Account Retention

“I ain’t saying that the service in my bank is bad, but when I went in the other day and asked the teller to check my balance she leaned over and pushed me.” –Rodney Dangerfield

The very first boss I had in banking, Frank Goni, had a saying he’d repeat at every opportunity – “It’s easier and cheaper to put a lock on the back door than widen the front door.” Simply, it was his way of reinforcing one of the things we all know – keeping a relationship involves a much smaller investment of time and money than getting a new one.

I was thinking about Frank’s saying this week when I was reviewing the data we gathered for this year’s Cornerstone Report ^[1]. Some of it was pretty sobering. Based on the responses from our participants:

• The median bank in the 2007 surveys opened, on average, 64 new deposit accounts per branch per month
• 21 of those new accounts were personal or checking business accounts
• The median ratio of accounts opened to accounts closed was 1.17 – at the 75^th percentile performer, it was 1.45

This means that the 64 accounts opened at each of those branches were offset by the closing of 55. That’s a net growth in deposit accounts of nine per branch per month.

Nine.

Hmmmmm. I suspect Mr. Goni would not be enthralled.

Now, some of you will point out that certain things may be causing these numbers to be artificially bad:

1. The “privilege pay” factor. Many of you could argue out that the free checking with high overdraft privilege pay fees naturally causes a higher number of account openings and closeouts, but the fee income makes the effort well worth it.
2. The “consolidation” factor. Some of you may actually be closing accounts but simply transferring the money to another, existing account – i.e. losing a net account but keeping the dollars.
3. The “We assign new numbers” factor. Some of you, when renewing a CD, close the account and open another one, thereby overstating the actual new and lost customers (a great thing to stop doing, BTW).
4. The “CD Promo” factor. Some of you open lots of accounts when a CD rate promotion is run and lose them on maturity when your rates aren’t high – i.e. you’re losing rate sensitive accounts but not core relationships.

Fair enough. Maybe there is some noise in the numbers and ratios we discussed. But even with that noise factored in, the truth remains that banks are closing over two accounts for every three opened. And honestly, that’s too much work for the end result.

That’s not to say banks haven’t taken several good steps to retain key accounts and relationships. For example, many now have focused calling efforts in branches and call centers for renewing CD customers, and many have reported some good results.

Others have ongoing “touch programs,” an example being the 2-2-2 program in which new customers are contacted after 2 days, 2 weeks, and 2 months in an attempt to ensure satisfaction and loyalty.

In addition, most banks have a personal banker program of some sort that identifies the employee who will birddog high net worth relationships and retain them.

These and other programs certainly have merit, but I believe it’s time to add some new thinking, spin and focus to account retention. Here are some ideas and strategies I have come across lately:

1. Put more focus on retention in branch incentive programs. Most branch plans do have a net growth goal, but no specific retention goal. Some plans I have seen recently are variants of this general idea:a. At the beginning of the year, the accounts and balances in all open checking and money market accounts at a particular branch are listed
   b. The branch is judged on what percentage of the accounts and dollars they retain in the next calendar year

   c. The goal is that the percentage of accounts retained plus the percentage of dollars retained must add up to 150% – e.g. 60% of accounts plus 90% of dollars, or vice versa.

   The added appeal of this idea is that the best way to make the goal is to get existing customers to add money to their accounts. Is there anything better than that?

2. Tie every core customer into regular use of their favorite electronic channel. It has become clear that regular use of a non-branch channel increases the likelihood that customer will stay with you. Interestingly, most banks don’t record in their core CIF or CRM systems what an individual customer’s preferred channel is. One FI I talked to recently does, and it has started a focused effort to get customers to become regular (once a month, at least) users of Internet banking, wireless, IVR, call center, or other non-branch channel. The institution is tracking the increase in the percentage of customers that regularly use them.
3. Change the focus on converting one-product customers to multi-product. Most bank goals and incentive plans do focus on cross-selling, but with a very big emphasis on efforts in the first encounter or the first 90 days. There are very few programs that look beyond that timeframe. A bank Regional President I spoke with recently developed an incentive program that rewards employees every time they convert a single-product customer to one with two unique accounts (“unique” meaning it can’t be two CDs or two savings accounts – services don’t count). There’s no timeline to accomplish this – converting a customer that has been with the bank for two years gets the same credit as one that has been there two weeks. Interesting thought.
4. Start measuring the “open/close” ratio of specific marketing campaigns aimed at deposit account growth. We see many banks that look at a campaign 60 days after completion to analyze dollars and accounts opened, but we don’t see as much analysis at, say, one year after. Banks need to know the long-term impact of campaigns better, and we have at least one client that is now measuring the long-term, lasting net growth from every campaign. It is creating a good pressure.

There is a need to better understand when and why customers close accounts. Are there certain points in the relationship where closings are more likely? Do certain products have a worse open/close ratio? In other words, are there any trends that can be discerned?

The bottom line is this – we have to do better than netting nine new accounts a month per branch. Let’s check the back door lock.
-tr