4 Strategies to Keep Customers Coming Back

Customer Retention Strategies for Community Financial Institutions

Like any small business, community banks are finding that competing in todays
marketplace can be tough. In the past, many community banks were able to maintain their customers because families had banked with them for generations. Today, with banking competitors offering instant-issue cards, photo cards and savings programs, that is no longer always the case. Does this mean that community banks should just give up? Absolutely not. Community banks have some unique characteristics that make them suitable for a wide range of customers:

1. Strong Customer Focus community banks pride themselves on actually knowing their
customers as individuals.

2. Established Community Ties community banks have well-established reputations as

community leaders and contributors, sponsoring sports leagues, organizations, traditional events such as parades and races, and other programs and events.

3. A Business Model That Works when it comes right down to it, community banks are
under fire because they have created strong, profitable and resilient businesses. And thats why larger, national financial institutions want to grab part of that business in the first place.

The New Customer Treadmill

In contrast to community banks, many of their banking competitors have focused their efforts on customer acquisition creating special offers aimed at bringing new customers in the door. In many cases, the traditional gift of a toaster for opening a new account is gone in favor of high-yield money market accounts and even reasonable amounts of cash. However, these new customers may not feel as nurtured once they come through the door, presenting an opportunity for community banks to do what they do best. According to the American Bankers Association, while it costs about $200 to attract a new customer, the average revenue value of an existing customer is more than $1,000. As a community bank, it simply doesnt make sense to focus on the more expensive task of attracting new customers when you can bring in more revenue by keeping the customers you already have happy.

The Power of Community

Four Strategies for Keeping Customers Happy

1. Give customers the opportunity to bank online
Investment in online technologies is critical for sustained growth. According to a study conducted by Forrester Research, online banking should be a high priority for community banks because online customers, especially online bill payers, are the most profitable customers for financial institutions.1 This means that providing online bill payment services is critical for community banks seeking to gain a competitive advantage and significant, long-term economic rewards. Offering online banking and bill payment services is especially important when it comes to retaining young customers. Having been born and raised in the era of constant communication, this generation has grown up expecting immediate access to information. They are also used to conducting many of their daily tasks while on the go using multiple technology devices and banking is no different. To help illustrate this point, a recent Celent survey showed that college students prefer to communicate with their financial institutions, and receive product information, via the Web. What does this mean for community banks that want to retain younger customers? It means online banking and bill payment services are not just nice perks theyre requirements. Not only does online banking bring value to your institution with lower per-transaction costs, it can also help reduce expenses and improve efficiency by reducing lobby traffic and lowering the number of teller transactions and customer phone calls. And if customers elect to receive electronic statements, online banking can also help reduce statement printing and mail costs. However, what really makes online banking so valuable to community banks is the improved retention of the online user base and increased balances held by online users. First Data offers a quick, easy-to-implement online banking solution for community banks that allows customers to view transaction activity and receive electronic statements. This service allows retail banking customers to pay bills, and its been recently enhanced to allow Internet banking customers to check account activity and transfer funds via a mobile phone device.

Consider this:

Online bill payers maintained

aggregate balances up to 257 percent higher than their offline counterparts and were 78 percent more likely to stay with the financial institution over time, compared to their offline counterparts.1

Net annual value to the

financial institution, per customer, averaged $812 more for online bill payers than for offline users, and $241 higher for Internet banking users than for offline users.1

2. Offer your customers access to more surcharge-free ATMs

Your cardholders want convenient access to surcharge-free ATMs and may even be willing to switch banks to get it. Several large banks have raised the ATM fees they charge to non-customers as high as $3. This forces many community bank customers who use these ATMs to choose between paying the higher fee or switching banks in order to avoid it. In order to compete with the extensive ATM networks of larger financial institutions, community banks have to find a way to increase their customers access to surcharge-free ATMs or risk losing them altogether.

1. Online Users: Worth Their Weight in Gold, CreditUnionMagazine.com, November 1, 2006. http://creditunionmagazine.com/story.php?doc_id=451.

The Power of Community

One solution is to join a national surcharge-free ATM network. Joining a national network provides community banks with an affordable alternative to fee reimbursement. For example, by joining First Datas STARsf surcharge-free service, community banks can give their cardholders anywhere/ anytime access to their demand deposit accounts. And by participating in the STARsf service, community banks and their cardholders can benefit from First Datas partnership with Allpoint, one of Americas largest surcharge-free networks. Allpoint offers STARsf participants access to more than 32,000 ATMs at leading retailers like Target, Walgreens and Costco. Offering services like STARsf provides a way for community banks to give their customers more fee-free options to access their accounts.

3. Help protect your customers from fraud

The High Cost of Fraud

Using an industry average

of $1,100 loss per card, an issuer with 300 compromised cards could experience a net fraud loss of $165,000 with a 50 percent fraudster usage rate (150 cards used).
(Source: American Bankers Association and Fair Isaac Corp.)

Data compromises can have a catastrophic effect on your financial institution. Fraud prevention is especially crucial for community banks that rely on a foundation of trust with their customers. First Datas fraud mitigation and risk management solutions enable financial institutions to respond quickly to fraud at the cardholder level and manage extensive fraud parameters. These solutions are flexible and fully customizable. Because there are so many different fraud solutions available, First Data consultants can help you determine which solutions are right for your organization, depending on your cardholder and transaction demographics and budget. For institutions unsure of where to start, our Fraud/Risk Premium Package is a great entry point. This fully turn-key solution affordable for institutions of all sizes offers real-time neural network scoring services, card validation for PIN and comprehensive card management tools. While investing in fraud solutions is your best first line of defense against fraud, its also important to educate your cardholders on how to protect their financial institution accounts. To help, First Data developed a Fraud Prevention Manual, which includes tips on how your customers can protect themselves against identity theft and other types of fraud scams. Plus, this guide also offers a number of worksheets and tips on how to plan for, or respond to, a data breach.

Replacing just 25 lost

customers can cost a financial institution $30,400 using industry averages of $1,016 revenue value and $200 new account acquisition cost.
(Source: American Bankers Association)

The Power of Community

4. Reward your customers for their loyalty

Consumers Respond to Rewards:
Customers today are less likely to remain loyal to a financial institution simply because their parents and grandparents were customers. Todays customers expect rewards and studies show they are more likely to use accounts that offer them relevant rewards. Unlike other programs, a loyalty program enables you to customize an offer to accomplish specific objectives while enhancing your institutions brand. First Datas Loyalty/Rewards Program is fully customizable and allows your institution to offer customers varying rewards points, cash back or even customer-selected donations to schools or charities based either on transaction activity or on the customers entire relationship with your financial institution. A loyalty program can help you differentiate your institutions service offering, create additional cross-sell opportunities and strengthen long-term relationships. Such a program can give customers a strong incentive to use their ATM/debit cards and to develop a lasting preference and loyalty to your institution. In the end, if community banks are going to compete with larger financial institutions, strengthening their existing customer relationships is likely to play a major role in their success. By developing market-driven, customer-driven or product-driven strategies such as online banking, customer-linked rewards, fraud protection and surcharge-free ATM access community banks can give their customers a reason to continue banking with them.

80 percent of Americans
(Source: Maritz Research)

indicate that loyalty programs influence them and impact their purchasing decisions.

Industry analysts report

that 50 percent of debit cardholders would spend more on their cards if incentives were attached and that spending would increase by an average of 22 percent.
(Source: Synergistics)

For more information about how First Data can help with your customer retention efforts, visit www.firstdata.com or call 888.778.0202.

2008 First Data Corporation. All Rights Reserved. All trademarks, service marks and trade names referenced in this white paper are the property of their respective owners. Reproduction by any method or unauthorized circulation is strictly prohibited, and is a violation of federal copyright law.

The Power of Community