Monday, February 27, 2012

Banks Need to be Proactive to Stop Switching Trend

According to the 2012 U.S. Bank Customer Switching and Acquisition Study just released today by J.D. Power and Associates, continued frustration with fees and service has resulted in increased levels of switching at large, regional and mid-sized banks, with smaller banks and credit unions faring significantly better.

The study found that 9.6% of consumers switched their banks in the past year compared to 8.7% in 2011 and just 7.7% in 2010. But not all financial organizations were impacted equally. In fact, there was a extremely wide disparity between the switch rates at larger banks (avg. of 10% - 11.3%) and the .9% switch rate of switching at smaller banks and credit unions (a reduction from 8.8% in 2011).

Interestingly, roughly half of those leaving big banks went to another big bank. This could likely be attributed to the importance of being able to serve the customer as their life circumstances change and the importance of convenience as defined by the customer. According to Michael Beird, director of the banking services practice at J. D. Power and Associates, "Our study showed that consumers at smaller banks and credit unions were more likely to shop for an alternative provider if their financial needs  changed. In addition, bricks and mortar and the availability of advanced mobile technology is a value proposition that has yet to be overcome by smaller banks and credit unions." The disparity between large and small bank offerings of mobile services was reinforced by the recent Javelin Strategy & Research study, Mobile Banking, Smartphone and Tablet Forecast 2011 - 2016.

And while fees continued to a primary reason for consumers to begin to shop for a new bank or credit union (especially at mid-sized, regional and the largest banks), fees alone do not necessarily make a customer switch if the value of their overall experience is strong.  As was found in the 2011 U.S. Retail Banking Satisfaction Study, being charged a fee does not necessarily result in lower satisfaction or an eminent switch. This was also the case in the J. D. Power and Associates 2011 U.S. Small Business Banking Satisfaction Study where M&I Bank performed well in customer satisfaction despite having more significant fees.

In this year's study, Capital One received high rankings in both acquisition and retention even though the bank's fees were not the lowest. In addition, at Huntington Bank, where marketing focused on lower prices and increased convenience, performance was strong in both acquisition and retention categories.

Today's consumer makes a very informed decision before opening a new account. They research online, listen to friend's recommendations and do a personal 'litmus test' before walking into the door of your branch (or opening an account online). As a result, there is the opportunity to lose a new customer before you even complete a new account application. This is best illustrated using the J. D. Power New Buyer Purchase Funnel shown below.

JDPA New Buyer Purchase Funnel (2011)

According to Javelin Strategy & Research, only 53% of new online account openers were able to successfully open and fund their account (2011 Online Account Opening:Faulty Process Hobbles FIs in the Battle for Customer Acquisition, Profitability and Retention)It is important, therefore to monitor and manage your online and in-branch product purchase abandonment. I also discussed online abandonment in my May, 2011 blog post, Seven Steps to Reduce Offline and Online Bank Product Purchase Abandonment.

As has been seen in previous J. D. Power and Associate research done over the past three years, the importance of completing a needs assessment and having post new account opening follow-up significantly improves satisfaction (and reduces attrition). Previous research from J. D. Power and Associates also showed that satisfaction increased as the number of communication touches increased up to seven touches (see 10 Strategies for an Award-Winning Onboarding Process white paper). In each case, the level of cross-selling also increased.

Finally, the channel used for account opening also impacts satisfaction and retention potential. According to Beird, "Online channels for account initiation garners greater satisfaction among customers. Those who utilize the online channel rather than in-person for account opening report higher satisfaction levels with account initiation." It was found that, even without any additional follow up contact from the bank, online customers average 763, or 73 index points higher in satisfaction (on J.D. Power’s 1,000 point scale) than those who open an account in the branch. Beird added, "We found that if follow-up contact takes place after the online account initiation, the customer satisfaction level jumps an additional 100 index points to 864, versus 849 for in-person account opening accompanied by follow-up. 

Does your bank have an accurate measurement of the number of accounts and households that switch annually? Is it broken down by tenure and value of the account and/or relationship? Do you have a proactive strategy to lower your attrition rate both before the account is opened (shopping and consideration stage) as well as after the new account is opened?

I would love to hear from you on what you are doing at your bank or credit union and the success you are having. Please post your comments below.

Note: For more information regarding the J.D. Power and Associates 2012 U.S. Bank Customer Switching and Acquisition Study, please contact Holly Zagresky at 


  1. An understanding of customer behaviour in store, often gleaned only through trial and error and observation can be used as a positive sales tool. Rationalising consumer psychology in what drives a purchase has led to the formulation of protocol in determining how best to set out a store, appropriate and effective product placement, and establishing an atmosphere of subliminal messages geared towards improving sales.

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  2. While there has been a concerted effort made by the banking industry to get back to basics and provide customers with a satisfying retail bank experience overall, the well-publicized attempts by banks to recoup(by Relationship Banking) lost revenue due to Reg E debit card revisions by dropping free checking and repricing accounts has clearly had a negative effect.