer lifetime value (i.e., promoters who are likely to provide referrals)
  • Obtain valuable insights to improve new products and services

Capturing customer feedback is essential to reassess your institution’s best practices and determine how market and competitor developments are changing customer behavior and their expectations. 

Customer surveys can be helpful to capture unbiased customer reviews like whether fees or a lack of customer support may influence user experience (micro-level). Or whether a large number of customers complain about specific customer issues or subscription services (macro-level). With customer satisfaction surveys, customer success teams can pinpoint the most pressing retention threats to provide a better customer experience.

High customer satisfaction not only increases customer retention but also promotes customer engagement and increases your average customer’s lifetime value. When customer satisfaction is high, customers are more likely to make repeat purchases, post online reviews, and refer your financial institution to others.

3. Go the extra mile to provide value. In an Accenture customer survey, almost half (45%) of all respondents reported they would remain loyal to their bank if their institution offered them discounted financial services or products. Customer retention improves when customers are given a wide range of discounts and incentives on travel, auto loans, and home goods, 

So your customer retention strategy should offer discounts and freebies to expand your membership and reduce your churn rate.  

However, banking institutions often find it challenging to get customers to sign up or use loyalty programs. Approximately two-thirds (67%) of existing bank customers do not participate in rewards programs or loyalty programs offered by their primary bank. Because five out of six consumers don’t know that their bank provides a customer loyalty program in the first place, customer relationship management is the first step to optimizing customer retention and promoting customer acquisition.

4. Offer robust mobile services. According to a recent Bain & Company case study, banking customers who are frequent mobile users are 40% less likely to switch banks than the average customer. Mobile banking can have a significant impact on customer experience and loyalty, making mobile banking an excellent way for banks to reduce churn and encourage brand loyalty.

Mobile apps create strong relationships between banks and customers. Banks should aim at making their mobile app a valuable tool to help customers meet their financial goals. For example, banks can add a personal touch by providing customer support with routine banking needs, eliminating the need for a branch visit. When banks introduce mobile apps with new features that assist with reaching personal savings goals and monitor purchase frequency, customers feel satisfied and respected. Combined with friendly user experience, banking automation is a powerful tool in bank customer retention.

While most banking mobile apps group purchases into specific categories (bills, groceries, etc.), banks should help customers track purchase frequency, track vital metrics, and provide valuable insights into spending habits. To retain loyal customers, banks should help them track their long-term financial goals with a mobile app. Otherwise, banks risk increased customer churn, as customers may opt for a bank that provides superior financial services.

5. Focus on delivering a better customer experience. It’s essential to prioritize user experience to ensure long-term customer relationships. Make customer support and excellent customer service your bank’s principal focus. Adjust your sales, customer service, and marketing strategies based on customer feedback. Craft a retention strategy that focuses on offering customers a better understanding of how your bank’s products and services can meet their financial goals.

Great Banking Experience = More Profit

The banking industry has a unique set of challenges in the area of customer defection. So developing customer retention strategies based on user behavior will help financial institutions provide meaningful and effortless banking experiences. In turn, industry data is showing that this kind of improved experience will drastically improve retention rates and lead to increased profitability. 

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