Pub. 4 2016 Issue 4

www.uba.org 14 Converting New Accounts to More Profitable Ones L ike personal relationships, financial marriages don’t always work. For multiple reasons, some 15 million Americans consider shift- ing $627 billion in assets each year from one financial institution to another. 1 Whether a customer is relocating to a different part of the country or shopping for more attractive rates and services, the enduring quest for a suitable financial “mate” presents growth opportunities for banks and credit unions prepared to welcome and actively engage these free agents. Don’t leave money on the table. Acquiring new customers is one thing. Keeping them active is another. Dormant accounts can cost financial institutions dearly. Every 10,000 new account holders that don’t activate their accounts costs banks $33.7 million in lost balanc- es, income and wasted marketing expenditures annually. 2 So what’s the problem? Switching is a “Hassle” for Consumers In a highly integrated technical environment where accounts are of- ten linked, switching financial institutions can be complex, time-con- suming and costly. Many consumers deposit paychecks and other benefits directly into accounts to automatically pay monthly expenses like mortgages, car loans and utilities. Shutting the spigot off at one location and turning it on at another without losing a drop can be tricky. Typically, consumers start the tedious manual switching process by contacting each third party; employers, government agencies and investment firms, among others involved in some recurring transaction and filling out appropriate forms. Once those automatic fund transfers are reauthorized, a customer must then close their old account and move any balance to their new institution. Why few budge. A delay in transferring funds may inadvertently cause missed payments that could, in turn, trigger late penalties, overdraft fees and maintenance costs for falling below some minimum balance. Insufficient funds could also harm consumer credit scores. For most people on a budget, keeping adequate funding in both old and new accounts during the transition period is simply not practical. Depending on the number of transactions involved, the entire transfer operation could span weeks to months to complete. It’s no surprise that nearly six of every 10 consumers criticize the switching process as “too much of a hassle.”3 As a result, most opt to stay put. An ac- count holder with only a single regular bill payment is 76 percent less likely to switch banks than those with none, while an account holder with five automatic bill payments is 95 percent less likely to move. 4 To compound the challenge, although financial institutions spend a great deal of time and money trying to lure business, fewer than half Every 10,000 new account holders that don’t activate their accounts cost banks $33.7 million 2