It’s become increasingly difficult 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 from a new customer/member.
Adding to this complexity, once a new customer is acquired, 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 for 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 its customer’s lifetime value: the longer the customer relationship, the higher the chance the customer will become profitable.
However, with nearly one-quarter of new customers closing their accounts and more than 1 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?
The 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 the degree of a customer’s intention to recommend your bank to others and continue investing in your 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 long-term 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
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 when customers simply leave their existing accounts open but open a new account at a different bank or credit union.
Monitoring hidden defections can help banks distinguish loyal customers from satisfied customers.
Many financial institutions are unaware of the extent of their customer retention issues because of blind spots in their retention efforts. Banks track standard defections, 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.
Give Your Members Reasons To Stay
Hidden defections make customer attrition challenging to manage and highlight the importance of customer retention optimization — but what’s the best tactic to figure out if your customers are considering defecting?
To start, you need to figure out when customers have left and which customers are at the highest risk of defecting. Then, you can work on giving those customers reasons to stay.
1. Find Out When Customers Leave
Use customer data to track the customer journey from acquisition to departure to find out at 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 on 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
Once you fully understand your customer’s behavior, you can start to craft a targeted retention plan.
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 and retain 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 and loyalty.
Newsletters also show long-time customers that you appreciate their business, and can build the goodwill you need to earn their referrals.
In your email newsletter, consider discussing industry trends, best practices for banking safety, or new features that you offer. 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 seamlessly 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 satisfaction surveys, banks can:
- Analyze customer behavior and user experience
- Achieve an accurate understanding of their overall customer experience
- Identify and resolve urgent issues and weaknesses in the customer journey
- Evaluate loyalty and customer satisfaction
- Identify 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
Customer surveys capture unbiased customer reviews to help you assess your institution’s best practices, understand customer expectations, and determine how market and competitor developments are changing customer behavior.
With customer satisfaction surveys, customer success teams can pinpoint the most pressing retention threats to address and 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 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. Why? It could be because five out of six consumers surveyed didn’t know that their bank provided customer loyalty programs in the first place.
To address this lack of awareness of your services, you should be intentional about promoting the discounts that you provide. You can:
- Put signage up in your bank
- Train your front-line staff to make personalized recommendations to customers who visit in person
- Post about your loyalty programs on your social media
- Make sure that you promote your programs in your email newsletters
Customers can’t take advantage of deals they don’t know about.
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 a 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 their mobile apps. Otherwise, banks risk increased customer churn, as customers may opt for a bank that provides superior financial services.
Apps also offer an opportunity to introduce loyalty programs that may be applicable to specific customers based on their purchase habits. If you offer discounts for restaurant purchases or travel, include marketing pop-ups in your app for frequent restaurant visitors or travelers.
5. Focus On Your 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. Then, make sure that you offer adequate training to your branch staff to be sure they’re ready to recommend the perfect product or service to each customer.
6. Elevate Your Marketing Without Breaking The Bank
Your strategies to attract and retain customers don’t have to have an exorbitant price tag attached. You can offer an outstanding experience that competes with national banks without breaking your own marketing budget.
If you’re ready to take your customer acquisition and retention strategies to the next level, then check out this article with 5 tips you can use to out-market the big banks on a shoestring budget.
Great Banking Experience = More Profit
The banking industry has a unique set of challenges in the area of customer defection, but that doesn’t mean you have to settle for high customer turnover and low lifetime value.
Developing retention strategies based on data about your user’s behavior will help you provide meaningful and effortless banking experiences for new and long-time customers. In turn, industry data is showing that this kind of improved experience will drastically improve retention rates and lead to increased profitability.
If you know that you need to work on your retention and loyalty but aren’t quite sure where to start, get in touch with our agency. We’d be happy to help you design a retention strategy that fits your institution and customers.