Author: RSBP for Central Asia
Date of publication: 30-11-2021
Access: Public

It is generally accepted that acquiring new customers takes a lot of time and effort. Also, many would agree that acquiring new customers is much more expensive than retaining existing ones.

When a business is new to a market, focusing on acquiring new customers would be a natural choice. But as the business grows and gains a foothold in the market, it becomes increasingly difficult to acquire new customers, while retaining existing customers becomes less resource intensive by comparison. The focus shifts to retention.


How much effort do you need to find a potential client, get  this client interested in your institution, convince him/her to choose your financial institution, and, finally, to create the necessary conditions for a long-term relationship with this client?!!!

It is generally accepted that acquiring new customers takes a lot of time and effort. Also, many would agree that acquiring new customers is much more expensive than retaining existing ones.

When a business is new to a market, focusing on acquiring new customers would be a natural choice. But as the business grows and gains a foothold in the market, it becomes increasingly difficult to acquire new customers, while retaining existing customers becomes less resource intensive by comparison. The focus shifts to retention.

No matter how many new clients an institution acquires each month, if it is unable to retain at least a part of these, then it will be difficult to build up a sustainable business.

Although the practice of retaining customers is often taken for granted, financial institutions may face challenges in effectively implementing a customer retention strategy.

Financial institutions seek answers to such questions as how to create loyalty among existing clients, what factors should be considered, what steps will help to gain sizeable results.

In this publication, we will look at the measures you can use to retain customers and the preparation steps you need to take. Both customer acquisition and customer retention strategies ask for investment of time, energy, and resources, so you should consider all options and choose the most appropriate one for the current situation at your organization.


Where to start?

Understanding your own client base and identifying priority client groups serve as basis for your customer retention activities.

As a rule, potential profitability of a specific customer group in the long-term perspective serves as benchmark. Calculating potential customer profitability is important for identifying those groups of customers which could have the greatest economic impact on your institution if they would leave. Identified groups can be further split into subgroups or even down to the level of individual clients based on selected parameters.

It is essential to make activities aimed at customer retention an ongoing practice. One-off measures usually do not help to keep your customers in the long run. You need a strategy and a systematic approach. While strategy development is undoubtedly important, systematic implementation of measures is equally important.

In some cases, short-term adjustments of your selected retention measures may be required within your adopted strategy, but overall, it is important to focus on long-term goals, adhering to your strategic vision and principles, even if you temporarily adapt some measures. The consistency and predictability of your financial institution are very important to your customers, as most of them seek stability in cooperation with financial institutions.

Continuous efforts to build up a reliable image of your institution in the eyes of customers, the consistency of products/services offered, a focus on high service standards, and other measures implemented in a consistent and on-going manner are prerequisites of successful customer retention.

Now, let us move on to concrete measures that you can implement.

  • Understanding how to get started

Once you have identified priority customer groups, you should assess the current situation. First, you should analyze what share of customers you lose, respectively, retain by calculating the customer retention rate (CRR - Customer Retention Rate).

First, you need to determine the period for which you want to get this indicator. This indicator is usually calculated per quarter or per year. It can be calculated for the entire financial institution, by line of business, by product, department, or individual employee.

The next step is to collect data:

  • the number of clients at the beginning of the period
  • the number of clients at the end of the period
  • the number of new clients acquired over the period

These are input data used for the client retention rate formula:

CRR = (Number of clients at end of period – Number of new clients acquired over the period) / Number of clients at beginning of period

Ideally, the CRR should be as high as possible. However, you should note that it is virtually impossible to achieve a retention rate of 100%. There are some reasons for losing customers that are beyond the control of a financial institution.

  • Analyzing why customers end cooperation with your financial institution (this measure is known as customer churn analysis)

Understanding the reasons why customers leave (or stop using your services) is key to solving existing problems and creating conditions for successful customer retention.[1] Usually, short surveys are useful to find out the reasons why customers leave (customer churn).

Develop a short questionnaire on reasons for leaving and send it to those customers who stopped using a product/s of your financial institution. Instead of a long 10-minute survey, make your survey form short and easy to fill out. The main point of your interest is why your customers are leaving.

Such a survey is a quick way to find out the main reasons why customers stop cooperating with your organization. It is also helpful in calculating losses due to each of the reasons.

For a qualitative analysis, it is recommended that you collect as many responses as possible from customers using your core products, grouped by similar characteristics: for example, entrepreneurs, salaried employees, housewives, students, or other categories. It is also advisable to break down customers by major product groups, as the reasons for closing a deposit or a credit card may be different.

Understanding the reasons why customers leave will give you a list of the main indicators that influence a client's decision to leave or not.

These may include quality of services, location of branches, convenience of the online platform, price, lack of a specific function, unsatisfactory speed of customer service, hidden fees, and so on.

It is also important to consider factors which may seem irrelevant for your institution. We often tend to make assumptions, but we may be wrong about what customers really think about our products. Therefore, you should not make assumptions about customer opinions, but rather use detailed lists of reasons to obtain reliable results (including a field where clients can add reasons you may not have anticipated).

In addition, it can be helpful to conduct a survey among existing customers, focusing on the reasons why they chose your institution. This will help you to understand the factors your customers highly appreciate about your organization.

  • An alternative approach to identifying reasons for losing clients

Churn analysis can also be carried out on the database level. The prerequisites for this analysis are having a sufficiently detailed client database and meaningful indicators. This analysis will not give you information about customer opinions, but it can reveal a predisposition to leave for different client categories.

Determine the factors that may affect churn, test your assumptions on an initial customer sample. After initial testing of your hypothesis, choose the final criteria that are most likely to influence churn.

As an example, the following customer variables can be used:

  • activity
  • number of services used
  • income level
  • age
  • number of months of cooperation with the FI
  • etc.

Once the model has been defined, it becomes clear which of the criteria is mainly associated with losing customers. The most important criteria typically associated with high probabilities for customer churn are (the below are examples of indicators and parameters only):

  • Number of products: Which customer group is associated with the highest churn rate – customers using 1 to 2 products or customers using 3 to 4 products?
  • Age: Which age group is more prone to churn?
  • Customer activity: The most proven trend is that inactive customers are more likely to leave the institution.
  • Customer income level: For example, customers with a higher income level are more likely to close credit products.
  • Number of months of cooperation: To your surprise, you might notice that some clients leave after only a few months with the institution. This indicates an urgent need to analyze the reasons for customer dissatisfaction.

The best solution would be to carry out both types of analysis simultaneously. This will help you draw conclusions that can help you improve potential customer acquisition, as well as give you an understanding of what negatively affects retention and which aspects you should immediately start working on to improve the situation.


Improvement measures

Based on customer feedback and results of your analysis, as a next step, it is recommended to plan the most important changes to how customer support services are organized, remedy shortcomings in the perceived convenience of branches, enhance accessibility and smooth functioning of the online platform, review and rework product characteristics, advertising, etc. or other aspects of the operations of your financial institution.

Depending on the results of your analysis, this can lead to strategic changes and/or to determining the most appropriate measures for the specific situation of your financial institution. When planning your growth and customer retention strategy, consider the identified top reasons why customers are leaving and focus on those that are causing the greatest loss of revenue.

Also, after each implemented improvement, inform clients about these changes. This process should be continuous. It is advisable to plan the analysis of causes and the development of improvement measures for each subsequent period, including the assignment of responsible officers, and the clear definition of expected results and reporting deadlines.

Ideally, all these steps are part of the long-term development strategy of a financial institution. They should be regularly discussed during planning for the next period at strategic meetings and discussions.

What specific measures can or should be implemented? Specific measures depend on the reasons identified, the available budget, the mission, the development plans of the financial institution and other factors. The following are examples of key measures that often help to improve customer retention in the financial sector.


Customer retention methods

High quality customer service is top priority at all stages

Poor service quality is one of the most common reasons why customers change financial institutions, especially if there are players with high service standards in the market.

In this regard, it is important not only to make efforts to continuously improve offered products, their features and price, but also to plan real, systematic actions to continuously monitor and improve quality of service.

To ensure a high level of service, ensuring service quality should become a key priority at all stages of the provision of services and products.

An effective process begins with the selection of client-oriented personnel, with regular training in sales and customer service.

Service quality: required base

  • A well-functioning system facilitating the Bank-Client relationship
  • Effective interaction between the different structures and units of the FI
  • A well-coordinated mechanism that guarantees that speed and quality of services meet customer expectations

Choosing the right people is key to improving the quality of service because, regardless of the training they receive, not everyone has the necessary personal qualities to develop client-orientation and willingness to serve customers in the best possible way.

Serving people is not an easy task. It involves constant communication and demands a special service-oriented mentality from an employee, i.e. having an innate interest in helping/supporting clients in finding best solutions which meet their needs. This mentality should be part of an employee's psychological profile. Otherwise, it is difficult to expect major improvement in service quality from an employee.

The topic of selecting candidates suitable for a respective position is quite extensive, you can read more about this in the publication "Staff recruitment: important preparatory stages" on the RSBP platform.

It is also important to implement an effective approach to careful analysis and resolution of customer complaints, continually improving this practice and applying disciplinary action if necessary. It is important to pay attention not only to front-office employees who directly work with clients, but also to the work of back-office employees regarding timely resolution of respective customer requests.

It is good practice to be attentive to customers, to clarify their situation, and come up with a suitable solution.

In summary, effective client orientation is the ability to identify customer needs and, ideally, meet them beyond the customer’s expectations.

The following are aspects relevant for implementation of a client-oriented approach:

  • recruitment and training of suitable people for a respective position, i.e. client-oriented people
  • having a clear understanding of who your clients are, segments, typical client profiles in each segment
  • knowledge of main client needs for each segment, regular monitoring for any changes
  • finding solutions that best suit the situation of a concrete client group or client, refining offers for specific groups

In addition to smooth processes and coordinated work of departments, the list of measures to improve customer experience could include:

  • expanding self-service areas, maximizing the range of available services
  • ensuring access to these areas 24/7
  • at the initial stage, it is advisable to hire a customer assistant who will introduce customers to the new functions


Regular initiation of communication

Regular contacts with your clients have an overall positive effect on their loyalty and retention.

It is critically important to ensure a smooth start of cooperation, agree on communication channels, prepare training materials explaining how to use your products and platforms, applications, and provide answers quickly to all questions. Do your best to make clients feel their importance to your organization and that you value their well-being and time before and after conclusion of a contract.

The following measures can be implemented to ensure regular communication with clients:

Invite your clients to sign up to your institution’s blogs in social networks. Accordingly, it is important to ensure regular publication of your company’s news to keep your clients informed about the latest developments, improvements, innovations.

Invite clients to take part in surveys on how to improve the work of your institution.

When was the last time you asked your existing clients about what can be improved regarding the products and services of your institution?

You should not wait until clients leave before you find out why your institution does not meet their demands.

The easiest way is to send a short questionnaire to your clients. It is especially valuable to introduce a systematic practice of conducting surveys of current clients, to assign a person responsible for collecting, processing responses and, most importantly, for proposing improvement measures based on the analysis of results.

Regularly send newsletters and additional information to customers, either by email or through their preferred messenger. In today's world, it is desirable to keep such materials concise, visually attractive, and easily readable from mobile devices.

Making direct and easy-to-use communication channels available to clients is the fundamental basis for successful regular communication.


Provide for quick response to issues

Clients seek to receive feedback and prompt professional responses to any issues they may have.

It is advisable to carry out inspections to make sure that:

  • there is a functioning feedback system in place at your institution that clients can easily use
  • customers understand the difference between existing communication channels
  • customers can quickly get feedback through different channels
  • all channels work promptly
  • customers have easy access to information about all existing communication channels
  • and, most importantly, that answers are meaningful, that is, understandable and useful to clients

Priority should be given to respond quickly to any customer requests, such as:

  • requests for additional information
  • requests for support on technical issues
  • questions
  • requests for help
  • complaints

We want to draw special attention to complaints/claims. A filed complaint in itself does not yet mean that a customer is going to leave your financial institution. The factor that may prompt the customer to take this decision is how your organization responds to the complaint.

The biggest mistake is to ignore a complaint or take a late decision. Searching for who is at fault or making excuses are not likely to satisfy the client either.

Below is a proposed complaint management algorithm:

Proposed complaint management algorithm

(1) Let the client see that you accept and understand the complaint; inform the client about the deadline for your answer.

(2) Respond as promptly as possible:

  1. propose a solution, indicating the time frame for its implementation;
  2. explain politely why the request cannot be satisfied, be sure to offer an alternative or an additional bonus as compensation; if the complaint is unfounded, provide a professional explanation, arguments and offer an alternative solution that would best suit the client's situation;
  3. make sure that the solution is implemented and notify the client about implementation.

(3) Establish customer feedback channels: assess the client’s satisfaction level after corrective measures have been taken.

(4) It is important to record all complaints by creating a catalog of reasons. This database is an extremely important tool for analyzing the root causes of customer dissatisfaction and identifying measures for improvement.

Some additional important aspects:

  • If a problem occurred due to internal reasons, admit the mistake and apologize - customers appreciate this
  • Behave professionally even if the client is very emotional about the cause of his/her complaint


Loyalty programs

Customer retention is often associated with loyalty programs which, however, are only part of an effective customer retention framework.

Loyalty programs can be divided into programs involving direct financial incentives for clients:

  • reduction of fees, preferential terms and conditions, a month/year of free service
  • branded gifts: pens, mugs, T-shirts, calendars, flash drives, notebooks
  • special conditions, special products, bonus systems, etc.

and programs involving other incentives:

  • assigning an individual client manager; access to the bank’s leadership; the status of a VIP-client
  • free training for customers: e-mailing articles and links, coaching, training, consultations
  • creating additional opportunities: a more flexible payment schedule, help in preparing documents, etc.

Such programs can undoubtedly attract customer attention. However, on their own, they usually do not significantly affect client loyalty and customer retention, not unless existing issues as described above are resolved.


What can individual employees do to retain customers?

Above we described “macro” level aspects, i.e. measures that financial institutions usually define on the institutional level. However, there are a lot of measures and steps that can be applied on the “micro” level by each individual employee in their day-to-day work.

It is you, as customer relationship manager or customer support back-office manager, who forms the image of your financial institution in the eyes of its customers.

So, what exactly can you do?

Start with a smile, a polite, professional attitude towards each client. When communicating with each client, show your interest, be an active listener, try to quickly resolve the client's request or offer a realistic time frame during which this request can be resolved.

Remember that to win a client, a certain effort is required. You don't need to wait for a dissatisfied customer or a formal complaint to start serving your customers better.

At every financial institution, you can probably find aspects that could be improved, but you should not wait for improvements to happen to then, based on this, provide better service. You should take the initiative and take daily steps to improve customer relations. This is within your power.

Shift the focus from “I cannot do anything until leadership changes the program/product/price, etc.” to “What can I myself do in this situation?”

As we have already discussed, regular communication with clients can help increase their loyalty. So, what can you do in this respect?

  • For example, if your financial institution has not yet introduced a practice of regular mailing to current customers, you can create monthly customer birthday lists and mail personalized greetings to important customers.

Employee service quality

  • Knowledge and competence
  • Professional and polite attitude
  • Interest in resolving the client’s issue
  • Initiative, proactive attitude
  • Trying to offer solutions beyond customer expectations
  • Being ready to offer unconditional support
  • If your institution does not yet have a CRM or another institutional system for tracking and managing customer relationships, you can create your own system (e.g., an Excel spreadsheet) to track essential information and timelines, or other useful information.
  • If you are traveling to a specific city or district, it would be great to combine this with visiting important customers located nearby. Remind them about yourself and your institution, find out how the client is doing and ask if he/she has any urgent needs that your institution can help to resolve, or inform them about new services that may be of interest to them.

When you work with people, unexpected situations are not rare. When serving your current clients, try to meet the request of the concrete client in front of you, on the other end of the line or chat.

  • If, for example, your client has a currency transfer problem, you can pass the request to the department responsible for currency transactions and explain the issue instead of making client to repeat it. Subsequently check if his issue has been resolved. If the issue was not resolved, deal with it internally /clearly explain what is missing to solve it.

Clients highly appreciate when they feel that they will be provided with an adequate solution for their situation and that the financial institution is not just interested in its own sales but really also cares about the prosperity and development of clients.

  • For example, a client wants to get a credit card. However, after you have studied the client’s needs and current situation, you understand that s/he will not be able to repay the credit card debt within the grace period and will have to pay high interest. Well … you could ignore this fact and meet the client's request. But, if you want to enhance the client's confidence in you and your financial institution, the best choice would be to explain the case to the client and offer a more suitable product with lower interest. This behavior will demonstrate that your institution is not interested in just making a quick profit but cares about the client’s well-being. Such an attitude and approach usually help financial institutions to establish long-term relationships with clients.

Of course, there are more ways to increase customer loyalty. However, by implementing at least the above measures, you can already increase the level of customer confidence and loyalty. This topic should always be on the agenda. It is important to think about building long-term relationships with clients, since having a contract with a client today by no means guarantees its renewal tomorrow.

If compared to the acquisition of new clients, your attention and prompt response to the needs of your current customers does not require much investment of time and effort, but it can help increase customer satisfaction and loyalty. Through effective work with your existing clients, you will also free up resources which you can use on more effective acquisition of new customers.

As a result of successful retention efforts, satisfied customers are more likely to expand the range of your products they use. In addition, loyal customers tend to recommend the services of their financial institution to their acquaintances, which increases the number of potential new customers that can be acquired at comparatively low cost to your organization. Finally, the churn rate of current customers will decrease, and the customer base will be more stable and predictable, which allows for more effective planning.


[1] It is also possible to analyze why certain customer groups no longer use certain services.