Customer retention in financial products

The cost of acquiring a new financial services customer is many times higher than the cost of keeping an existing one.  Retention has always been an integral part of portfolio management growth, and limit churn by retaining your profitable customers. 

Second tier banks and credit unions are far better at retaining their existing customers over the major banks.  A reason for this is customers say they receive more personalised service.   It gets more complex when you drill down to a specific type of financial product such as a credit card.  Analysis shows the majority of credit card customers are loyal,  but a solid percentage actively, close their accounts and open new ones – especially to take advantage of “balance transfer” interest holidays offered by competitors.  Other cardholders are silent protesters— they don’t close accounts but pay down balances and move their spend to other competitors. 

The three drivers to attrition are:

1. poor service / high pricing

2. limited product features

3. finding a better offer elsewhere. 

The tools of customer retention range from easy to complex. Fee and interest waivers, limit increases, rewards programs, and call center priority.  But the key to successful customer retention is to look within the portfolio combining both internal and external information. This encompasses both proactive and reactive strategies. 

Proactive strategies include identifying customer behaviors which lead to balance or account attrition.  This includes identifying thresholds for action as well as segmentation and modeling to identify problems.

Reactive strategies are reacting to when a customer has already taken action leading to attrition; these include monitoring portfolios for new inquiries and account openings or responding to customer complaints. In some cases, action may be too, but in others, reactive response may be what the client is actually seeking to preserve the relationship. 

Whichever strategy or combination, the key point to retain customers and keep them happy are: 

Understand your current customers’ needs as they may have changed. Consider if pricing or a simple fee waiver is appropriate.  Deliver exceptional customer service and be approachable and personal.  Better yet, anticipate customer needs focusing on loyalty and customer experience.