Thursday, November 10, 2011

Big Bank Vulnerability to Attrition Provides Opportunity

On the heels of Bank Transfer Day, a new study suggests that many of the top banks in the country are vulnerable to continued outflows of customers and deposits. According to a just released 84 page study entitled, "2011 Retail Banking Brand Vulnerability Study" conducted by the Connecticut-based boutique consultancy cg42, the nation's top 10 banks are at risk of losing almost 9% of their customers and $185 billion in deposits during the next 12 months.

The study, based on surveys of 5,600 customers of the top U.S. banks used a proprietary Brand Vulnerability Index (BVI) to compare each bank's risk of attrition, decreased acquisition effectiveness and potential financial loss based on the frequency of customer frustrations; customer sharing behavior (for example, disclosure of frustrations on social media); the impact of frustrations on customer behavior; and the uniqueness of those frustrations to a particular bank

Source: cg42 Brand Vulnerability Index, 2011

Interestingly, the study was conducted between June 23 and July 25, before the announcement of new debit card fees at many of the larger banks (which were later rescinded). It can be assumed that the events since the study was conducted could only negatively impact the very largest banks.

Not surprisingly, the top four banks (Bank of America, Chase, Citibank and Wells Fargo) have the most at risk, accounting for $135 billion in deposits, or roughly 73% of the projected attrition over the next 12 months. Alternatively, PNC and SunTrust were the least vulnerable of the top 10 banks with 7.4% and 7.5% considering switching respectively compared to an historical annual switching rate of 6%.

Source: Relative Brand Vulnerability Scores of Top 10 Banks, cg42 2011

The following takeaways represent several key findings from the study:

    • 10.3% of Bank of America's customers are expected to defect and move their deposits to another institution in the next year
    • 71% of customers believe that banks merely claim to have consumer interests at heart but in fact only care about their own interests
    • 50% of customers are uncomfortable with how large some banks have become
    • 70% of customers prefer to diversify their financial relationships across several providers

In addition, the study found three frustrations consistently appearing at the top of every bank’s list of frustrations:

    • Being nickeled and dimed
    • Not offering competitive rates
    • Being hit with overdraft charges
    • And to a lesser extent, “Making promises they don’t keep.”

"It's no surprise that customers are growing increasingly frustrated and feeling like many of these institutions are taking advantage of them -- the data reflects that," said Stephen Beck, founder and managing partner of cg42. "But now -- for the first time -- we actually have a way to determine the effects of those frustrations on the balance sheet. It's critical for financial institutions to understand how their products, services and operating policies truly impact customer behavior."

The study also found a significant difference between the vulnerability of the top 10 banks when customer segments were considered. For instance, PNC had a much more positive score with affluent customers than the mass segment, while TD Bank had a much more positive relative score with the mass segment.

The benefits of the study for banks of any size are that it can provide guidance as to how to allocate resources to improve customer satisfaction and retain relationships while also providing insights into how to exploit large bank competitor weaknesses and capture market share. While the number of people who say they will switch are usually significantly less than those that actually take action, it is clear there is an opportunity for customer disruption in the marketplace. And while the stud indicated that 59% of all consumers survey thought it was too much of a hassle to switch banks, it is clear from the past weekend that patience is wearing thin for many consumers.

What Can Banks Do To Take Advantage of Opportunity

For those banks who would like to take advantage of what appears to be an opportunity for market share growth, a 'disruptor' program many times is effective. In brief, a disruptor program is a form of guerrilla marketing where specific market areas of opportunity are targeted for direct communication.

Usually, a bank will evaluate their branch locations and determine where a trade area overlaps between a bank/branch they want to target and their branch trade areas. The overlapping areas provide an opportunity for unique targeting of customer and prospect communication. At times, multiple organizations are targeted.

Disruption communication can be targeted to areas of trade market overlap
While used frequently when a competitor changes their name, closes a branch, etc., this same program can be used when a bank(s) experiences a drop in trust or loyalty or when pricing gaps are evident. Obviously, the findings in this study could provide opportunities for banks of all sizes if a shift in market share (and deposits) are desired.

Is your bank hoping to grow deposits over the next 12 months? Is your bank hoping to shed deposits in this deposit rich environment? Do you have a disruptor plan in place to take advantage of the opportunities identified in this study?

I would love to know.

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