Sharing our Experience
Almost 20 years ago, I walked away from a career in the newspaper industry and started Stellar Strategic Group. Having no formal training in the banking industry this pivot in careers seemed odd to many of my co-workers and friends. My theory was simple. Newspapers were on a decline and the competitive nature of banking was growing substantially. Therefore, a significant opportunity existed in the banking industry.
Looking back on the past 19 years, I’ve worked with some very bright marketing professionals but often witnessed missed opportunities that could have accelerated account and deposit growth for many institutions. Each Thursday for the next six weeks, I’ll share our cumulated experience of working with over 1,700 bank marketing professionals. Hopefully our years of shared experience will benefit others experiencing similar issues.
Customer Attrition
The first topic I’d like to discuss is the issue of customer attrition. As I think back to the newspaper industry, we had a standard measurement that was utilized by practically all publications. The banking industry has no such standard. This lack of a standard measurement is both a culprit in restricting account growth as well as a tremendous opportunity. In order to dig a little deeper into this issue let’s start by proposing a few questions.
- Is it possible to have a checking account that underperforms other accounts?
- Could you have a source of new accounts that underperforms other sources?
- Could you better market an underutilized product that greatly enhances customer retention, such as overdraft opt-in or e-statements?
- Would it be helpful to know the ideal time to enhance marketing efforts to save accounts before your auto loans disappear from your portfolio?
- Would it be helpful to know which in-direct auto loans are actually salvageable?
Let me stop here. The point is there’s a lot we don’t know. If we had the intelligence could enhance and accelerate account growth. To that end, let me share two instances where an attrition study was performed and had a significant effect on reversing a trend.
Our Clients’ Experience
An east coast bank client was experiencing no checking or deposit growth over an extended period of years even though marketing budgets had grown each of the past three years. The study found the checking account that was the focus of most marketing efforts and resulted in the most account openings only had a one-year retention rate of 19%. Each subsequent year saw a decline in retention that far exceeded other accounts. This was an expensive account that paid a cash incentive at opening. The result over three years was 18,746 account openings with a net gain of only 2,416 accounts. The study identified the problem and steps are being taken to reallocate budget make adjustments to their checking lineup.
The second client is a Midwest credit union. The retention rate on in-direct car loans was 9%. While this is very low its consistent with retention rates found at other clients for in-direct auto loans. The attrition study found while measuring attrition over a four-year period that 73% of these loans disappeared off the books between four and eight months from their loan maturity date. The solution was a simple one that targeted these consumers beginning at the one-year point from their maturity date. Over a period of two years the retention rate grew to 21% for this group of members by providing them financing for their next new or used car purchase. This effort was combined with identifying which members were geographically inclined to stay with the credit union.
These are just two examples of how managing consumer data, as opposed to just reporting on it, can change your product line growth trajectory. That old saying: “There’s money in your data” surely applies to managing attrition. A relatively small move in attrition to the positive can translate to significant budget savings. The replacement cost of customers is one of the most overlooked budget related items not only in banking but across many industries.
For more details on our attrition studies or to see if you qualify for a free attrition study, contact Craig Simmers at craig.simmers@thestellarfinancialgroup.com or call 410-990-0172 for a free 15 minute introductory call.