Why Members Switch Financial Institutions

With apps, websites, customer relationship analytics and the changing needs of multiple generations, financial institutions are feeling the pinch. Consumers are using the competition to their advantage, switching financial institutions as they please, often for better rates, terms or customer experience.

What Causes Members to Switch?

Nearly 50% of consumers switch financial institutions at least once in their lifetime. And 56% of consumers use more than one financial institution to handle their money. While you can blame bank switching on consumers’ life circumstances, research shows that switching falls more on the financial institutions themselves.

The vast majority of consumers are transaction-based, using your credit union as a service, and around 12% are relationship-based, according to research from EVERFI. A relationship-based consumer is looking for financial education and advice. Although this percentage may seem insignificant, it is the relationship-based consumers who use more than one product or service and remain loyal over a longer period.

Nurturing relationship-based consumers can improve member retention and increase your chances of up-selling multiple products. Collecting specific data on your members can help you segment your relationship-based members. Once you segment them, you can further customize the experience by offering them products based on their financial history. The more personalized the marketing, the more they will respond. This creates a win-win for the credit union and the member.

7 Ways to Help Prevent Consumers from Switching Financial Institutions

Several factors cause consumers to switch from one financial institution from another. You can’t prevent every switch, but you can continue to improve key factors such as convenience, quality customer service, security, products/services, fees, innovation and financial education. Focusing on these key areas will keep your members from pulling the plug.

1. Convenience

Mobile banking has rocked the financial institution sector. Consumers crave a one-stop mobile banking app that can deposit checks and transfer money between accounts, and includes budgeting calculators.

Along with mobile convenience, select groups such as the elderly and low-income consumers continue to seek physical locations. If they need advice on a substantial financial decision or only deal in cash, community branches can provide a service to the community and a lifeline for small businesses.

2. Quality Customer Service

Your credit union may offer great customer service to its members, but you cannot stop with the people who have already joined.

Consumers are trending toward financial institutions that offer socially conscious options like supporting those less fortunate in the community, or using renewable energy to power their branches.

Choosing to market your efforts isn’t just a poster on the wall, either. Taking steps to reduce your paper use and encouraging members to donate to causes with a company match can also contribute to aligning with your members’ personal values.

Keep in mind that acquiring new members is not only good for numbers, but a good opportunity for establishing closer relationships. Start by asking new members the following questions:

• Why did you choose our credit union?
• What features are most important to you when choosing a financial institution?
• Do you have accounts at other financial institutions? If so, what type(s)?

The above questions not only help establish a baseline, but help you understand when and why a member might be prone to switching banks. You can find out the exact financial product they are starting with, what features help solidify their banking choices, and how prone they are to switching to other financial institutions that they may or may not already have relationships with.

3. Security

Financial institutions are especially at risk for data breaches due to the sensitive data they process. Investing in highly secured software to protect your members’ information is imperative. A customized software based on a security audit can help you expose risks and strengthen your security protocols.

Other measures to consider include enabling firewalls, adding anti-malware applications, biometrics, multi-factor authentication and automatic logout of your members’ accounts (when they have been idle in their online account for more than a few minutes).

4. Products/Services

Banks, along with credit unions, have generally been able to skate by with sufficient customer service and low fees to keep their members satisfied. However, with the rise of online financial service options, members now expect more than basic services. Changing banks has also become easier than in the past, adding a new level of challenges regarding customer retention.

According to data collected by Resonate, over 5.6 million Americans are interested in switching financial institutions within the next year. Women between the ages of 25-34 are most likely to switch banks. This segment is seeking convenient locations, better customer service and full-featured mobile banking. While men seek similar attributes in banking as women, lower rates and fees were most important to males.

5. Fees

Having competitive fees and APRs is essential for enticing potential members who regularly compare rates online. Once a potential or existing member chooses your credit union to apply for a personal loan, credit card, or checking account, you must act quickly.

Consumers who have recently switched financial institutions are more likely to open additional accounts such as mortgage loans, home equity and savings accounts.

6. Innovation

While most financial institutions can provide members with mobile check deposit and banking features, they do little to capture a personalized experience. Innovation may not be the deciding factor for switching banks, but once they switch, it is at the top of the list.

Members are seeking innovation. They are looking for financial institutions to put their specific needs first and provide them with products and services that can improve their lifestyles, such as automated features, the waiving of unnecessary fees and financial education.

7. Financial Education

Relationship-based consumers see financial education as an important connection between the consumer and the financial institution. For example, start a blog on your credit union website. By turning transaction-based consumers into relationship-based, you will not only increase the sale of your products/services but can also improve member retention.

Members are more likely to personally engage with targeted financial education, perhaps by learning new information that was absent in their middle school, high school or even college. Financial education can be provided by the credit union in the form of interactive online learning tools that can be assessed 24/7 by not only members, but credit union employees as well.

Employees can use the targeted financial education to casually offer relevant products/services to members who visit the branch. Corresponding paper marketing materials can help employees quickly explain credit union offerings, and provide a resource that the member can use to follow up at their convenience.

Great Customer Service Is Key

You may find it easier to appeal to bank switchers who need a brick and mortar branch and even those who are relationship-based. However, how do you capture members who are transaction-based or prefer digital-only banking?

Once your technology and fees are competitive, focus on customer service. Provide a personalized experience for relationship-based members and those who have recently switched. Use relevant financial education to turn transaction-based members into relationship-based members.

The more relevant products and services you can get members to sign up for, the less likely they are to switch it up.

Richard Gallagher is CEO of Oak Tree Business Systems, Inc., a Big Bear Lake, Calif.-based firm that provides credit unions with custom forms and disclosures.