How to reduce customer churn in banking

Reducing customer churn in banking is the result of increasing one key metric – customer loyalty. That said, the act of cultivating an ongoing positive relationship between a customer and a bank to improve customer retention rates is no easy feat.
And trends aren’t currently going in banks’ favor. According to Forrester, customer retention in the banking industry dropped from 78% in 2022 to 76% in 2023 in the US. There are further concerns surrounding customer trust in banks which can result in negative emotions such as disappointment, frustration, neglect, annoyance, and anger.

More often than not, the reason for these negative emotions and the resulting customer churn comes down to the quality of the customer experience.

As Forrester puts it, “How an experience makes customers feel has a bigger influence on their loyalty to a brand than effectiveness or ease in every industry.”

What can banks do to reverse the trend of customer dissatisfaction – especially as the competition among neobanks and fintechs continues to level the playing field?

What do loyal customers want?

The first question that banks need to ask themselves is: what do customers want from their banking services?

There are many reasons for customer churn that are true across industries. A high percentage of customers want to feel they are getting a fair mixture of value and service. Here’s what that looks like.

Simplicity as standard

This point is true for all aspects of a banking customer’s interaction with their institution. Everything needs to be as simple as possible to use or navigate. Whether that means taking out a loan, contacting customer service, or even just checking their financial information, the ease of use needs to be top quality. 

For every point we discuss below, how easy it is to navigate each area will impact the customer perception of the service or the bank itself.

Competitive rates and products

Around the world, people are feeling squeezed. While inflation is finally dropping, it is happening slower than expected, leading to concerns for global investors and everyday families alike. With some families still concerned about everyday issues such as grocery prices, feeling that their bank is “on their side” becomes a key factor.

A large part of this, as we will discuss later, is emotional. However, hard numbers do play a significant role in customer loyalty. According to Accenture, 82% of consumers aged 18-24 purchased a financial services product from a provider that isn’t their normal one last year.

In general, customers are willing to look around to find the value that they feel they deserve, and this is even more true when they feel “squeezed” in everyday life.

Providing service options

As a financial services provider, should you focus on in-person branch banking, online banking, or mobile app banking contexts? The answer is all three.

And this is not a regional one-off, but a trend that has been developing globally. But that’s not to say that the death of current bank branches is inevitable – there are viable hybrid alternatives that are cost-effective and meet customer expectations.

And this is the key here. It’s not about propping up a traditional model that is doomed to failure. It’s about providing for customer conversation needs regardless of the channel they choose to contact you on. The key lies in offering seamless experiences that bridge the gap between physical and digital environments to promote feelings of loyalty and trust.

Long-term customer service excellence

Whether it is in person, online, or via the mobile banking application, the customer service experience must always be consistent and helpful across all customer segments. Again, this is an area that needs significant attention as it is a key determinant of churn risk.

Across all industries, Forrester found that the quality of customer experience is at an all-time low, with the average effectiveness of experiences at 64%, with ease of experience at 66%. This poor customer service is in line with the results in banking, as shown by low levels of customer trust.

Addressing this is a mixture of appealing to the emotional needs of the customer – that is in providing personalized experiences and individualized support when necessary – while also improving the system and processes involved in customer service.

The key to this is providing a digital experience that promotes highly accurate self-service as well as providing agents with the tools they need to get the job done.

The importance of digital interaction platforms

The talk of digital transformation and similar initiatives has been going on for years now. It’s true that many banks have made incredible headway, developing internet banking and mobile banking business to rival fintech companies.

But many – including fintechs – are still falling behind technologically on the quality of their customer service. This is where digital interaction platforms come into their own.

What is a digital interaction platform?

To put it simply, a digital interaction platform provides the technological capabilities for customers to better self-serve while also empowering agents to improve their efficiency and better address customer needs. The result is improved long-term loyalty and a reduction in bank customer churn rates, not to mention fewer customer complaints and bad customer feedback.

This is achieved through a mix of advanced artificial intelligence capabilities and collaborative digital tools – while also offering innovative in-branch experiences. Here’s a breakdown of what that looks like.

Improve customer retention with Unblu

Customer behaviors have changed and so the banking sector must do more to improve active customer relationships and avoid the risk of churn.

But the fact is that reducing churn rates and customer attrition is fully within the control of the banking sector institutions. By concentrating on maximizing customer satisfaction through a mixture of machine learning techniques, collaborative tools and agent support, your bank customer churn prediction can be reduced.