Innovation Driving More Consumers to Switch Banks Now

The reasons why consumers change banking providers are changing, new data shows. Women, the segment most inclined to switch, say that better digital banking services are the biggest driver of their decision. However, branch locations and fees also remain important. One emerging trend is the impact a financial institution's behavior can have on consumers, and whether there is alignment with their personal values.

Banks and credit unions have long relied on inertia as one of the primary forces that kept consumers from switching. The hassle of changing accounts from one financial institution to another meant that people had to be driven away by horrible service or unbearably high fees. Most people, however, grumbled but did nothing about it.

But those days may be over. With innovative solutions on the rise and consumers expecting more, changing banks has become a more appealing option than it has been in the past. And easier.

New research from Resonate on the reasons people switch primary banking providers give credence to this competitive shift. Information extracted from the company’s sprawling collection of consumer data indicates that there are 5.6 million people in the U.S. who plan to switch banking providers in the next 12 months. And the segment identified as most likely to make a change? Women. An astonishing 53% of them say they may change institutions soon.

The reasons both men and women give for making a change differ from those in the past, which typically all related to changes in life circumstances. The top three reasons commonly cited for switching financial institutions used to include moving to a new city, getting married or divorced, and changing jobs.

Resonate’s data, however, points to different factors. Overall the factors point to a new emphasis on pricing and on digital banking capabilities.

Among women, the top three reasons for switching financial institutions now include more convenient branch locations (34%), better customer service (19%), and better online/mobile banking services (19%).

Men have now give similar reasons for switching financial institutions: lower rates/fees (43%), more convenient branch locations (32%), and better online/mobile banking services (21%).

Read More: Why Do People Switch Banks?

Too Many Fees: Pouring Gas on Consumers’ Burning Frustrations

Women are 2.5 times more likely to say their banking provider has too many fees.

When Resonate dug deeper on women’s preferences, they found that excessive fees and lower interest rates on credit products were also frequently cited as reasons driving them to change banks or credit unions. The report notes that as a group, women are 2.5 times more likely than the general population to say that their banking provider has too many fees. Women also complain that banks don’t communicate with them often enough, and they generally don’t feel valued as a customer.

“The ‘too-many-fees’ complaint certainly is a driver of dissatisfaction,” says Andy Hunn, COO of Resonate. “Understanding these pain points can help financial marketers reduce churn.”

Joshua Schnoll, former senior director for FICO, says banking providers need systems that employ data-driven intelligence to the way fees are applied.

“Today, smart institutions are already building models that look at the long-term profitability, attrition risk and historical fee waiver requests on an account, and then make an analytics-driven decision to proactively waive a fee, provide reactive fee refund offers or not refund fees at all,” Schnoll explains.

Digital Innovation Now a Top Reason to Change Banks

Resonate’s consumer insight data show that people planning to switch banks in the next year are 16% more likely than the U.S. population to value innovation when selecting financial services products. That correlates directly with “better online and mobile banking services” being a top reason that both men and women will opt to change financial institutions.

“People planning to switch banking institutions are 16% more likely to value financial product innovation.”

“The data paints a picture of banking consumers who want more personalized services and technology,” says Ericka McCoy, SVP of Marketing for Resonate. “That’s why some big tech companies are looking toward the consumer banking market.”

Innovation — or the lack of it — is not necessarily the reason people plan to switch banks, but it is a quality they look for once they’ve made the decision.

Hunn explains that on the Resonate Consumer Intelligence Platform, people rank desirable attributes related to banking products. “Innovative” is an attribute that stands out in terms of differentiation.

“This is important for bank marketers as they seek to align their value propositions,” notes Hunn.

“Banks have remained relevant up to this point by introducing new products and services like mobile check deposits and mobile bill pay,” the Renovate report states. “But little has changed in banking business models or in the role that banks play in customers’ lives. Consumers want innovation.”

Read More: What Motivates Millennials to Switch Banks?

Online-only Banking Users More Likely to Switch

As part of its research, Resonate examined the behavior and preferences of people who use online-only banking providers.

The number of people who use online-only banks in the U.S. (18.9 million) is small compared to people who use traditional banks (138.4 million). But digital trends and changing consumer preferences are making online-only banks a growing financial category. However, according to Juniper Research, by 2021 one out of every two adults in the world — about three billion people — will use a smartphone, tablet, PC or smartwatch to access financial services.

The demographics of online-only banking users are not that different from traditional banking users, Resonate notes in their report, with one exception: their age range — 35 to 44 — is about ten years younger, and that slightly more of them have a college degree.

“Still, as banks consider how to compete with the likes of Amazon and PayPal, it’s important to know what people who use online-only banks consider when choosing one,” the Resonate report states.

Online-only bank users are 73% more likely to switch banks because they want even better digital services.

The conclusion?

“The best way to woo online-only banking users is to offer competitive interest rates on deposits,” says Resonate. “They also like getting a bonus for opening an account and cash bonuses for direct deposit.”

That pretty much describes what Ally Bank and other direct banks do.

However, Resonate says online-only bank users are 73% more likely than the rest of the U.S. population to switch banks because they want even better online and mobile banking services. This suggests that financial institutions must provide consumers — especially younger, tech-oriented ones — with technology that functions effortlessly if they hope to retain relationships.

Banking With Heart and Account Bonuses

Resonate reported on several other trends that emerged from its consumer database. Among them it found that people who are inclined to switch banking providers:

  • want to do business with companies that support the community and reduce their energy usage.
  • prefer companies that reduce packaging, listen to the public and donate to charities.
  • have paid more for a product or service based on issues important to them, and have participated in a company’s social issue program when it resonates with their personal values.

People planning to switch banks or credit unions also want deals, the research found. Resonate’s Hunn says 14% of those likely to switch banking providers want bonuses for direct deposit. They are 28% more likely than the U.S. population in general to say that it is a top consideration.

One in every six switchers also want bonuses for opening an account. They are 21% more likely than the general population to say an account opening bonus is a top consideration.

Accounts at Other Institutions Are a Vulnerability

More than a quarter of consumers (27%) have a secondary relationship with a bank or credit union other than their primary financial institution, which they would switch their primary account to if they had to, a Deluxe study found.

There are many reasons, of course, why a consumer could have accounts with multiple financial institutions: household members managing their own income and expenses, a separate business account, a backup measure or simply failure to close out an old account.

Consumers who recently switched banking providers are the ones most likely to open additional accounts at the new institution.

These accounts are something to monitor, Deluxe cautions, as unhappy account holders find an easier path to leave when they have a strong secondary banking relationship.

“Knowing that a consumer who has accounts at another institution is more at risk of switching,” says Deluxe. “Banks and credit unions should query new customers on what other accounts they may have at other financial institutions, and see if there is anything they can do to remove the necessity for this secondary relationship to exist.”

However, if your institution is the one a consumer has switched into, be sure to treat them well. The Deluxe study found that those individuals who recently switched institutions comprise the group most likely to open additional accounts at their new institution, particularly high-value products like mortgage loans and home equity lines. They are also more than twice as likely to open a new savings account than existing account holders at the same institution.

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