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Switching Perils May Block Engagement of New Account Holders Living Paycheck to Paycheck

Todd Weiss November 4th, 2015
Customer Onboarding

When you’re living paycheck to paycheck do you dare risk the overdraft fees or late penalties that could come from switching banks if you don’t manage the transition perfectly? I believe many Americans are deciding the answer is “no” — and those risks are contributing to their decision to either stay with a bank where they’re unhappy or fail to fully engage with a new bank.

And let’s be clear — those living hand-to-mouth aren’t just low earners. CBS News reports that a recent Harris Poll sponsored by SunTrust found a third of American households with annual incomes of at least $75,000 and a quarter of those earning $100,000 or more live paycheck to paycheck. Your customers who need help navigating the complexities of switching aren’t just the least-profitable underbanked segment. They may well be your potential top-tier customers!

I talk a lot about fully engaging new customers and turning inactive accounts into profitability. To do that, financial institutions must help customers manage that risky float between their old bank and their new one. Research supports my conviction that trepidation surrounding this critical time frame contributes to your new account holders not fully onboarding or engaging, which leads to missed cross-selling opportunities and revenues.

Javelin Strategy & Research found that one-quarter of new bank customers did not become fully engaged due to difficulty or inconvenience in transferring mortgages, direct deposits and bill pay; retirement accounts and other accounts; and enrolling in online banking. Similarly, Synergistics Research Corp. found that 17 percent of account holders say they stay with their current FI because it’s too difficult to change their auto pay or direct deposit.

It’s easy to understand how those stats translate into real-world consumer actions — or inaction. The more obstacles consumers face when switching, the more likely it is that they will give up on the process, and those who do stick it out face the risk they’ll do something wrong. It is those consumers living paycheck to paycheck that face the threat of overdraft fees if a payment comes out of an account they’ve closed, late charges from creditors, and negative impact on their credit report if a creditor alerts the credit bureaus to a late payment.

The solution is to implement an comprehensive, digital onboarding program that delivers unmatched convenience for account holders. Make switching banks as easy as possible and hold the new account holder’s hand through every stage of the actions that lead to deeper engagement, including online bill pay, online and mobile banking, and direct deposit. Take steps to address common switching pain points:

  • Typical switching requires consumers to complete multiple forms and make/receive multiple phone calls. Replace this outdated process with online, self-service tools that integrate seamlessly with your online banking environment.
  • Make enrollment in online bill pay and direct deposit part of the account-opening process. Make enrollment the default, and require new customers to opt-out.
  • Incentivize consumers to take the steps that lead to deeper engagement. Perhaps the reward is additional points toward your loyalty program, or it could simply be a gift card.

Streamlining the switching process leads to deeper engagement, and greater engagement equates to an extra $212 a year per customer, Javelin research shows. You can’t solve the financial issues that cause people to live hand-to-mouth, but you can help alleviate at least some of their fears — while enhancing the customer-bank relationship — by helping them manage an easier, seamless switch.