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Personalization Helps Banks Retain Customers

Online bill pay, mobile banking apps and remote check deposits are among the myriad of tech-driven bank services that make it easier for consumers and businesses to manage their cash.

But those same services also serve a different function; they make it harder for a bank’s customers to take their money elsewhere.

“Banks are looking for ways to foster loyalty, and part of that strategy is interlinking their products and services,” said Greg McBride, senior financial analyst for Bankrate.com, a website that provides free rate and financial product information to consumers. “That interlinking makes it more likely that the customer is going to stay rather than defect.”

Analysts use the term “sticky” to refer to the way that banks keep customers engaged.

And in today’s competitive banking environment, being sticky is a major business advantage. That’s because customers are increasingly shopping for and switching to new primary banks, according to the J.D. Power and Associates 2011 U.S. Retail Bank New Account Study.

The study, which examined the bank shopping and selection process, as well as customer satisfaction with the account initiation process, found that 8.7 percent of customers in 2011 said they switched their primary banking institution during the past year to a new provider. In comparison, just 7.7 percent said the same in 2010.

Indifference Is Dangerous

Rockwell Clancy, vice president of the financial services practice at J.D. Power and Associates, based in Westlake Village, said that the most common reason for switching banks is a change in life circumstances — a marriage, divorce or move, for example. Other reasons include unhappiness with fees and rates, unmet expectations and poor service.

“The fee issue is certainly top of mind for consumers,” McBride said. “This is an economic climate where every dollar counts. Savvy consumers are not going to stand for fees when they know better alternatives exist.”

Even if customers are simply indifferent about their bank, they start becoming easily distracted by promotional offers from other banks, Clancy said, noting that the “blunt instruments” of advertising, branch density and special offers such as gift cards are among the biggest factors that helped banks capture market share during the past year.

Indeed, banks that performed well in acquiring new customers — Chase, PNC Bank and SunTrust Bank were the three national banks cited in this category, with Chase being the only one operating locally — tended to be aggressive in their advertising and promotions, the J.D. Power and Associates report said.

Competing With Facebook

As the rate of “switching” intensifies, banks are zeroing in on ways to boost their sticky factor. Beyond offering the standard online bill pay services that get customers to rely on their website for everyday functions, some financial institutions are taking secrets from popular sites such as Facebook, known for creating a high level of engagement through personalization.

“Banking tends to lag behind the rest of the Internet,” said Joe Polverari, chief marketing and strategy officer for Yodlee Inc., a Redwood City-based financial software company that counts Bank of America and U.S. Bank among its customers. “Historically, banking online has not been a personal or easy experience; it’s not like shopping online or searching the Web. But now that is starting to change.”

Polverari cited Yodlee company research that shows a personalized online banking experience boosts the amount of time customers spend on bank websites and makes them four times less likely to switch. Examples of personalization include offering ultra-specific online coupons based on a customer’s shopping habits and providing an easy way for customers to view all of their bills and financial accounts — from car loans to Charles Schwab investments — on the bank website, even if not all of the accounts are from the bank.

“Most consumers are managing between 20 and 30 financial relationships, when you factor in bills,” Polverari said. “We have these really overwhelmed consumers.” If banks can provide an easy tool that removes some of their customers’ money anxiety, they can build loyalty, he said, adding that Facebook, Google and Amazon are becoming more transaction-oriented — and soon could even become direct competitors with banks.

Yodlee provides personalized financial widgets that customers can put on their phone or computer to keep tabs on their accounts, transfer money and perform other transactions. It also has a personalized coupon service and an online switching service that helps banks transfer a new clients’ money from the previous bank.

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