Turmoil and disruption in the banking industry has become the norm, causing banks to wonder what is happening to customer loyalty. They are pondering the extent of the growing risk of customer attrition as clients move their financial services to competing and non-traditional banks. To address this very important issue, we conducted a major consumer study to determine the level of primary bank customer attrition.
This is an important concern as Millennials and Gen Z view and engage with banks very differently than their Boomer predecessors. Raised on everything digital and mobile, and thus expecting a high level of personalization and seamless user experiences, these new cohorts are rewriting the definition of what banking is all about. Our Mobile Zombie study identified the deep-rooted connection younger customers have with mobile devices as their preferred source of communication and banking. Banks have responded by providing new online and mobile banking platforms to help drive convenience in hopes brand loyalty would come with it. But this move to convenience comes as a double-edged sword – the personal relationship between the banker and the customer is lost into the ether.
We discovered the banking industry is struggling to plug what we call a “leaky bucket problem” as customers slowly but surely trickle away. This defection is happening at a stealth level as customers consider alternative channels and financial providers while leaving their less profitable checking and savings account with their primary bank. Not surprisingly, our study identified more than 64 percent of respondents are neutral to dissatisfied with their current financial institution. The facts are quite startling: a lack of flexible control, customized products, and personalized service, and a loss of confidence in current financial providers is driving customers to consider alternative financial options at an alarming rate. This degree of dissatisfaction has created a significant challenge for banks that are seeking to grow their customer base by stealing market share from competitors. Ultimately, banks need to convince non-customers that their services are better than the existing provider’s, which is difficult considering the current environment.
This defection is happening at a stealth level as customers consider alternative channels and financial providers while leaving their less profitable checking and savings account with their primary bank.
More than 42 percent of the customers in our study are considering leaving for an alternative conventional bank, which is not surprising given the average customer banks with more than two financial institutions. A startling 37 percent are also considering switching to online-only banks as these disruptive banks build credibility and preference. Finally, 24 percent of consumers in our study who do most of their banking online or are not heavily engaged with their primary financial institution are considering a non-traditional bank. This stat reinforces the growing concern of the disruptive power of fintech platforms that are challenging the current status quo. With the projected growth of the mobile wallet, leading to a reduced reliance on physical money, the stickiness of banks will truly be tested.
Most of this stealth attrition is driven by the level of engagement of customers, with more than 37 percent indicating a low engagement with their primary financial institution. Our study noted the lower the engagement, the higher the risk of defection to competing options. With online and mobile banking become table stakes, banks will need to reconsider their strategy to reduce customer defection to competitors.
Where historically customers were loyal to one financial institution throughout their entire lives, stealth attrition is now becoming a fact of life for banks. Today, banks need to be mindful that their customers are more willing to explore alternative banking options that better meet their specific lifestyle needs. No longer is the status quo driven by the largest banking network or the most established brands, since new generations are less loyal and more eager to discover financial products and services that meet their given life stage needs. In subsequent articles, we will cover ideas and strategies on how banks can reduce the level of stealth attrition.