Customer & Member Attrition

The Hidden Costs of Bank and Credit Union Customer Attrition

The hidden cost of hidden customer attrition
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Just because a bank or credit union customer doesn’t withdraw cash and close their account doesn’t mean they are loyal. Many banks and credit unions are losing customers daily to “silent attrition,” a trend in which consumers slowly expand their relationships with other financial institutions.

Banks and credit unions must first discover why customers are looking elsewhere to reduce silent attrition. Doing so can help retain customers and expand relationships.

With the right information and visibility, financial institutions can learn to predict their customer’s needs and position their offers at precisely the right time. This enables banks to enhance the relationship, recommend the next best product, and improve loyalty through a win-win proposition.

Fading Funds and Balances

While banks and credit unions know when customers close accounts, they aren’t always aware of silent attrition. This is when customers slowly start moving to other financial services providers.

For example, a customer who has held a checking account at your institution for years could take out an auto loan and a credit card with another bank. Meanwhile, a customer may have recently opened an account at a niche investing fintech and now has a monthly auto draft of $250/month. Or, a customer might have withdrawn a large sum of money from a savings account to deposit in another bank with a higher yield.

Many customers have accounts at multiple financial institutions and are willing to move money and open new accounts when their needs are unmet. Although these things may not appear as red flags on the balance sheet, they can incrementally amount to significant sums in lost opportunities and profit potential.

Finding the Losses 

Banks and credit unions must understand the customer lifecycle, as competing in the banking industry is more than just boosting account openings and growing deposits. Factoring acquisition costs and the fact that a large portion of customers are unprofitable, profits typically aren’t realized until the customer or member has been with the bank or credit union for a few years.

For example, while checking accounts are gateways and anchors for many institutions, they rarely produce profits. It’s only when the customer or member opens an auto loan or mortgage or engages in other services that the profits start to come. By failing to recognize the entire customer lifecycle, many banks and credit unions lose customers before they reach their most profitable years.

In addition to account closures with withdrawn deposits, silent attrition also comes with several other hidden costs:

  • Opportunity Costs

    Silent attrition results in opportunity costs in the form of foregone products and services that the customer would have otherwise engaged in. This includes losing out on a potential mortgage, which can net an average profit of more than $2,300 on each loan origination, according to the Mortgage Bankers Performance Report. Financial institutions that let customers slip away also stand to lose money in fees and interest on auto loans, personal loans, HELOCs, and credit cards.  
  • Weakened Relationships

    With each passing year, banks that fail to engage their customers lose goodwill and customer trust actively. Simply because a customer keeps money in their checking account doesn’t mean the bank is the preferred institution. As fintechs and digital banks leverage advanced digital capabilities and personalization, they are gaining pace with traditional financial institutions as a source of trust, guidance, and financial solutions.
  • Brand Dilution

    Brand recognition, perception, and word of mouth are still highly influential in banking. As customers slowly migrate from your bank or credit union to others, they will also bring word-of-mouth and recommendations. This is especially important for younger consumers, who are more likely to be swayed by influencers and friends than they are by traditional marketing.

Supporting the Entire Customer Lifecycle

Banks and credit unions must engage their customers more actively to deepen relationships, demonstrate goodwill, and reduce silent attrition. 

Acting on silent attrition is critical to maintaining loyalty in banking. A recent study by Bain found that loyalty in banking is declining, and less than a third (29%) say they are loyal to their primary bank. However, Bain also found that greater personalization enhances loyalty and NPS scores, meaning banks have an opportunity to turn the tide.

There are several things banks and credit unions can do. The first step is to put all customer data in one place. Relationship managers, tellers, and digital channels can’t deliver the best experience or recommend the next best offer if they don’t have all the information on that person. Having all the information in one system enables banks and credit unions to eliminate communication siloes and quickly access the right information at the right time.

Banks can then train their staff to leverage cross-selling and make recommendations based on the consumer’s needs. This often creates a win-win by enhancing the customer’s financial life and positioning the bank or credit union as a trusted financial partner. For example, an associate in the bank’s mortgage department may find that a customer could benefit from a high-yield CD during the closing process. Meanwhile, a teller or call center agent who discovers a member recently paid off an auto loan may be able to suggest a new offer.

Finally, the bank or credit union can eventually expand the system to support the entire customer lifecycle, continually predicting and supporting a consumer’s needs further out into the future. This insight enables the bank to grow with its clients and continually position itself as not just a depository but a valuable source of information and a lifelong service provider. 

By learning more about what their customers need and recommending the next best products, banks can reduce attrition, improve loyalty, and find an untapped source of profits.