May 3, 2019
By Kevin Flanagan, Marketing Director, Micronotes
Ron Shevlin, one of the most interesting analysts following the financial industry, is managing director of Fintech Research at Cornerstone Advisors. But he also writes a regular column for Forbes titled “Observations from the Fintech Snark Tank.“ How can you not read something with that title?
Shevlin captured my eye with the title of his column this week—”Why People Don’t Switch Banks Anymore.” From the Micronotes perspective, our business is to help our banking clients retain their customers by helping them deepen relationships with the digital users they rarely see. So, if people aren’t switching banks anymore, then bankers must have figured out how to engage with their digital users and perhaps they don’t need the industry’s only artificially intelligent marketing automation platform that enables them to make the right offer to the right customer.
I needn’t have worried.
According to Shevlin, bank switching is on the decline not because institutions have made banking convenient, but because “money movement is so convenient.” That’s a bold statement, and it contradicts the findings of JD Power’s 2019 U.S. Retail Banking Satisfaction Study, which said that just 4 percent of consumers switched primary banks in 2018, which would make it the lowest level of switching ever recorded by Power, and a 50 percent reduction from 2016’s record 8 percent.
For the sake of argument (and because he’s one of the sharpest observers of the banking and fintech industries), let’s assume that Shevlin is correct. He backs up his claim with this thesis: “Checking accounts have become ‘paycheck motels’—temporary places for people’s money to stay before it moves on to bigger and better places. The cause of this is deposit displacement: the displacement, or diversion, of funds from traditional accounts (i.e., checking) to alternative accounts.”
Those alternative accounts are now home to billions of dollars that formerly would have resided in checking accounts at traditional banks. They range from health spending accounts (home to $44 billion) and person-to-person payment accounts (Cornerstone estimates that Venmo and Square Cash alone are holding more than $90 billion) to merchant apps like Starbucks cards (which possess an estimated $2 billion) and digital-only banks such as Ally and Marcus, which have an estimated $125 billion in their coffers).
So, if you’re a traditional bank or credit union—big, small or somewhere in between—how much of those billions of dollars would you have held among your assets just a few years ago. A pretty good chunk of it, it’s safe to say.
All of which brings us back to the Micronotes value proposition. If consumers have more places to put their money than ever, and if traditional checking accounts are just a couch on which friends crash for a few days and not a permanent residence, isn’t it more important than ever to figure out a fast and effective way to engage with your digital users before they become someone else’s source of revenue?
The ability to conduct brief conversations with digital banking users where you can offer a homeowner a HELOC or someone without a car loan at your institution an attractive rate for a new car loan or a better deal to refinance their loan at another institution or any number of other attractive offers is a proven method of retaining customers and driving revenue growth.
If you don’t figure out how to keep your customers and members from spreading their money around to more places, then you’ll only be able to visit it when you’re in line for a latte and the woman in front of you pays with her app at the First National Bank of Starbucks.