One Answer to Retention is Right in Front of You

With the uncertainty that lingers from the financial crisis fallout, banks continue to face the question of how to hold on to existing customers. One solution lies within a vast, yet largely untapped segment of their current customers.

Yes, it’s true that banks should continue to actively protect their top 20 percent of customers—those with deeper relationships—by focusing on communication and outreach activities. However, the greatest potential isn’t usually found in relationships that need to be protected. These relationships are already profitable, and it’s unlikely they hold much potential for additional growth.

I believe the greatest potential for growth can usually be found with single-account households. These customers typically comprise 40 to 50 percent of a bank’s customer base and are 80 percent more likely to leave the institution within the first 12 months. This can have a dramatic negative effect on a bank’s profits: In most cases, it takes 18 to 24 months after a bank acquires a new customer to reach the break-even point.

Add to the fact that the majority of customer defections come from this segment, and it quickly becomes evident that a well-devised cross-sell program to these customers can have a considerable impact on the bottom line. It’s ironic, then, that many financial institutions invest very little after the on-boarding stage to market to and build relationships with these customers.

Studies have suggested that “typical” consumers use as many as a dozen financial services from as many as eight different providers. These single-account households may spread their business around, but hold the potential for even greater growth for your bank. Remember, these are the same people the bank has invested more than $250 each to acquire—the same ones that some banks now have deemed to be unworthy of more marketing efforts to move them up the loyalty ladder to become more “profitable” customers with four to five additional relationships in the future.

This segment may include just-getting-started customers who use your free checking account. Perhaps they’re the 20-year-old college students paying for tuition with a summer job and using a free student checking account at the bank. Staying connected to these customers requires constant, consistent and personalized communication. It’s the bank marketer’s job to create a dialogue with these customers to identify and meet their needs.

This segment also may include single-account households with little or no growth potential. For example, customers with a certificate of deposit or trust account. Banks can use analytics to examine transactional, behavioral, and demographic data to identify single-account households that have potential for growth. They can then use predictive data modeling to help determine what product these customers may need next.

Cross-selling bank products to this segment should be a high-priority bank function, exceeded in importance only by the quality of service provided to customers. Banks no longer can afford to ignore this customer segment—it holds enormous potential for growing their relationship portfolio. With targeted marketing efforts these customers can be retained longer, increasing their lifetime value to the bank.

Most single-account customers do have potential, but banks will never realize and profit from it unless they’re willing to make the additional marketing effort. That requires embracing potential by deepening relationships with this untapped segment.