Welcome back to our series on sustainable growth, crafted to help financial institutions discover how to achieve lasting growth beyond the wins of 2020. In our previous series articles, we introduced our holistic approach and discussed how acquiring the right kind of customers affects everything else.
Customer acquisition is only one piece of a greater sustainable growth engine. While acquisition is necessary for growth, financial institutions must also focus on retaining these new customers.
With PPP and low mortgage rates, 2020 was a profitable year for many financial institutions. As the world slowly returns to normal, financial institutions need to focus on sustaining growth beyond the unprecedented last year. With this article, we want to illustrate how attrition problems are stunting financial institution growth and offer some best practices to steer your retention efforts in the right direction. Your institution may have acquired many new customers in 2020, but do you know how many of them are sneaking out the back door this year?
Newly acquired customers are at a higher risk of leaving. Research shows that new customers leave at a rate of 28% in the first 6-9 months, and beyond that leave at a rate of 15% per year. For a typical $500m bank, this results in over a million dollars in lost profit! Attrition is an extremely difficult issue for financial institutions to tackle:
“Most banks are unaware of the extent of their retention problem because of blind spots in their approach. Banks generally track only the most visible forms of attrition, client exits, because these are easy to monitor. Most fail to track and manage the less visible forms that account for the majority of revenue leakage: the partial exits and the gradual winnowing back of business.” – Boston Consulting Group
Additionally, data problems make attrition difficult to comprehend. Financial institutions often don’t know or understand their attrition numbers because their data is siloed and unlinked. They also may not be able to catch at-risk accounts before it’s too late because all the information on a customer or the bank itself isn’t in one place.
Plus, you can’t always depend on your new customers to make up for lost profit – depending on how you acquire them, it might take up to two years for a new customer to offset acquisition costs. Financial institutions put a lot of time and money into acquisition, but you have to put in just as much attention on fostering and keeping those new relationships. After all, it’s much cheaper to retain a customer than it is to acquire a new one. You have to retain relationships in order to grow them and make them more profitable.
Why do customers leave?
Customers leave for many reasons, some of which are completely out of your control. Others present an opportunity to get in front of the customer before it’s too late:
- They can find better incentives/rates elsewhere or a rate special ends.
- The institution’s products or services don’t meet their needs. (Or if they do, they simply don’t know)
- They never really hear from their financial institution, so there’s no real relationship.
- They had to get a required special purpose account in order to have another product, like home equity.
- They have a poor service experience or feel like their financial institution doesn’t understand their needs.
- Fees are too high.
- They want to consolidate their accounts at another institution.
- Branch locations are too inconvenient for them.
Keep in mind it is also much easier for new customers that only have a single product or service to leave. We will cover this more in our next article!
So how can a financial institution confront these attrition problems?
Retention Best Practices
1. You can’t improve what you don’t measure.
You must be able to measure customer AND account attrition. You simply can’t improve a process if you don’t measure it. Many financial institutions overlook a critical part of strategic planning — translating strategy into measurements that can be tracked over time. Measuring For example, you really don’t know if onboarding is working if you didn’t measure it in the first place.
2. Acquire the “right” customers first.
Finding the right customers affects everything else. Financial institutions can significantly lower attrition by implementing targeted acquisition campaigns. This process of finding and acquiring prospects that look like your best customers will result in customers that stay and become increasingly profitable. Click here to learn more about intelligent targeting
All too often, acquisition campaigns are not targeted well or at all. Instead, financial institutions market to a wide variety of potential customers that will have different levels of profitability. Contrarily, targeted campaigns allow you to specifically target segments that are the most likely to need your product and will continue to grow the relationship. This also lowers acquisition marketing costs while accruing higher response rates because you are contacting fewer, but more qualified prospects.
3. Use onboarding to your advantage.
You’ve probably heard the phrase, “you only have one chance to make a good first impression” and that’s what onboarding is all about.
“When organizations that had an onboarding process were asked how extensive their communication process was, 50% stated that less than two contacts were made with the customer to expand (or secure) the relationship”. – Digital Banking Report, January 2021
How do you make that good impression last? It’s no secret that the goal of onboarding is to establish a relationship and lengthen customers’ lifetime value. Yet, some institutions don’t design an ongoing onboarding process to support this goal. While the beginning is crucial to forge that initial connection, you have to continually reengage with customers to keep them around. This means consistent and sometimes automated outreach and a customer-focused strategy that ensures the needs of customers are met with each interaction.
There’s no one-size-fits-all solution, and different customers prioritize different channels. You can’t onboard a brand-new customer the same as one that’s been around for years, just because they opened a new account. Therefore, your onboarding strategy needs to be multichannel and personalized for each customer.
Many banks rely on email, text, and social media to communicate with customers because it’s a lower-cost alternative compared to other channels. However, research and experience show that only using electronic channels may not be the most effective way to develop a personalized customer relationship. Personalized, one-on-one attention truly makes a difference. You’ll stand out in the marketplace with a combination of automation and personal communication.
“All too often, we just push messages. Which doesn’t create a relationship or any type of positive interaction for customers. Find out what’s going on in your customers’ lives so that you can be a proactive expert. Despite the new tech, people still need help and advice. They still need eye contact with an expert.” James Robert Lay, Digital Growth Institute
4. Consistent, frequent communication
While establishing a relationship with onboarding is critical in the beginning, it’s also key to communicate with them beyond those first 60-90 days that are sometimes referred to as the “honeymoon period”. It’s clear that onboarding requires consistent communication, but what is your strategy to build upon the relationship long-term? One of the best ways to retain customers is with consistent, proactive, and value-focused communication. You can’t wait around for them to call until they have a problem.
If customers are only hearing from their financial institution twice during onboarding, how often do you think existing customers here from them? We recommend value-focused touch points that encourage feedback and two-way communication. Check in on them. Make sure their financial needs are met. Every conversation should add value and show that the products you’re promoting match the customer’s needs, that rates and fees on the accounts are easily understood, and all of their questions and concerns are resolved. After all, you might not find out what they need, or if they’re unhappy if you don’t consistently reach out to them.
As financial institutions continue to migrate customers to digital channels, they risk a disconnection of their personal relationships with customers. This is called disintermediation. The personal touch is what really sets you apart. It is clearly more difficult to start and nurture personal relationships when you can’t physically meet in a branch, so personalized, meaningful, and timely communications (calls, emails, etc.) from bankers will go a long way.
5. Don’t forget about analytics
Another retention opportunity may lie within your customers who have significantly reduced their balance relationships and who have moved their savings and investments to other financial institutions. They may look like retained customers on paper, but these kinds of accounts don’t add much profit to the bank.
You can use data analytics to predict when customers may jump ship or identify those who use the bank’s services less often. Then, you can take the pre-emptive measures to retain these relationships. But remember – this is a last-ditch effort and has a smaller chance of retention. It is possible to win some of these customers back, but many times they have already made their decision to. It is a much better strategy to proactively build the relationship before they get to the point of abandonment.
6. Leverage Accountability among your team
Who is responsible for retaining a customer? Is it the opening officer? Or the branch manager? It’s easy to confuse your staff and the new customer if there isn’t a dedicated staff member responsible for their relationship or record of who contacted them last. It’s beneficial to decide who will be in charge of growing a relationship from day one and have a plan in place for them to succeed.
Another facet of accountability is measurement. Any successful customer engagement program holds staff accountable for following through with new customer contact (sending welcome notes, making two-week follow-up calls, etc.). If you shine a light on retention metrics and relationship growth by individual bankers and branches, you’ll see the needle move because everyone can see what’s working – and what is not.
Retention: A cornerstone for growth
The above tactics have one important thing in common: They’ll help your bank develop a two-way dialogue with your customers. This kind of conversation is a crucial element in increasing the lifetime value of their customers — and will have an impact on those long-term strategies of sustained growth, lower attrition rates, and improved cross-sell ratios for your institution.
Retention is an intrinsic cornerstone of your sustainable growth engine, but it cannot be a standalone strategy. You can’t sustain growth if you aren’t acquiring the right kinds of customers, or if your customers are leaving faster than you can acquire. But what is the best and fastest way to grow stronger, more profitable relationships? That brings us to the final piece: expanding the relationship through cross-selling. Stay tuned!
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