Chapter 14: Data & Analytics
IN THIS LESSON
What is attrition?
Attrition, also known as churn, turnover, or defection, is the loss of customers and/or business.
The attrition model can leverage client information, as well as product, transactional, and service data, and generate risk scores that identify which clients are most likely to defect. The financial institution can then prioritize the most valuable of its at-risk clients and engage with them effectively.
Why does attrition matter to a financial institution?
Companies often use customer attrition analysis and customer attrition rates as one of their key business metrics because the cost of retaining an existing customer is far less than the cost of acquiring a new one. Companies attempt to win back defecting customers, because recovered long-term customers can be worth much more to a company than newly recruited clients.
Financial services such as banking and insurance use applications of predictive analytics for churn modeling, because customer retention is an essential part of most financial services' business models.
How do FIs combat attrition?
Customer attrition is a major concern for US and Canadian banks, because they have much higher churn rates than banks in Western Europe. US and Canadian banks with the lowest churn rates have achieved customer turnover rates as low as 12% per year, by using tactics such as free checking accounts, online banking and bill payment, and improved customer service. However, once banks can improve their churn rates by improving customer service, they can reach a point beyond which further customer service will not improve retention; other tactics or approaches need to be explored.