When it comes to making deposit accounts "stickier" for the bank, recurring Automated Clearing House (ACH) transactions can help a lot, according to Steve Simpson, director of product development for Austin, Tex.-based Sheshunoff Consulting+Solutions.

Account attrition plummets when customers tie ACH transactions such as direct deposit of payroll and utility payments to checking and savings accounts, Simpson said Monday at BAI's SmartTactics Conference & Expo. "The growth in deposits is natural and immediate if you combat your attrition," Simpson said.

Attrition averages 21.5% of all core deposit accounts annually after the first year, he added. On the other hand, the attrition rate for customers who make or receive ACH payments is just 12.4% after the first year, he said.

During a presentation entitled "Identifying and Managing Key Profitability Drivers in your Bank," Simpson discussed several other factors that influenced whether customers kept or moved their deposit accounts from their bank.

For example, he noted that banks with the most aggressive account opening programs have among the worst attrition rates. Banks that lure people to open accounts with handsome gifts lose 65% to 70% of those accounts in the first year, which compares with an industry-wide statistic of about 45%, Simpson said.

Simpson said that stemming deposit account attrition is a key to driving net interest margins and therefore profitability in the banking industry. Citing a study by the Office of the Comptroller of the Currency, he said difficulty in supporting lending activities with low-cost deposits puts margins under steadily greater pressure.

In 1995, Simpson said, 90.5% of all banks supported two-thirds of their total assets with core deposits. By early 2006, that percentage had dropped to 58%, he said.

Beyond nudging customers to use ACH transactions and online bill pay, banks should understand that the best time to get customers to use multiple services is early in the relationship, Simpson said, noting that 80% to 85% of product relationships with banks are established within the first 180 days. "You're paddling against the stream to get the customer to take additional accounts after that," he said.

Simpson said effective management of initial account opening and onboarding is critical. He suggested banks analyze all the data available in terms of cross-selling and retention. This could include, for example, which account opening reps do the best job of offering the right ancillary products to customer walk-ins, which branches do the best job of cross selling and which among all the different checking accounts yields the best retention.

The latter is a tall order, Simpson said. "The average bank doesn't even know which products to cross sell," he said. "They don't even know what the average retention is by product."

Subtle differences can have big consequences, he said, citing a bank that put new customers with poor credit scores into checking accounts that lacked debit cards. Without the debit card, account retention was so poor that opening accounts was not worth the effort, he said.

(For more on the banking industry's struggle to attract and retain deposits, see "After Free...What Is There To Offer?" in the May/June 2006 issue of BAI's Banking Strategies. Also see "Targeted Offers to Attract New Accounts" in the February 28, 2007 issue of BAI's Banking Strategies Retail Delivery Insights and "Free Checking's Second Wave" in the March 29, 2006 issue.)