Contrary to the beliefs and growth strategies of many financial executives, retail banking customers show little inherent attachment to their financial institutions, according to a new study that also reveals the surprising reason why consumers actually stay with their banks.
The study of 4,000 adult retail banking customers in the twenty largest US metro markets found that, on average, only 35% of a financial institution's retail customers consider that institution as their "primary financial institution" (PFI). Further, the study found that institutions designated as PFIs generally control just 30% of a customer's total balance sheet.
According to Andrew Green, vice president and leader of A.T. Kearney's Financial Services practice, "The conventional wisdom in the financial services industry has long made banks and investment firms strive to be considered their customers' primary financial institution. What we observed is that financial institutions struggle to make this a reality and that even if successful, it may not be worth the effort. Indeed, in many cases the products most closely associated with a PFI by customers were limited to lower-margin products like cheque and savings accounts."
It seems that most customers aren't keen on being loyal across the board to any one financial institution. In fact, 75% of customers have relationships with more than four financial institutions. Twenty-five percent of respondents stated that no single type of institution would be attractive as a provider of comprehensive, consolidated financial products and service offerings.
Number one reason
Clearly, customers expect their financial institution to be accurate at all times. Respondents named "no errors or problems with my account" as their number one reason for staying with a financial institution. While most financial institutions performed well on service quality, two service errors or account problems experienced in one year resulted in customer attrition rates that were 35% higher than the industry average of 12%. After three errors in a year, approximately 25% of customers said they would definitely leave their financial institution.
The survey was conducted for A.T. Kearney by Harris Interactive as part of a broader effort to compile the A.T. Kearney Financial Institutions Organic Growth Index, which connects customer attitudes and actions with their actual banking behaviours and measures eight components that are critical for achieving organic growth. Results are compiled into two primary measurements to comprise the index: customer momentum and wallet momentum.
- Customer momentum measures an institution's ability to forge long-lasting customer relationships and instil advocacy among their customers.
- Wallet momentum measures an institution's ability to expand the number of products and drive greater penetration per product with its customers.
A copy of the 'Organic Growth Index' is available for download from A.T. Kearney. The company also plans to make the findings database available to selected financial institutions.