Predictive Analytics. It's Not Just About Reports Anymore
The days when consumers had a single financial services provider for all their banking needs are over. Fragmented financial relationships have become the norm, where consumers have banking and financial relationships with multiple banks, credit unions, and Fintechs. They may have their checking and savings accounts at your credit union, but their mortgage is now with Rocket Mortgage, they use their American Express more than any other credit card because of the perks, and all payments are made with Venmo. This is the new reality in member relationships.
While many of those relationships will never be recaptured, there are a few things credit unions can do to mitigate potential losses. Think about a scenario where members have their checking or savings account at your credit union and use it as the funding account for other payments providers. Today’s Primary Financial Institution (PFI) status is not determined by where the checking accounts are (as mentioned above, they may be spread out among multiple providers), but which institution is used for the payments functionality.
The Angry Customer and Your Brand
You know this member. They had a genuinely bad experience and have told you they are leaving. But before you allow this member to close their accounts and go, remember that it is more expensive to get a new customer than to keep an existing one. The Harvard Business Review put that expense at 5 to 25 times more costly to acquire a new customer than to retain an existing one.
Even reversing every fee charged to that angry member may be cheaper than acquiring a new member to replace them. And with multiple providers, including Fintechs, barraging your member with offers daily (or hourly) in multiple channels, it is critical to retain that member. The majority of the offers that a member receives will be based on price. While these offers are informative, they create noise among all the other which are also based on price. In addition, many of the companies making these offers do not have a recognizable brand or a clear set of company values.
On the other hand, your credit union was created for the sole purpose of service to your membership. Your industry brand revolves around serving the needs of your members through not only products and services but also community services such as volunteer work, hospital visits, school visits, and community action projects. In addition, your employee initiatives are critical to mention. A company that celebrates its employees gets kudos from its clients. Security is also a pivotal point to reinforce in communications as part of your brand messaging, as information security is of paramount importance.
How Do You Detect Churn and Burn? Predictive Analytics
Every credit union has an exit survey designed to document why members left and closed their accounts. Although these surveys are excellent sources of information, they are reactive, and there is no chance to retain that member. You can monitor trends and set triggers to alert you when a negative behavior begins by using predictive analytics. For example:
  • There is an increase in bill payment or ACH debits going to other loan providers or to the member themselves (indicating a deposit account somewhere else).
  • A member is a user of the A2A transfer product, and there has been an increase in transaction frequency with an increased dollar amount.
  • The balance in a checking account has remained the same for an extended period of time with no transactions. Then suddenly, the account is debited using ACH from other financial institutions and Fintechs.
These account “creepers” are impossible to track without predictive analytics. Members like this slowly drain their accounts over time by using the methods above. They often fly under the radar of traditional account reports because their activities are below dollar and transaction velocity thresholds.
Back to the exit surveys. Members may or may not express in writing their reasons for leaving, but examination of their account behavior and the employee notes on the account can typically offer better data than a survey response. When did the member start to withdraw the money? Who were the recipients of the funds? What did the employee notes on the account say? By aggregating this information, you may discover a pain point that members are experiencing and then be able to improve that part of the process to avoid losing additional members.
Predictive analytics is your member attrition alarm system. When a member breaks or modifies their regular routine, predictive analytics can sound the alarm. The old adage of “the best defense is a good offense” describes using this predictive analytics strategy.
Generational Segments and the Predictive Analytics Offense
While predictive analytics can be used to identify members that are about to leave, it can also be used to determine why members are joining, and more specifically, what generational segments are joining. Let’s talk about Millennials. Why are the Millennials important to your credit union? Because they are the future of your credit union, so it is essential to know the factors that led them to open their membership.
The Millennial segment will soon be moving into the loan and mortgage phases of their lives. And with many Millennials being part of dual-income families, they can also bring deposits to your institution. Millennials value the holistic persona of a business, and, therefore, it is vital they understand the value of doing business your credit union. Predictive analytics will give you data on every new account opened, and you can identify if there was a significant increase in membership from this segment following a particular marketing campaign or community event.
While the Millennials are essential, it is critical to monitor other generation segments as well. What about Generation X and Baby Boomers in your membership? They hold the majority of the deposit and loan balances in your credit union today. Therefore, understanding what attracted this generational segment to open new memberships is also critical to your membership strategy. Was it a new marketing campaign or an online article that attracted new members from this segment? Once you can determine the factors that drive membership for each generational segment using analysis of your data, the potential for gaining new memberships in those segments is increased exponentially.
Using This Data Strategically
Knowing when to act is as important as knowing how to act. Growth and retention should be proactive and not reactive strategies. Today’s financial landscape is full of competitors trying to lure your members’ business away from your credit union. In terms of offers, price has always been seen as a problematic strategy to “retain” business. Members that join or stay because of your brand promise and excellent service experience are likely to remain loyal members.
Have you ever tried talking to someone in a Fintech company? Is there even the ability to speak with someone, or are the answers relegated to programmed chatbots? Service is critical and a differentiator, now more than ever, in a digital world. Credit union members have access to the entire organization’s staff at all levels, including the C Suite.
Then there is the critical brand component of security. Have companies offering similar products had a data breach? You don’t need to call out a specific provider, but reinforce that your credit union has regulatory safety and soundness exams, including security audits. You will probably create a new awareness of something that a potential member had not considered, or make a potential attritor think twice before closing their membership.
Predictive analytics offers you the ability to custom tailor your account monitoring capabilities in every channel. It does not rely on sparse response rates to member surveys, or reactive survey data. It tells you the real-time story of member and account activity within your credit union every minute of every day. Use that data to your advantage.