Marketing’s Role in Customer Retention and Acquisition in Banking
Customer retention in banking is critical to retaining reliable deposit levels and offering community-building financial services. For decades, bank customer retention was built on creating high-friction processes that made switching banks downright painful. Over the past several years, effective customer retention strategies for banks have focused on convenience and perks to make staying easier.
This shift in focus is an excellent blueprint for any business and typifies the push-pull relationship between customer retention and customer acquisition. We’ll use a few examples of customer retention strategies in the banking industry to outline why delighting existing customers is a low-cost alternative to focusing solely on customer acquisition.
Customer Retention and Customer Acquisition
Businesses achieve sustainable growth by delighting existing customers while attracting new ones. Depending on the company’s age, the competitive landscape, and market trends, one may be substantially more important than the other—and likely more expensive.
What Is Customer Retention in Banking?
Customer retention is a brand’s ability to keep existing customers returning and making repeat purchases. Banking often starts with offering checking and savings products. Over time, depositors turn to their bank for other services and products, such as auto loans, mortgages, or certificates of deposit (CDs). Banks and other financial institutions retain customers in a few ways, including:
- Offering competitive interest rates, loan terms, and other perks
- Personalizing products and services to meet their clients’ needs
- Providing exceptional customer service
- Forging strong personal and community ties
- Delivering relevant, informative content to earn customer trust
We’ll dive deeper into customer retention strategies in banking and financial services later.
Like other industries, banks use customer retention rates as a benchmark of success. You can use the standard formula to calculate the customer retention rate over your preferred period:
(Number of customers at the end of the period – Number of new customers acquired during the period) / Number of customers at the beginning of the period) x 100
The average bank customer retention rate is around 75%, but it varies widely based on the size of the bank and ignores factors like customers using accounts at multiple institutions. Historically, consumers’ willingness to change banks has been very low. That’s changing, and quickly. In 2018, only about 4% of consumers switched banks. By 2022, that number jumped to 9.7%. In 2023, the last year with complete data, the number increased to 37%.
These bank customer retention statistics show just how quickly consumer behavior can shift, pulling millions of dollars with it in the process.
What is Customer Acquisition in Banking?
Customer acquisition is the ongoing process of attracting new bank customers, whether to open accounts, take out loans, or use any number of other financial services. Competitively, it’s the opposite of retention; it’s the active targeting of other banks’ clients.
In banking, customer acquisition is key to growth and profitability. Existing customers will only deposit so much money, take out so many loans, or invest in so many CDs. There’s a relatively low ceiling to the revenue and profits of a fixed customer base – revenue growth is intrinsically tied to member growth.
How Do Banks Acquire Customers?
Banks acquire customers by offering competitive rates on deposit accounts, low interest rates on loans, great customer service, and investing in convenience. Customer acquisition is certainly an investment. According to estimates, financial services have one of the highest average customer acquisition costs (CAC) among major industries, with $644 (organic acquisition) and $1,202 (paid acquisition), for an average CAC of $784.
Bank Customer Retention and Acquisition Strategies
Both retention and acquisition strategies rely on differentiation. That is, banks need to show customers that their services and products are more convenient and lucrative than others.
Communicating that difference is entirely down to marketing.
The Paid Strategy
Current and prospective banking customers need to hear different messages, and paid media provides an effective and almost immediate way to deliver the right message to the right audience at the right time. While there are dozens of ways to build campaigns, dividing each campaign between current and new customers is almost always appropriate.
The Email Strategy
Divide lists between current and prospective customers whenever possible. Even if it’s a newsletter, you can include audience-specific information that appeals to customers you already have (a new branch, a new feature or a perk in the mobile app) or one you’d love to bring in (account bonus, introductory loan rate).
The Content Strategy
New customers need a reason to switch. Current customers need a reason to stay. Both want value. Craft educational, informative content that:
- Differentiates your bank from the rest.
- Establishes trust and expertise.
- Identifies opportunities, promotions, or discounts.
- Invites dialogue.
The Role of Friction and Emotion in Banking
At the core of the retention and acquisition saga are two questions:
- How easy is it to change banks?
- How hard is it to change banks?
These questions shape the general messaging in acquisition (it’s easy to switch!) and retention (it’s hard to switch!) and speak to the work and emotion that’s ever-present in banking and finance.
Why Do People Leave Their Bank? It’s Not About the Benjamins
In 2023, several online banks offered incredibly high rates on personal savings accounts. Ally, SoFi, and others had interest rates with annual percentage yields as high as 5%, more than 10 times higher than the national average.
So why didn’t everyone switch banks?
Difficulty. Banks make it difficult to switch. Some make you fill out multiple forms, speak with a representative, or, like Chase, close accounts in person at a local branch. The time and effort become anecdotal and actually discourage others from closing accounts.
Loyalty. Customers sometimes feel loyal to a bank or credit union, especially when it’s the first checking or savings account they opened.
Comfort. Customers know how to use the app, know where the ATMs and branches are located, and don’t want to learn anything new.
Roughly 30% of banking customers say they wouldn’t switch banks for better rates, which means nearly a third of potential customers will be extremely hard to reach, even if you’re offering them ten times more money to switch.
Marketers must balance retention and acquisition, which also requires a considerable understanding of broader economic forces. As checking and savings interest rates decline from pandemic highs, convenience and security may prove more impactful. There’s a growing emphasis on gathering customer feedback and focusing on community involvement that goes beyond the dollars and connects with customers emotionally.
Meet Your Next Marketing Agency
We know the bank industry inside and out. We’ve helped local and regional banks grow with market expertise and education for nearly three decades. You’ll work with a hand-picked team of SEOs, writers, and designers to craft winning campaigns and overcome your toughest marketing challenges. Let’s get started; contact us or call (231) 922-9977 to meet your marketing team.
