Top reasons why customers switch banks

Consumer and business surveys indicate that quality of digital capabilities, product offerings and customer service are key variables.

You work hard to bring in new customers and build relationships, but are you able to effectively manage attrition? Do you have insights into some of the real reasons customers ditch your bank and switch to another?

While some of the causes of customer attrition are predictable and often uncontrollable, a deeper look yields some interesting findings. MKP communications recently conducted two segmentation studies—one focusing on consumers and the other on middle market commercial clients and prospects—to identify the top drivers of customer attrition in 2021.

Attitudes and behaviors of a sampling of personal banking customers of a mid-sized community bank were surveyed and analyzed to provide more in-depth marketing insights and predictions. Findings revealed the four most important reasons they would leave their bank:

Digital offerings

The growing adoption of digital innovations, along with aggressive acquisition tactics from other banks, increases the likelihood of switching. The old “location, location, location” mantra is less important as consumers rely less on physical branches.

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Fraud management

Consumers are increasingly exposed to fraudulent activity, and identity theft is a real threat. Poor handling of any fraud incidents that arise ranks very high as a reason consumers would leave their bank.

Attractive inducements

Many banks use cash incentives for new account openings to steal customers from their competitors. Consumers admit they are willing to switch banks if the offer is high enough.

Inconvenient branches

Customers who commonly use branches for transactions and financial guidance cite a shrinking branch network as a key reason for changing banks to one with a greater physical presence in their area.

The consumer study also revealed additional factors that, contrary to conventional wisdom, were not ranked as important as those listed above. These include fee levels and ability to solve general problems.

A study of current and prospective commercial banking clients sought to provide insights that would help a small community bank grow share in the commercial market by fine-tuning its sales and marketing strategies. Among the key switching reasons:

Poor customer service

From the first positive interaction to day-to-day operations at the branch or online, existing and potential clients rank this as the top reason to churn. Relationship managers are key in delivering financial advice and support that business customers demand.

High costs

Commercial clients are often more sensitive to transaction and service fees than consumers, as they erode profitability. Competitor banks aggressively call on these companies and offer less costly alternatives.

Not feeling valued

Companies will seek financial partners that make them feel more appreciated and valued if they believe the complexities of their businesses aren’t being addressed adequately.

Inadequate products/services

From advanced digital and AI technology to flexibility in customization of existing offerings, companies want banks to cater to their business at each stage of growth. If banks can’t keep up, companies jump ship.

Misalignment of values

Businesses want to place their dollars with banks that align with their values and exhibit basic empathy and concern for the community. Disruption to that alignment is ranked as an important reason to leave.

The study identified additional factors companies ranked lower as reasons to leave their bank that lack of technology solutions and complicated lending processes.

While inertia remains the most important factor in customer retention, bankers can no longer depend on that alone to be the core of their retention strategy. It’s time to address some of the key attrition factors highlighted above by accelerating digital transformation, being competitive with products and fees, providing better training to staff, and promoting the advantages of your bank to strengthen relationships, which is at the core of customer retention.

When you gain insights into what your customers think, and how and why they behave as they do, you can tailor your marketing and messaging campaigns by leveraging what matters most to them. And significantly, segmentation studies can help you define different solutions for different groups of customers.

Earning customer trust and strengthening confidence as a trusted partner–especially through these unsettling times–are essential to building the deeply-rooted brand loyalty that will go a long way toward stemming attrition.

Pamela Reich is director of communications strategy at MKP communications.