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THE LUMIN LAB

3 Simple Customer Retention Strategies to Enact at Your Bank or Credit Union Today

User retention techniques are constantly evolving. Before computers, it meant in-person visits complete with glad-handing bank and credit union users. And, perhaps there was hot coffee, and tasty locally-made donuts offered to users on Fridays to set your branches apart from the competition. 

A Little History

On September 2, 1969, the first automatic teller machines (ATM) debuted in New York — an auspicious day, indeed. Within a few years, ATMs were a “must-have” for all banks and credit unions, required as one of the key customer retention strategies. Fast forward to 2018, and for the first time ever, ATMs worldwide dropped by 1% to roughly 3.24 million. Could you imagine your bank or credit union not having or allowing you access to any ATMs? Doubtful. Even if you don’t use ATMs.

In the early 2000s, it was all about the convenience of online banking and bill pay. Jump to the 2020s — after years of the COVID-19 global pandemic, it’s again all about technological pivots driven by user needs as leading-edge customer retention strategies (Full disclosure, I’m a Venture Capitalist. As such, the VC industry often looks to cutting-edge technologies to solve recurring, pungent problems in novel and more powerful ways).

The Disruption by Stripe, Chime and Instacart

Consider the meteoric rise of Stripe, Chime and Instacart. According to PitchBook, these Venture Capital backed companies have been skyrocketing in growth:

  • Stripe Company Valuation Growth of +422 percent: $22.5 Billion (2019) to $95 Billion (2021).
  •  Chime Company Valuation Growth of +1,115 percent: $1.3 Billion (2019) to $14.5 Billion (2021).
  • Instacart Company Valuation Growth of +493 percent: $7.9 Billion (2019) to $39 Billion (2021).

What does a payment processing software company, a mobile banking company and a grocery delivery company have in common? They all used technology as a key user retention tool to disrupt existing, entrenched industries. Stripe accepts payments faster with fewer errors and without any hidden fees. Chime is mobile-based banking with low- or no fees and a lack of physical branch overhead. Instacart took the normal activity of grocery shopping and made it an outsourceable task. 

In all cases, technology was at the heart of the user retention necessary to generate their outsized growth. New users are rarely helpful unless you’re able to keep the ones you have.

Why Users Leave

Millennials, the most populous generation, are most likely to have switched their bank or credit union in the past two years or are likely to switch in the next 12 months. Here are some interesting points to consider:

  • 20% of all U.S. adults plan to switch their primary bank or credit union in the next year
  • 37% of millennials plan to switch their primary bank or credit union in the next year
  • 18% of all U.S. adults have already switched in the last two years
  • 25% of millennials have already switched in the last two years
  • Gen Z and millennials prefer banks and credit unions with strong digital onboarding capabilities.
  • Gen Z and millennials are more likely to turn to social media for their financial advice.

In a study by Morning Consult, the top reasons for users switching their primary bank are the protection of user data, online banking capabilities (user experience) and mobile banking options.

Show Superior (Cyber) Security

Internally and externally, cybersecurity is a primary concern. Financial organization leaders and users have data security at the top of the list of must-have solutions for 2022. According to Credit Union Times, in the company’s annual 2022 Banking Priorities Executive Report:

  • 26% of surveyed executives said cybersecurity was their “most impactful issue.”
  • However, only 18% of executives plan to deploy cybersecurity training for their users.
  • 51% of the executives said user-targeted phishing and ransomware were among the top cyber risks.

Your bank or credit union should strongly consider upgrading your technology to assuage the growing cybersecurity fears of your users. The huge acceleration to digital banking solutions because of the global pandemic lockdowns has indeed created a shift to all things online. However, with major security breaches and hacks happening with increasing regularity, users are demanding the highest level of security without sacrificing a robust and personalized experience.

Upgrade Your User’s Experience

“Great CX is no longer an option — it’s the difference between extinction and survival,” states Stephen Ehikian, CEO and Co-Founder of contact center software provider Airkit. In addition (as if survival weren’t enough), there is a significant cost benefit to the institution. “A digital interaction can cost one-tenth or less of a branch or phone interaction.”

Personalized digital banking improves user satisfaction. The catch is that most users expect your organization to propose personalized solutions in real-time or before the need arises. The bad news is that getting this solution set wrong could mean losing a long-time user. The good news is those expectations can be addressed with technology-led solutions. And, with a well-suited strategic partner, it doesn’t have to be painful. Here are some ways to further personalize your user’s experience:

Real-Time Data 

In addition to the standard fare of online banking information like bank and loan balances, offer data in real-time. Credit scores, cash flow, spending habits and suggesting your complimentary financial products related to events in a user’s life can be very helpful and loyalty-building. AI-driven analytics can estimate these events.

Crypto Loyalty Programs

Loyalty points are generated through specific user behaviors and through self-serve Application Programming Interfaces (APIs), your bank or credit union can monetize loyalty-driven digital currency throughout certain merchant networks. Your user can exchange points to currency via the online cart checkout process within your network of designated merchant partners.

Mobilize Your Mobile Machine

Mobile banking is also critical to your core customer retention strategies. Whereas previous generations still consider physical brick-and-mortar branches as their “primary bank,” Millennials and Gen Zers often consider “their phone” as the only bank or credit union of consequence. According to the Financial Brand:

  • 58.5% of users want real-time notifications in mobile banking.
  • 44.4% of users want credit score features in mobile banking.
  • Over 88.8% of users want an additional extra authentication when sending money, opening new accounts or paying merchants in mobile banking.

J.D. Power, in its 2020 Retail Banking Satisfaction Survey, found that “satisfaction is significantly higher among customers who have linked their bank accounts to digital payment services than among those who have not.” In other words, your organization can benefit greatly from establishing strategic partnerships with mobile P2P vendors and promoting your mobile capabilities and ease of use to your users.

Retain Your Users

Retaining customers seems like a straightforward endeavor. However, as with most things, it is all in the execution. As the world continues to embrace ever-upgrading digital solutions, so too must banks and credit unions. Work with your trusted digital banking solutions provider to stay relevant and useful to current and future generations of users. 

Marty Aquino has been a passionate writer on venture capital, technology, forecasting, risk mitigation, wealth and entrepreneurial topics since 2009. He is the founder of Carbonwolf Energy, a venture-capital firm specializing in world-changing and status-quo-defying technologies and people. 

Sources:

History – First ATM opens for business

Finextra – Number of ATMs worldwide drops for the first time as demand for cash decreases

Pitchbook – High and going higher: How the 20 most valuable US VC-backed companies have changed since 2019

The Financial Brand – What Consumers Actually Want From Their Bank’s Mobile App

Pew Research Center – Millennials overtake Baby Boomers as America’s largest generation

Morning Consult – Millennials Pose the Biggest Attrition Threat to Banks

Morning Consult – Here’s Why Customers Switch Their Primary Bank

Credit Union Times – Cybersecurity, Talent Recruitment Top 2022 Banking Concerns: CSI Survey

Forbes – Revamping Loyalty Programs Could Be The Key To Customer Engagement

J.D. Power – Retail Banks Face Major Customer Satisfaction Challenge as World Shifts to Digital-Only Engagement, J.D. Power Finds