Customer Attrition in Retail Banking

January 2, 2003

Abstract

New York, NY, USA January 2, 2003

Fighting customer attrition is a top priority at US and Canadian banks, and for good reason: customer defection rates are up to 7 times higher in the US and Canada than in Western Europe. A new Celent report explains why. In a new report, " : the US, Canada, the UK, and France," Celent analyzes why customer defection rates are so much higher in the US and Canada than the UK and France.

The report, which is based on a survey of more than 30 banks, reviews trends affecting customer attrition in the UK and France, analyzes how Canadian and American bankers have addressed attrition so far, and reports on their success. The report also suggests tactics that North American banks should pursue to get a 10% defection rate or better.

Over the past two years, half of top US and Canadian banks have seen their defection rates decrease by an average of 10%, while defection rates have remained the same for 40%. Only 10% have experienced increased attrition. The best organizations in the US and Canada have achieved a 12% customer defection rate.

"This achievement is the result of banks’ deployment of various tactics, such as providing free checking accounts, promoting online banking and bill payment, and improving customer service,"

says Gwenn Bézard, Celent analyst and author of the report.

Nonetheless, banks have learned that there are limits to the effectiveness of their current approach. "Banks have hit a wall," says Bézard. "Getting to a 10% defection rate is a real struggle."

Celent’s survey revealed which tactics were successful at reducing attrition and to what extent. According to the report, free checking accounts offer only marginal improvements in customer attrition and, in some cases, actually cause skyrocketing defection rates when users have to pay exceptional fees such non-sufficient-fund (NSF) fees. Moreover, the positive impact of Internet banking and bill payment on attrition has started to decline at some institutions. Over the next 2-3 years, more institutions are likely to experience similar disappointments. Finally, Celent’s research showed that, once a certain level of customer service is reached, further improvement has little or no effect on attrition rates.

The 48-page report contains 35 figures and tables.

A is available online.

of Celent Communications' Retail Banking research service can download the report electronically by clicking on the icon to the left.

        

Send mail to info@celent.com with questions or comments about this Web site.

 

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

 

  New York, NY, USA January 2, 2003

Return to report Abstract

 

EXECUTIVE SUMMARY 3
INTRODUCTION 5
OVERVIEW 6
WHY IS ATTRITION HIGH IN NORTH AMERICA? 9
  Low Credit Transfer and Direct Debit Usage 9
  Mortgage Financing 11
  Credit Histories Not Linked to Checking Accounts 13
  Limited Supply of Overdraft Credit 14
  Low Cross-Sell Ratio & Few Barriers to Switching 16
  High Geographic Mobility 18
ARE THE U.K. AND FRANCE SAFE FROM HIGH ATTRITION? 23
  The U.K.: No Longer Safe for the Big Four? 23
  France: Watch the Bumps Ahead! 23
RETENTION TACTICS IN NORTH AMERICA 31
  The Issues 31
  Tactics 35
  The Results 38
  The Case of FleetBoston 41
CELENT'S RECOMMENDATIONS 44
CONCLUSION 46

 

        

 

Sign in to download reports and access personalized information