With the goal of grabbing a bigger share of the current account/checking account pie, banks invest heavily to attract customers from their competitors. However, recent research shows that the banks may be better focused on retaining their existing customers with better service, rather than trying to snare new clients with tempting offers.
The study, conducted last year by the UK Office of Fair Trading (OFT), now replaced by the Financial Conduct Authority, aimed to better understand the nature of the British current account environment. UK banks highly covet this lucrative market, which the OFT estimated at approximately USD$14.4 billion of revenue per year for the UK banks.
The study examined the impact of two motivational forces on current account holders:
- 'Pull' factors, such as positive incentives to move to a new bank;
- 'Push' factors, including negative experiences with the customer's existing bank that encourage the customer to look elsewhere;
According to the research, the majority of customers who have already switched their current account provider attribute their decision to a 'pull' factor. For example, they were positively attracted by the offer of an alternative provider.
However, the majority of customers who have not changed their provider state that it would be a 'push' factor that would encourage them to do so. Thus, no matter how attractive the offers from alternative providers, it would take a breakdown in the customer experience with their current provider to prompt these customers to make the switch.
* Social Grade is socio-economic classification system by the UK Office of National Statistics, with 'AB' indicating higher and intermediate occupations and 'DE' reflecting the other end of the scale, including semi- and unskilled occupations and the unemployed.
The research also showed that the main reason customers do not switch banks is that they are happy with their existing provider. With apathy and concerns about the switching process also coming into play, it is no easy matter to convince customers to move banks on the strength of 'pull' factors alone. So, special offers, gimmicks or incentives will not be particularly effective.
Interestingly, when customers do decide to switch, many may do so without giving their bank a warning nor will they take the time to complain. As a result, dissatisfied customers may maintain their relationship with their current provider (albeit with lower levels of trust, advocacy and / or product usage) without showing any sign of their dissatisfaction. At this time, they may become receptive to the 'pull' factors on offer at other banks and simply leave.
So how can the banks respond to these dynamics? Delivering an excellent customer experience has to be the key. By creating effective feedback loops with their customers and by constantly using these insights to challenge themselves to make the customer experience better (be it quicker, more cost effective or more value adding), banks can minimize 'push' factors and increase customer retention. At the same time, they can create a significant reputational 'pull' factor for consumers dissatisfied with a rival provider.
Given customers' low propensity to complain before exiting their relationships, banks should also consider mining their data to give insight into their attrition dynamics: which segments of customers are the most profitable and does the bank want to retain, and what are the behavioural signals that a customer might be dissatisfied and about to leave?
New product and service offers will always have a key role to play in the current account market, particularly in 'pulling' dissatisfied customers away from competitors. However, a focus on delivering an exemplary customer experience is critical not only to attract new customers but also to ensure your existing customer base does not start looking elsewhere.
- What measures do you have in place to gauge current account customer satisfaction and identify potential 'at risk' relationships?
- Do you gather data on lost customers to better understand their motivation and potential trigger behaviors?
- Do you have strategies in place to resolve the largest 'push' factors that cause your customers to switch to other banks?