Checking Inactivity: The Silent Killer of Banking Profitability

Most financial institutions don't realize the lost revenue from inactive accounts. By making it easier for new customers and members to switch institutions and take advantage of 'go with' services such as direct deposit, bill pay and debit purchases, organizations can increase profits by more than $200 per account.

By Jim Marous, Co-Publisher of The Financial Brand and Publisher of the Digital Banking Report

An independent Javelin Research & Research white paper sponsored by Deluxe Corp. entitled, Convert Silent Attrition into Banking Engagement and Profits reinforces previous studies that found that acquiring new customers and members is not as important as making sure these new relationships are effectively onboarded and that the status of being the consumer’s ‘primary financial institution’ is achieved.

The foundation of the problem is that 20% of new households say it is too difficult to completely switch their relationship from their previous financial institution resulting in dormant/inactive accounts – a status referred to as ‘silent attrition’ in the study. Helping the new household with their switching process can result in the following benefits:

• Profitability can be increased by $212 by turning an inactive customer into a ‘fully engaged’ customer (with bill pay, direct deposit and debit purchases).
• Fully engaged households are 4 times more likely than inactive households to view the new bank or credit unions as their ‘primary financial institution.’
• Fully engaged households own 2.7 more accounts than inactive households and intend to open more new accounts in the next 12 months (3.0 vs. .5).
• Moving the 20% of the households who find ‘switching’ difficult to become fully engaged households will result in an 8% increase in overall profitability from these new households during the first three years. Alternatively, an inactive household will result in a net loss during this same period.

(Register For: Convert ‘Silent Attrition’ into Banking Engagement and Profits Webinar on Tuesday, Mar 24, 2015 1:00 PM – 2:00 PM EDT)

Building Relationships Must Begin Immediately

On average, checking accounts are unprofitable, especially among customers who are disengaged, carry low balances, and do not buy loans and other profitable products.

There is a very distinct difference between acquiring a new account and generating a new relationship. Without an immediate and proactive process of switching the key components of the household’s previous banking relationship, the new account could remain dormant (and costly) for years.

According to Javelin, about 11% of new checking accounts acquired remain inactive. Many of these inactive households may have initially had good intent, but eventually view the new institution as a place to park money, take advantage of a special offer, or to set aside funds for emergencies or specific savings goals.

Javelin states that financial institutions will reap a higher long-term payoff if they focus first on offering new households engagement services before cross-selling additional products. These engagement services include the use of online and mobile banking, direct deposit, bill payment, financial alerts, and personal finance management tools.

While inactive households are the biggest drain on profits, there are also 44% of new checking customers who are ‘active’ – making purchases, or had signed up for bill pay or direct deposit – but were not taking advantage of all three of these features like a fully engaged household. These ‘active’ households provide an easier path to enhanced profitability and a more likely prospect for achieving ‘primary financial institution’ status.

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