Customer attrition in banking is a reality of the business. If banks keep their inflow and outflow steady or in balance, they don’t tend to tip that balance. But there are other ways banks lose business, including the slow fragmentation of a relationship with a customer. A customer may park their checking account in one place for a lifetime, but what about their other needs — like savings products and investment accounts. Who are these customers turning to — and can banks support them?
Retail banking customer relationships are very human. Relationships matter, and customer satisfaction is often tied to how valued they feel as individuals. Bank-customer relationships work in tandem with real-life events and experiences happening in customers’ lives, too — events like marriages, divorces and deaths are some of the primary drivers of changes to a customer’s banking relationship.
This is why banking customer attrition rates mostly hold steady and predictably waiver during large-scale upheavals, such as the Covid-19 pandemic. Outside of personal events, large-scale events that affect everyone will have a noticeable effect on customer movement. The most important factor for controlling attrition is for banks to stay aware of their own attrition rate, and take steps to ensure their rate does not creep above the national average.
Recent coverage in The Financial Brand has focused a lot on customer trust, and the top reasons banks lose business. Number one is always fees, unexpected or otherwise, and the most recent data from J.D. Power’s 2024 U.S. Retail Banking Satisfaction Study corroborates this. The report found that trust is indeed the most influential factor in the J.D. Power research model, and avoiding surprise fees and availability of funds are indeed key trust building experiences — but when it comes to external factors that influence customer behavior, like life events, which are also significantly impactful, tactics like conversation and targeted customer communications can have major impact.
Ultimately, J.D. Power recommends that trust satisfaction can be improved through three key journeys: resolving problems, new account reassurance, and advice resonance.
The J.D. Power study found that on average, consumers today have accounts at three different financial institutions and 65% of them have deposit accounts at more than one institution. Overarchingly, rates, convenience and branch location can be the answer, but the study also uncovered that customers really need effective communication and engagement from their banking partners.
“Our 2024 Retail Banking Advice Study tells us that only two in five customers experienced this value-added interaction in the last year, leaving many customers only transacting with their banks,” said Jennifer White, senior director, banking and payment intelligence for J.D. Power. “And by advice we are not just talking about investment or retirement guidance — we mean interacting about how to save money for goals or how to pay down debt. This could also be interactions connected to life events such as how to save or shop for that first mortgage. It’s these value-added interactions that move beyond transacting and into that educational, emotional, and empowering zone.”
In 2019, customer attrition in U.S. banks sat at an average of about 10.23%, according to data from Haberfeld, a data analytics company that partners with financial institutions to help grow their business. A decade earlier, in the throes of the 2008 recession, attrition was closer to 15%. Once the pandemic set in, customer attrition dropped to approximately 8 %, as customers were frantically dealing with other major concerns in their lives. As the pandemic evened out societally, so did customer attrition, which in 2023 settled back to a 10.25% average.
It’s worth noting that unlike in a recession, where folks tend to lose faith in their banking partners, the pandemic saw retail and especially business customers become much more dependent on and close to their banks. Faced with branch closures, banks across the U.S. focused on their technological offerings, made a point of reaching out to worried customers, and provided valuable partnership for business customers looking to take advantage of the Paycheck Protection Program and other financial relief programs.
Typically, banks tend to focus on customer acquisition as a traditional way to balance attrition on the back end. And of course, retention is key. This is a good approach — the first experiences a customer has at a bank tend to stay with them long term and define the relationship.
“When we see spiking attrition, it tends to be because the institution isn’t performing as well as it could be,” said Sean Payant, Ph.D., chief strategy officer and senior executive vice president at Haberfeld. “We have to start asking questions — what’s going on? And generally, we find those financial institutions aren’t doing a good job onboarding new customers. When a customer switches financial institutions and the institution doesn’t identify the best account and create relational intensity — sell a debit card, setup online banking and bill pay, install mobile banking, identify the best savings products – it increases the likelihood that someone will leave.”
Payant highlights the array of products a banking customer can take advantage of, but there are two products that prove to be linchpins for the retained customer. One is the checking account, either retail or business: “Because when you get that, you earn first right of refusal for any other product 70% of the time,” Payant said. The second key product is online bill pay. Payant notes that if customers are enrolled in online bill pay, they are less likely to leave their financial institution for any reason.
“And yet, this is a product we’ve never been able to fully onboard as an industry” Payant said.
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Tech Can Stem Silent Attrition
This idea that customer loss is defined by one thing — the loss of a checking account — is pervasive in the industry. However, this idea ignores the reality of customers moving tertiary accounts such as savings or money market accounts, or significant portions of their checking balance, to different providers. This is sometimes called silent attrition, which describes a process by which a customer slowly, over time, decreases engagement with their bank.
J.D. Power asked consumers who are making deposit shifts the percentage of their total deposits moved. In Q1 of this year, 14% of consumers made deposit moves away from their primary bank to secondary account. Among those making moves, 60% shifted on average less than 20 % of their total deposits, while 1% moved more than 50 %. When asked why they were making these shifts, the first answer is that it was a “required move to cover a bill or another payment” for 26%, a proof point for how important easy online bill pay is to consumers.
Setting aside those required moves, what is behind deposit moves? Thirty-nine percent chased higher interest rates, 18% felt the other bank offered a better savings program (which could include better technology tools to set goals and track progress), and another 16% combine with responses like lower fees, no balance requirements, or cash back and other rewards.
“A key factor impacting attrition and deposit shifting and that is the ease of doing business with the bank,” said White. “That could be measured by the convenience of the branch location, hours of service, etc; but also, by how easy it is to transact digitally, how helpful personal financial management tools become, and how easy is it to make money moves internal or external to the bank. It’s a bit of a catch for banks today as making it easy to move money is desired but does not necessarily serve the banks retention goals.”
Banks struggle with adopting the best technology to cater to customer needs, with part of the roadblock being the reliance on old, legacy systems that are complex and difficult to integrate with new solutions. Anecdotally, banks that take the technology problem by the horns and lean into fixing it, achieve great results, like Veritex Community Bank which was able to drive $135 million in deposits in just 90 days by working with a technology partner to revamp their account opening software.
“Your digital products have got to be intuitive, simple and logical in order to maintain customers,” Payant said. “Peoples’ expectations of mobile banking systems are high — they have to be seamless. Another example is person-to-person payment systems, which are everything now. Financial institutions have the infrastructure, but this tech development is all being done externally. Zelle was an answer, but it hasn’t been well adopted, because many institutions charge customers for using Zelle when there are no charges for other person-to-person payment options.”
It’s this type of fragmentation of offerings that causes customers to drift off to find other providers that will make it easier for them. Sure, they will keep their checking account in place — but they will seek out P2P payment providers, bill pay solutions, and high yield online savings accounts, all of which is business their main bank would be happy to have — if they even realized they are missing out.
Simply keeping track of customer activity in a more detailed manner could aid significantly in customer retention, which is part of the mission of “closing the back door” of customer departures. Customer relationship management technology is at an advanced stage, and many options are available, yet only 48% of banks are using CRM according to recent data from the American Bankers Association. And CRM is the most used marketing technology among banks.
Why is CRM adoption so low when it can be so helpful?
“If a system is not integrated into the core, staff is double-entering,” Payant explained. “If double-entering is required, it’s simply not going to get done on a consistent basis.”
Talk to Your Customers
When working with bank clients, one of the solutions Haberfeld will provide is a retention specialist trained in a process designed to save relationships. When a customer wants to leave the bank or close an account, they will ask a series of questions designed to uncover why they are leaving, and whether there is anything the bank can do to help them stay. It’s a simple, time-tested solution that many industries have utilized. But because bankers aren’t often trained in these relational aspects of banking, these conversations don’t happen as much as they should, at the point of departure of a customer.
“Retention specialists listen effectively, they respond, they do not provide rationales. In each case, they ask to retain the relationship,” Payant explained. “This process does not happen often at a customer departure, but when it does, it is very effective. Mostly, financial institutions aren’t doing it consistently because it’s the nature of the business – people generally don’t get into banking because they want to be salespeople.”
J.D. Power’s study corroborates a new reality where customers expect personalized, human interaction — even if delivered via technology.
“The tipping point to delighting your customers is driven by always personalizing interactions — not just occasionally, this is the expectation now — and ensuring there are at least three value-added interactions with your bank beyond transacting annually,” White said. “To hit both of those requires an in-person as well as a digital interaction strategy — combined with some strong marketing support.”
And about that marketing support — the biggest gap in interaction J.D. Power found in its study is email communications. Consumers across all institutions seek more value-rich content in their inboxes, White explained. Customers may not read them all, but knowing they are there quietly builds trust: When the next life event occurs, they know where to turn.