Top 10 U.S. Retail Banks Projected to Lose $185 Billion in Deposits Over Next 12 Months

According to the 2011 Retail Banking Brand Vulnerability Study, by consulting firm cg42, the top 10 U.S. retail banks are projected to lose $185 billion in deposits over the next 12 months.  Most of this, $135 billion, is expected to come from the four largest banks; Bank of America, Chase, Citibank, and Wells Fargo.  The report also claims that $399 billion in deposits are held by customers at the top 10 banks who are currently considering switching banks and these deposits are “in play.”

The report states that 20% of customers are considering switching banks and the top 3 frustrations for customers are; being nickeled and dimed, not offering competitive rates, and being hit with overdraft charges.  These three frustrations seem to be universal across all ten banks.  The report also lists frustrations which are more specific to each of the banks.  For example, customers at Wells Fargo complain that bankers try to sell them products or services they don’t need or want, and customers at Capital One complain about basic customer service areas.

If these 10 banks are going to lose $185 billion, won’t this be an enormous windfall for smaller banks and credit unions?  I think it is an opportunity, but banks and credit unions won’t benefit from this by business as usual.  Our research shows that the large banks are more effective at customer and account acquisition than their smaller competitors.  A good percentage of the customers who leave one big bank will move their accounts to another top 10 bank hoping that they won’t experience the same frustrations, so the net change won’t be anywhere near $185 billion.  Some of these customers will look towards smaller banks and credit unions expecting a better experience.  Taking this business away from the big banks, and keeping it long-term, is not going to be a layup.

The customers who leave the big banks will be frustrated and have high expectations.  They may also be some of the most price sensitive and most expensive to serve.  In some cases, these are customers who are unprofitable for the big banks and are looking for a better deal.  Smaller banks and credit unions need to have a strategy to deal with this opportunity.  The first focus must be on how they treat their existing customers or members.  If customer satisfaction declines because service levels slip or new customers get special deals, there is likely to be a backlash from existing customers.  If the banks and credit unions are not careful, they may wind up losing their loyal, long-term profitable customers while replacing them with new unprofitable relationships.  This is the time when banks and credit unions need to step up their customer service to make sure they are meeting the needs of their existing customers.

Second, banks and credit unions need to make sure they can satisfy their new customers without resorting to special offers and price concessions.  This might mean turning away some potential customers because their needs cannot be met profitably.  Ample research has shown that providing outstanding service makes customers less price sensitive.  New customers may come in expecting a better deal, and banks and credit unions need to win them over with service, rather than just compete on price.  These customers may not be used to getting the personalized service and will be more likely to stick around if they feel the bank cares about them and is looking out for their best interest.

While it is true that customer satisfaction is higher at credit unions and small banks than at big banks, it is not the case at every institution.  Some big banks, including those in the top 10, provide better service than some small banks and credit unions.  Research that we are about to release shows the customer satisfaction gap is getting smaller and the big banks are improving.  If small banks and credit unions don’t live up to customer expectations and provide a superior service, they will not succeed at winning a share of the $399 billion in deposits that may be “in play” over the next 12 months.  Meanwhile, large banks can hold on to those deposits by returning their focus to the customer.