Tuesday, January 02, 2007

Attrition in Banking: Addressing the Challenge from Process and Policy to Predictive Modeling


We've been doing a lot of work around attrition and why customers leave their banking and credit card relationships. More importantly for both parties we've been looking at what a bank can do to keep valuable relationships. Here's a little bit of what I've learned.

Attrition is a major issue for banks. In order to secure their customer base, banks expend significant resources trying to understand their customers and the reasons they stay or leave. Over the past couple years we've worked with many of the leading banks and card issuers in the country on ways to discover, analyze, predict and manage customer attrition. In this post I'll discuss a little of what we've found leading organizations are doing.

One of the most effective things I've see is when a bank invests in its ability to “listen” to what customers are saying, in their own words and through their own actions, and aggregate that learning on an institutional level. This provides the most accurate and comprehensive information for understanding who will leave and who will stay. Sounds intuitive enough..., but the ability to listen, assimilate data and quickly develop an action plan eludes many banks.

According to a research study commissioned by the Federal Reserve Board, 28% of customers leave their bank due to "customer service issues" which specifically excludes price and fees. So, if lowering costs to borrow, waiving fees and minimum balance requirements, or paying premiums on deposits is not the answer to keeping customers, what is?

Experience tells us the answer to the problem lies in the bank's ability to “listen” to each customer, automatically flag communications that are highly related to attrition and then quickly act on this warning with a strategy that considers the customer’s product profile and value to the bank. Each day customers provide immediate, highly personal and highly instructive feedback. That feedback provides the understanding of isolated as well as systemic problems— which if understood and addressed proactively— will lower attrition rates and costs incurred for customers who have already made the decision to leave.

A top five banking customer of mine puts it this way, "A reactive approach to attrition is too little too late and results in escalating costs incurred trying to save a relationship that is already gone. Applying analytics to understand predictive triggers in time to satisfy customer needs is the only financially viable approach to problem resolution."

By combining account history with transaction records and all customer interaction data, including call center notes, emails, online banking comments, and notes generated in the branch banks have the ability to capture what each customer is saying and doing and, with analytics, understand why and what the customer will likely do next. Central to understanding future behavior is the ability to combine structured and unstructured data. This combination provides insights with enormous explanatory and predictive power.

Why are customer leaving:

Here's some insight into what we've discovered from working with numerous banks and credit card companies. Keep in mind that most of these things don't "cause" attrition in one swift negative interaction. Attrition after all is typically far more gradual and results from multiple negative factors. See the dictionary definition of "attrition":

    • A rubbing away or wearing down by friction.
    • A gradual diminution in number or strength because of constant stress.

# 1 -- Systems don’t work—result, customers can't get done the simple things they need/want to do creating frustration and wasted time for the customer and bank costs:

  • Online address change broken (failure results in missed statements, delayed payments, and fees)
  • Access to password and login for infrequent users (usability issue results in customer frustration and additional costs to the bank)
  • IVR didn’t understand me (voice recognition problems result in impersonal treatment wasted time and frustration)

#2 -- Processes and policies not designed for me—result in frustration, lost trust and loyalty, and customers looking for other alternatives:

  • Overseas military getting excessively charged for ATM usage (fees designed for vacation and business travelers causing financial pain for active military)
  • Unable to cancel AOL account (automated billing from AOL continues to hit credit card for several months after cancellation and the bank can't help or explain why)
  • Inadvertent attrition from one product (DDA account with a credit card tied to it gets closed and the bank, because of call center processes, automatically closes the associated credit card. Their inability to manage the complete customer relationship actually causes this attrition.

#3 -- Can't anticipate what I want and waste my time with offers I’m not interested in—results in a “discredibility” affect, not only will I decline your offer, I’ll be offended that you made it and that you didn’t understand what I really need:

  • Banks see every transaction and should know what I need (kids products like 529 plans, stored value cards and savings accounts, travel services and products like expense reporting support and travel insurance)
  • Where are the triggers? If I use a card for business travel and entertaining why can't a CSR in the call center approve a line increase over the phone? The bank should have seen it coming and should be able to run the model and decision in realtime.
  • If I use my card at Home Depot every weekend where is my Home Equity offer?

All three of these reasons to attrite are exacerbated by the level of personalization and business adaptability customers experience with companies such as Amazon.com. Banks, of all companies, knows more about customers than anyone else they do business with. Expectation levels are high and the delta between expectation and individual experience only hastens the time to departure.

Statistically, inertia for changing banks is becoming easier to overcome. Younger populations are less “loyal” than older populations. More pervasive use of on-line banking services mitigates location advantages.

The competitive landscape is changing and the smart banks will get ahead of that change by knowing listening to their customers and systematically creating intelligent strategies that foster loyalty and better products and service offerings.

In 2006 attrition programs started to creep into the marketing budgets of our clients. In 2007, armed with a new game plan to systematically understand and address attrition drivers I expect Attrition/Retention initiatives to be a primary focus for banks, telcos and retailers.

For more details on the solutions mentioned in this post visit www.intelligentresults.com.