Three Tactics To Keep Customers From Switching

By Michael Beird and Karen Licker.  Original post appeared in BAI Banking Strategies on March 16, 2012

It’s no secret that retail banks across the country face an enormous revenue challenge. In the summer of 2010, regulatory changes to Regulation E went into effect, significantly reducing the revenue banks could earn with their overdraft programs. The second punch came with the passage of the Durbin Amendment in October 2011, which capped interchange fees on debit cards issued by banks larger than $10 billion.

Ordinarily, such legislation goes largely unnoticed by the majority of consumers, but the combined revenue impacts from both of these changes in less than a year put grave pressure on the sustained profitability of America’s biggest financial institutions. In response, some of these banks, most notably Bank of America Corp., briefly experimented with an ill-fated debit card fee, which helped inspire many angry customers to move their relationships over to credit unions and community banks during last November’s “Bank Transfer Day.”

Recent research by J.D. Power and Associates shows that customer defection is continuing a three-year rise. Both large and regional banks are taking the biggest hits, with defection rates increasing from 7.7 % in 2010 to 9.8% this year, likely heavily influenced by the negative press big banks continued to receive in the media as well as enticements from smaller institutions to transfer accounts (see chart, “Customer Defection on the Rise”). Even so, banks such as Bank of America continue to experiment with new fees in order to bolster their depressed retail banking revenues.

Banks need to understand that industry fees, absent of associated real or perceived value, have a direct impact on both retention and acquisition. However, there are three strategies that banks large and small can take to keep their customers from switching accounts:

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Beyond Statisfaction: 2012 Customer Service Champions

 For some banks, good is no longer good enough. These companies have become Champions by going beyond satisfaction and exceeding their customers’ expectations, to not only win market share and maximize financial performance, but also raise the bar for other companies, both within and outside their industry.

Congratulations to the following financial services companies who were among the 50 companies recognized as 2012 “Customer Service Champions”:

First Federal

Frost Bank

ING Direct

Hancock Bank

Quicken Loans

Scottrade

The J.D. Power special report, “Beyond Satisfaction: J.D. Power 2012 Customer Service Champions–Brands That Deliver Service Excellence to Maximize Business Results,” is based on customer feedback, opinions and perceptions of more than 800 companies in more than 20 industries, gathered from J.D. Power studies conducted in the United States between 2000 and 2011.

For more information about how the 50 J.D. Power 2012 Customer Service Champions differentiate themselves from their competitors, view the entire press release and access an Executive Summary of the special report, available HERE.

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Why Do Customers Shop For a New Bank?

We fielded our 2012 Financial Services Screener Survey in November of last year and found that customer defection is continuing a three-year rise (7.7% in 2010, 8.7% in 2011, and 9.6% in 2012 ). Not surprisingly both big and regional Banks are taking the hardest hit with defection rates increasing from 7% in 2010 to 10% this year which could be heavily influenced by the negative press big banks continued to receive in the media as well as consumer programs aimed at encouraging customers to leave big banks in favor of small institutions.

While it would be simple to attribute these trends to unwanted fees or service charges, the assumption would only be partially correct. The data from the 2012 Bank Customer Switching and Acquisition Study implies more complexity than one might otherwise presume. In response to identifying the single most influential reason customers started shopping for a new primary banking relationship, four reasons stand out regardless of bank size, and these are:

Fees and Rates: Either because they are dissatisfied at their current bank and want to shop around, or see more competitive rates elsewhere.

Life Circumstances: A factor largely outside the control of the bank, this includes events such as marriage, graduation, divorce, unemployment and retirement.

Unmet Expectations: A negative driver that some experience, or combination of experiences, did not fulfill the customer’s expectation of what banking at their former primary bank would be like.

Customer Service: A likely tangent to unmet expectations, poor customer service is a condition that, as this year’s data illustrated, is seldom a primary driver but one that sets the conditions for the customer leaving when another trigger (like fees or rates) arises.

While all banks share these four reasons as the top ranked shopping triggers, there are noted differences in priorities depending on which bank the customer had previously.

  • One third of customers at the largest banks cite fees and rates as the primary shopping trigger incenting them to look elsewhere for a new primary bank relationship.
  • Life circumstances trigger shopping more for customers of smaller mid-sized and community banks, as well as Credit Unions. Limited geographical coverage and fewer services severely limit the ability of banks with smaller footprints to meet the needs of many customers going through major changes in their lives.
  • As a primary shopping trigger, customer service was identified by only 5% to 9% of customers across all types of banks. However, inasmuch as respondents could only select a single main reason for shopping, it is clear that service is a critical contributing factor, as opposed to the primary driver.
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3 Reasons Customers May Break Up With Your Bank & How to Avoid Them

Just like with couples, the relationship between retail banking customers and their financial institution is complex. As with any relationship, a healthy connection between two parties is one that develops over time and is typically based on mutual respect, trust, honesty and support.

Most of us know that it takes effort for healthy relationships to work! Whether we like it or not however, breakups do happen and in the case of bank customers, they get over them quickly and move on to another bank relationship.

The following are a few valuable insights about why retail bank customers may break up with you and how you can implement a few change initiatives to maintain a healthy connection with your customers….to avoid the bank break up.

Reason #1: Callous Communication – Problems become a customer’s biggest problem

Problem prevention needs to be a high priority for all financial institutions, given the incidence of problems (22% of customers¹ indicate experiencing a problem) and the significant impact that problem incidence has on overall customer satisfaction.

Prevention Tips

  • Ensure customers understand fee structures, deal honestly with them and explain the fees right up front – it improves awareness of fees and minimizes complaints.
  • Engage new customers during account initiation to identify their needs and sell them the products that meet those needs …..it lowers the incidence of future problems if they are happy from the start.
  • Empower bank representatives (branch and call center) with the necessary authority, and provide proper training that will allow them to address any customer misunderstandings at the first point of contact. It will eliminate confusion for future problems.
[1] J.D. Power and Associates 2011 Retail Banking Satisfaction Study

Reason #2 – Unmet Needs – You’re not giving them enough of what they want Continue reading ›

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…But Will Cardholders Be Any Smarter?

The CARD Act of 2009 has been in force for over two years, but it may be too early to celebrate. While the Act resulted in several changes to card terms, such as interest rates, late fees and payment dates, there is clearly still room for improvement. In a recent press release, Raj Date (Special Advisor to the Treasury Secretary over the Consumer Financial Protection Bureau) noted, “Credit cards can be complicated, with many moving parts that impact the cost to consumers. When a consumer has to read through pages of legal fine print in their credit card agreement to figure out how their card works – it’s easy to get confused. With a short, simple, easy-to-understand credit card agreement, consumers can clearly see the terms of the deal and make the decisions that are right for them.”

So the newest emphasis by the government is to simplify cardholder agreements to make them clearer and easier to understand. This effort isn’t totally unwarranted, however. While J.D. Power’s 2011 Credit Card Satisfaction Study showed a 20 point rise in Credit Card Term satisfaction (on a 1,000-point scale), it is still very important that customers have a complete understanding of their terms, and that simply isn’t happening. Only 35% of customers, roughly 1 out of 3, indicated they ‘completely’ understood the terms for which they are held accountable regarding significant amounts of debt obligation. Customers who lack this level of comprehension have greater incidence of problems and complaints, as well as a higher level of general attrition and card-switching behavior.

As a result, the efforts of the CFPB to direct revisions of term agreements could be a positive step in the right direction but will it help them take control of their cards? More importantly, will they have the knowledge they need to ensure their current credit cards meet their needs? After all, even a revised agreement is no better than the old ones if no one reads them or knows how to evaluate their underlying value. J.D. Power took the insights from this year’s Credit Card Study and compiled four critical recommendations for all cardholders to take to heart in assessing their current or future cards.

4 ACTION ITEMS EVERY CARDHOLDER NEEDS TO DO

1.  Know what kind of credit card user you are and choose a card that fits your habits. Do you tend to carry a balance over time (revolvers) or pay it off every month (transactors)? Revolvers should look for the most competitive credit terms on balances and payments instead of an attractive rewards program. Transactors, however, should look at rewards programs that make it easy to both earn and redeem rewards. Both types of customers should search for programs that provide the best overall benefits and services for their needs.

2.  Do your homework online, in person and over the phone. Ask questions and read materials about the card program you are interested in. Do not overlook online blogs and websites, including JDPower.com, that objectively evaluate card issuers and program terms and include customer feedback.

3.  Explore what other customer tools and resources are available. Many issuers now offer a wide range of online tools for financial planning and debt management, as well as payment and purchase tracking. Some also offer credit counseling, sophisticated mobile applications, online chat and other forms of real-time assistance to fit their customers’ lifestyles.

4.  Do not be afraid to test customer service before applying. While the Internet continues to be a critical interaction channel for credit card customer service, talking to agents via the phone is still the primary channel for addressing questions and problems. Before you apply, call the customer service line to see how user-friendly and helpful the service is.

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5 Resolutions to Raise Customer Satisfaction

With the holidays behind us and 2012 well underway, I was wondering whether it’s too late for us to add a couple of resolutions to the list that has probably already been broken (Gym visits? Dieting? Smoking? …) In a cross-industry comparison of 2011 satisfaction scores below, I highlighted the research studies which pertain to banking and credit cards. While all 3 studies showed improvement in satisfaction last year, it is painfully obvious that a lot more can and should be done to address the needs and expectations of our customers. Therefore, I propose a list of five changes which, if adopted as part of the New Year, would likely raise customer satisfaction in financial services again this year and help narrow the gap with other service industries that typically outperform banking each year.

Resolutions for financial services:

Greet customers with sincerity and compassion:  Regardless of whether it’s in person or over the phone, customers can sense a disingenuous welcome or hello. We each have the ability to make someone else’s day a little better or to relieve some stress by smiling and saying ‘hello’. Acknowledging a customer upon arrival is the single most impactful behavior to in-person satisfaction in our Retail and Small Business Banking studies, affecting the customer’s subsequent perception of satisfaction in other areas such as wait time and account initiation. Likewise, courtesy for phone agents starts with the greeting and affects overall satisfaction of the call session.

Call customers back before they call you:  When working on a customer question, problem or other issue, we often wait to call a customer back until there is resolution. Unfortunately, in the meantime, customers often grow impatient at the lack of information while waiting and call the bank…sometimes several times. When the bank finally calls the customer with resolution, customers often feel the call was the result of their persistence and not what the bank planned all along. If a problem or question cannot be resolved at the initial point of contact (best practice) or within 24-hours, the customer needs a call informing them of the current status and anticipated timeline for resolution, along with proactive call at regular intervals until the problem is closed out. But this also leads to another resolution… Continue reading ›

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Role of Social Media in Growing Bank Revenues

Guest Blog Post by:  EMI Strategic Marketing

At last month’s Financial Services Marketing Symposium, a question posted by Tim Spence of Oliver Wyman to kick off the conference reflected an issue on attendees’ minds: where does the financial services industry find revenue growth? This is top of mind in the industry, as the lower loan-loss provisions, which boosted bank profitability in 2011, are expected to tail off in 2012, so financial institutions are now looking to the revenue side of the ledger to maintain and grow profits.

According to the top 25 banks’ recent forecasts, all 25 plan to increase revenue by growing their market share – which means that some of these institutions will fail do to so.

In an environment characterized by increased competitive intensity, technological advances and renewed focus on customer relationship optimization, banks are investing in a range of new service and sales channels, with social media prominent among these emerging channels. A survey of the FSM conference audience revealed that 67% of attendees’ banks have a presence on Twitter, Facebook and LinkedIn. A recent report by FIS Global shows that many top banks have a social media presence on these three main social media platforms:

What was notable about the social media discourse at the conference is that none of the speakers explained how participation in social media channels improves revenue for their organization:

» Paul Kadin of Citibank focused on the fact that Citibank’s social media presence has helped to improve its Net Promoter Scores

» Julie Berkun Fajgenbaum of American Express OPEN discussed the organization’s social media goal: active participation by message recipients

» Tim Collins of Wells Fargo emphasized that social media is not the right channel for pushing products; rather, it is a forum for authentic, relevant messages to customers

Continue reading ›

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