Customer Loyalty: In Defense of Unprofitable Accounts

> Posted by Sonja E. Kelly, Fellow, CFI

I’ve mentioned before on this blog that I opened my first bank account when I was eight. It was a “Breezy” account, named for the bank’s clown mascot and geared specifically toward children. With my mom as my co-signer, I stood on a stool, reached across the counter, and deposited a piggy-bank’s worth of pennies, nickels, dimes, and quarters. When I was 16 I started putting my babysitting money into it, when I turned 18 I withdrew most of my meager funds for a backpacking trip through Europe, and when I was 23 I enrolled in my first direct deposit program using the same account. When I got married, my husband joined as my co-signer. The “Breezy” branding has long since been dropped from the account, and I have upgraded to a higher interest rate, but for all intents and purposes, it is the same account that I had when I was eight.

Judge me as being lazy, stupid, or ignorant if you want—I’m not alone in my loyalty to my bank. A recent report by Javelin Strategy & Research, a market research firm, showed that 11 percent of customers want to change banks. If history is any indicator of the future, though, few will actually make the change. On Bank Transfer Day a year ago, only 3 percent of customers (5.6 million people) switched their primary financial institution—even amidst the rising popularity of the Occupy Wall Street movement and public outcry over a change in Bank of America’s debit account policies.

Customers are loyal to their banks, and this presents an opportunity. Globally, incomes across the economic spectrum are on the rise. Knowing that customers tend to stay with their banks, the time to secure customer loyalty was yesterday. To the supply side of the financial sector, the fact that about half of the world is without a bank account should scream “MARKET OPPORTUNITY!”

My guess is that my bank didn’t make any money on me for well over a decade. The monthly paper statements, the cost of the teller’s time to count my pounds of change, the consistently low account balance, and the price of the “Breezy” brand (including balloon-blowing clown to visit the bank on special Saturdays) were well above the profit that the bank was able to earn lending my paltry pennies out as principal. The bank even waived my (albeit infrequent) overdraft charges. Talk about low return on investment!

Fast forward to today, and I have a fairly steady income. In fact, I’m starting to be able to save for the future. My balance sheet is poised to move in the positive direction, and my husband and I are talking about buying property in the next few years. In addition, my interaction with my bank has gone virtual—I haven’t been to a teller in over a year, my statements are emailed to me, and I do most of my banking and bill pay online. Frankly, my bank should probably expect to start making money on me if they haven’t already. I am living proof that unprofitable accounts represent a future opportunity for big banks.

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Have you read?

Confessions of a Long-Distance Banking Customer

Child and Youth Finance – Governments Step in

Start ’Em When They’re Young