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Small FIs Suffer "Silent Churn" As Customers Turn To Giant Banks For Credit Cards, Mortgages

Consumers double the number of relationships they hold with financial institutions between age 20 and 35 but most of the financial products they're purchasing go to secondary FIs, largely giant and regional banks that dominate in credit cards, mortgages and HELOCs. While 35 percent of checking accounts are opened with community banks and credit unions, these institutions only account for 14 percent of credit cards, 19 percent of mortgages and 25 percent of HELOCs. Ian Benton, a research specialist in Javelin's Omnichannel Financial Services practice, told attendees of MX's Fintech Festival that this presents an existential threat to smaller FIs. "Silent churn is where you have your checking account, primary relationship with a bank but all of these other secondary relationships for other products," said Benton, who shared upcoming research with MX's audience on October 22. "The primary FI is losing out on those additional products and they don't even know it."

Benton noted that "we often think of churn as people picking up and leaving" but suggested that FIs also consider share of wallet when they discuss customer retention.  Benton shared an array of data showing that community banks and credit unions have struggled to expand their relationship with customers. He noted that giant (45 percent) and regional banks (21 percent) control 66 percent of primary relationships but their share grows to 80 percent for secondary relationships. Conversely, community banks (21 percent) and credit unions (13 percent) control 34 percent of primary relationships but their share of secondary relationships diminishes to 20 percent. "As people expand their financial lives they're going to those secondary FIs," said Benton. "You think you have that customer from an early point in their life but you don't know if they're adding financial products. This actually bears itself out in credit cards and a number of different products including mortgage ownership." 

Giant banks (42 percent) and regional banks (22 percent) combine for 64 percent of checking accounts, but control 85 percent of credit cards, 81 percent of mortgages and 76 percent of HELOCs. Their share of auto loans (65 percent) remains in line with their share of checking accounts, as community banks and credit unions have remained relevant in this product category. 

Silent churn may frustrate smaller FIs but traditional churn is a concern for institutions of all sizes. While five percent of consumers say they are extremely likely to switch away from their primary FI and six percent follow through on the threat, twice as many Moneyhawks - an FI's most valuable account holders - indicate they're extremely likely to switch. 62 percent are going to an FI they already have a relationship with, said Benton; 84 percent of potential Moneyhawk switchers plan to go to another top 20 bank, shunning smaller institutions. 

Fees remain the #1 reason why consumers switch FIs, although Benton also highlighted the desire for better online and mobile banking capabilities. Strong online and mobile banking capabilities are particularly important to Moneyhawks and motivate them to stay with their primary FI. Touching on the value of digital money management, Benton noted that alerts - beyond those that are security related - provide another opportunity for FIs to impress their clientele. "We have a lot of opportunity to reach out and show them the value of the mobile app by not only providing insight into their spending but then bringing in advice. Here's something we found about your spending habits or your savings," said Benton in urging FIs to to "really become a financial partner" to their customers.