Customer Attrition in Retail Banking: US, Canada, UK, France

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, "Customer Attrition in Retail Banking: 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.