02.05.20
An Investment Services Relationship Improves Customer Loyalty to the Bank
by: Ken Kehrer and Tim Kehrer, Kehrer Bielan Research & Consulting
The recent BISA study on the Total Value of Investment Services to the Banking Enterprise uses a data-driven approach to establish that households in an investment relationship with their bank or credit union exhibit greater loyalty to the institution, use more banking products, and remain customers longer.
Households that own an investment purchased at their primary bank are 28% more likely to say they would not consider switching banks, and somewhat more likely to recommend their bank or credit union than households without an investment relationship.
Some have argued that this finding means that households buy investments from their banking institution because they are loyal to the bank, not that they are more loyal to the bank because they have developed an investment relationship. But that point of view is undermined by similar data on the relationship between the number of banking products a customer has and whether that customer would consider changing banks. Households using more than four banking products are actually less loyal, until they use at least 10 banking products or services. Indeed, adding a banking product to the average household that uses sevent to eight products reduces this measure of customer loyalty by six percentage points.
If the direction of causation is from loyalty to product purchase, the data would say that the less loyal one is to the bank, the more banking services one would use there. That clearly makes no sense. It makes more sense to understand that loyalty declines as one uses more banking products, probably because there are many more opportunities for the bank to make an error, or irritate customers with nuisance fees and check holds, etc. It appears that a customer becomes “stickier” after establishing an investment relationship with the bank, not the other way around.
The BISA study, Smart Investment: Evaluating the Total Return on Investment Services to the Banking Enterprise, utilizes a data driven approach to understanding the role of investment services in the financial institution’s ecosystem. The study is available only to BISA members.
To learn more about becoming a member of BISA and obtaining the report, contact bisa@BISAnet.org.