2.2 Keeping existing members or customers & growing share of wallet
Banks and credit unions need to get more sophisticated in how they segment their existing base, in order to focus attention, resources and engagements appropriately. Ideally, FIs will know, through data, buyer journey tracking and predictive analytics, how each cohort of members or customers behave in order to personalize engagements and encourage certain behaviors.
Targeting a current customer has a 60-70% chance of converting, whereas the likelihood of converting a new customer is just 5-20%.
Every financial institution leader understands it is absolutely pivotal to keep existing members or customers (after all, it’s much cheaper to retain your existing base than to acquire net new).However, increasing the share of wallet is key not only to help with revenue generation but also to decrease churn. And with half of Americans using more than one financial institution, financial institutions like yours need to quickly demonstrate your value through exceptional member or customer experience, convenience and flexibility. Younger demographics are more likely to work with multiple FIs and roughly half are willing to switch for those that can serve them more conveniently.
So why is the share of wallet so important? It mainly comes down to the ease of collecting incremental revenue from happy and engaged members or customers. Bain & Company found that a 5% increase in customer retention produces more than a 25% increase in profit. But in order to create the right conditions for capitalizing on these strong relationships, banks and credit unions need to become the “primary financial institution,” or PFI, for that individual. The more products a member or customer has with their PFI, the longer the relationships tend to be, and the more likely they’ll consider that institution for their next product.
A PwC report found that financial institutions are typically only dealing with 10% – 20% of a customer’s wallet – with best in class banks and credit unions securing up to 60%. Anything your financial institution can do to increase this proportion, particularly in the form of excellent member or customer experience through convenient engagements, simply adds dollars to your bottom line.
US customers have an average of 8.5 banking products across their various FI relationships, while Canadians have 7.1. (Reference)
The timing between positioning solutions to your existing members or customers also plays a big role in the success of cross selling and upselling – members and customers are more likely to expand their relationship with a bank or credit union “when a previous transaction is still fresh in their mind” – an approximate close rate of 25% one month after initial purchase. In that same PwC report, after nine months the conversion rate of offers to existing member customers closed at the same rate as new customers (under 5%).
80% of future profits will come from 20% of existing customers.