Community banks have long understood that relationships are at the heart of their competitive advantage. Yet when it comes to deposits, many institutions devote considerable time and resources to attracting new balances while paying less attention to protecting existing relationships. In today’s increasingly competitive banking environment, that approach can be costly. According to PRI Head of Customer Experience Tom McGill, deposit attrition rarely happens all at once. Customers often begin moving their money elsewhere gradually, creating a diminishment that may not show up in the numbers until the relationship is already at risk. For community banks, the case for a dedicated deposit retention strategy is clear: Understand the signals, engage customers before they leave and use the strengths that have always differentiated community banking to maintain and deepen existing deposit relationships. Deposit Retention’s Place at the Strategic Table Banks commonly invest heavily in campaigns, promotions and new account acquisition, but protecting the deposit relationships already on the books can be more efficient and effective than continually replacing lost balances. According to McGill, deposit retention should be viewed as an executive-level strategic priority rather than an operational or back-office responsibility. “Retention is strongly connected to profitability and customer lifetime value,” he said. “Losing a long-standing deposit relationship can, unfortunately, mean losing more than a balance. It can weaken the broader relationship and future opportunities to deepen it.” Bain & Company’s often-cited research reinforces the claim that even modest improvements in customer retention can have a significant impact on profitability. It was found that increasing retention by as little as 5% could boost profits by up to 95%. Attrition Doesn’t Always Look Like Attrition A customer doesn’t always make a sudden move when it comes to pulling the plug on their bank accounts — it can look more like a slow drain. The idea of account diminishment means the customer may open another account elsewhere and gradually move funds out, rather than closing the deposit account immediately. Traditional reporting that focuses primarily on account openings and closures can miss this gradual movement. The Case for a Deposit Retention Strategy Profit Resources Inc. “It’s the rearview mirror effect,” McGill said. “Instead of looking at a snapshot, start looking at the bigger picture of behavioral trends that indicate someone is starting their path of walking away.” Some of these diminishment behavioral trends that banks can spot using their available data include: • Decreases in transaction activity • Changes in balances • Declining digital engagement • Money moving to outside financial providers Why Customers Leave Research shows that there are three common reasons why your customers leave and take their deposits with them: fees, poor digital experience and poor customer service. 1. Fees Mintel’s 2024 U.S. Switching and Loyalty in Financial Services report found that 44% of consumers cite high fees as the primary reason for switching, with checking accounts seeing the highest switching rate at 23% of all account types. The J.D. Power 2024 U.S. Retail Banking Satisfaction Study confirmed that unexpected fees are one of the top threats to customer trust, with 13% of bank customers saying they are likely to switch institutions within the next year. For community banks specifically, this is particularly relevant. Fee structures that made sense a decade ago are now being undercut aggressively by digital competitors and neobanks offering no-fee checking. 2. Poor or Inadequate Digital Experience MX Research found that having a good digital and mobile banking experience has become “table stakes,” and financial institutions won’t even be considered if they don’t deliver on the digital experiences consumers expect. Among Gen Z consumers, 29% now consider a digital bank or fintech their primary checking account provider, up from just 11% in 2020. Millennials show similar trends. 24 NEBRASKA BANKER
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