Bank customers at peak risk of defection

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By: Wise Marketer Staff |

Posted on June 22, 2012

Consumer backlash against bank fees, coupled with poor service and unmet customer expectations, has fuelled increases in defection rates among customers of large, regional and midsize banks, according to the J.D. Power and Associates '2012 US Bank Customer Switching and Acquisition Study'.

Following the so-called 'Bank Transfer Day' (5th November 2011) the beneficiaries of an increasing exodus of customers from larger banks are primarily smaller banks and credit unions, the study found.

In fact, the acquisition of new customers by smaller banks and credit unions has increased by 2.2 percentage points to an average of 10.3% in 2012 from 8.1% in 2011. Among big banks, regional banks and midsize banks, switching rates average between 10.0 and 11.3%, while the defection rate for small banks and credit unions averages only 0.9%, a significant drop from 8.8% in 2011.

The study, which examines the bank shopping and selection process, finds that 9.6% of customers in 2012 indicate they switched their primary banking institution during the past year to a new provider. This is up from 8.7% in 2011 and 7.7% in 2010.

The study found that, as expected, fees are the main reason customers shop for a new primary bank. In particular, one-third of customers of big and large regional banks cite fees as the main shopping trigger.

"When banks announce the implementation of new fees, public reaction can be quite volatile and result in customers voting with their feet," said Michael Beard, director of the banking services practice for J.D. Power and Associates. However, according to Beird, customers weigh the price they pay against the value of their experience.

"It is apparent that new or increased fees are the proverbial straws that break the camel's back," explained Beird. "Service experiences that fall below customer expectations are a powerful influencer that primes customers for switching once a subsequent event gives them a final reason to defect. Regardless of bank size, more than one-half of all customers who said fees were the main reason to shop for another bank also indicated that their prior bank provided poor service."

In capturing customers who are shopping for a new bank, several of the more successful banks achieve higher acquisition rates through the use of promotions and cash incentives. At one of the highest-performing big banks, 19% of customers indicate these promotions were the reason they selected their new bank. However, according to Beird, doing a good job for customers is not just about dollars, but also about loyalty and retention.

"Only 32% of customers who selected a new bank because of promotional offerings said they definitely would not switch banks again in the next 12 months," said Beird. "In comparison, 46 to 51% of customers who chose the new bank because of either good service experience or positive recommendations say they definitely will not leave within the next year."

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