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U.S. retail banks are waging a war.

 

The eruption of mobile banking and a worldwide financial crisis that shook consumer confidence have altered forever how customers interact with their financial institutions. Banks that hope to ensure future growth need to find ways to not only attract new customers, but also keep their existing one from walking out the door.

Too many banks, however, battle customer attrition armed with incomplete data.

Traditionally, information on customers has been locked within functional and application silos that make it extremely difficult to detect early warning signs. Add to that, the customer satisfaction and loyalty meters most banks use are shallow indicators at best, making it near impossible to devise a strategy to find and fix shortcomings or course-correct in real time.

Customer attrition is just one of many hurdles facing traditional retail banks as they struggle to find their way in a rapidly changing market place. It’s a costly problem. Roughly one-third of the traditional retail banking industry’s market share could be up for grabs by 2020. Online-only players could steal as much as 15% of annual revenue, according to figures from Accenture.

Complicating matters: wooing Millennials. That bulge in the population python born between 1981 and 1996 have started to come of age. Now financial institutions must strike a balance between attracting younger, tech-savvy, and often fickle customers with needs and expectations that differ widely from those of their parents without alienating older existing customers.

And once you’ve attracted those younger customers, you’ve got to keep them.

It is now more important than ever for a traditional retail bank to understand the mindset of its customers.

Many customer satisfaction scores were designed years ago to measure interaction between consumers and bank employees. The arrival of the promoter score in 2003 boiled customer loyalty down to the answer of a single question -- Would you recommend our business to someone else?

But back in those days, the oldest Millennials had yet to graduate from college, and several years would pass before Apple launched the first iPhone. Now, 85% of banking transactions are performed online or digitally. And turn the calendar back to 2010, when 67% of bank customers visited their local branch at least once a month. Last year, that figure sat at 43%, according to data from Accenture Research.

Yes, it is great when customers say they are satisfied. An unhappy customer becomes the customer of another bank. What business isn’t thrilled when clients herald their services and products to friends and family?

Yet, if you want to see the customers that are poised to leave, you have to ask the right questions, and acknowledge certain harsh truths and changing trends.

All too often a customer who identifies himself as loyal to a bank is simply too apathetic to go through the hassle of switching accounts. Data show that even so-called “satisfied customers” leave for greener pastures, or rarely use one institution for all of their banking needs.

In fact, 75% of customers that defect to another bank or financial services company say they were “satisfied or completely satisfied” with your business at the time they made the switch. A study by Informa Research Services’ SEA Score, which measures members and customer engagement, shows the range between the top dozen retail banks in terms of flight risk is far greater than the ranges found for their satisfaction and loyalty scores.

Younger customers are by far the most fickle. Data from Informa shows that Millennials are 73% more likely than Baby Boomers to defect to another financial institution.

In the meantime, the vast majority of bank customers – 79% – view their banking relationship as transactional, not advice-based, which makes it far easier to cut ties.

Simply put, without knowing why someone has remained a customer and digging underneath the simple answer to broad questions to better gauge where that loyalty ends, you are blind to the red flags waving on the horizon.

How can you create more targeted and cost-effective marketing campaigns, develop products and offers specifically tailored to customers’ wants and needs and even develop better ways to determine a customer’s creditworthiness and detect fraud?

Banks have one thing in their favor. No other consumer industry has more consumer information at its disposal. But they need to leverage that cache and tap into all data sources – from branches, ATMs and call centers to payment systems, mobile apps and social media -- in real time.

The result: better understanding of customers and ultimately less attrition.

 

For more information on Informa Research Services' customer engagement and loyalty research and The SEA Score™ program, contact us at 800.848.0218 or email info@informars.com.

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