Are Your Clients 'Soft Switching' to a New Investment Account?

Moreover, Chime, a mobile-first banking outfit, is reaping the greatest benefit of this trend among banking customers.

The Soft Switch

J.D. Power reported that more than half of checking accounts opened over the course of the third quarter were additional accounts. Twenty-five percent were replacement accounts, and 23% were accounts opened by consumers who did not have a like account at the time they opened the new one.

Seventy-two percent of customers who opened an additional and replacement account did so with a different bank from their previous account.

That 72% figure is noteworthy, J.D. Power said, because many are treating the newly opened account as their primary one even though they will not necessarily close their old account. Fifty-four percent of additional and replacement checking accounts opened with a different firm become the primary account.

Chime Emergent

As customers consider new accounts, they are also considering a new type of financial partner, according to the report.

Of the checking accounts that were opened in the third quarter, 13% were with Chime. That rate outpaced all other banks, including national brands: 9% at Chase, 7% at Wells Fargo and 7% at Bank of America.

Furthermore, Chime ranked fourth, at 8%, in attracting high-deposit customers who opened accounts with $1,000 or more in the first year. It also accounted for 7% of new savings accounts and 3% of credit cards opened.

Twenty-six percent of consumers who opened checking accounts with Chime said that a promotional offer had prompted them to open a new account. Twenty percent did not have an existing checking account at the time they opened the new one.

Forty-one percent of customers said they chose Chime for convenience, 35% for its good reputation, 34% for its low/no fees and 32% in response to promotional offers.

Thirty-seven percent said they were driven to switch to Chime by poor service experiences with their incumbent banks.

Chime customers were significantly more likely than others to say they value the ability to send/receive money, online/mobile bill pay and a digital wallet when shopping for a new checking account. The report said this highlights the importance of integrated banking and payments capabilities.

According to J.D. Power, part of Chime’s success is a dominant conversion rate: the percentage of time that customers opened a checking account with the bank after being seriously considered. Overall, Chime has the highest conversion rate for customers who considered opening both checking and savings accounts, 77% and 86%.

J.D. Power noted that Chime is not only earning new customers from traditional banks but is also claiming market share from its alternative brands counterparts. Both SoFi and Cash App lose more checking account customers to Chime than to any other bank through either silent attrition or switching, making it clear that Chime is differentiating itself among its fellow disruptors.

Credit Card Caveats

Some two-thirds of credit cards opened in the third quarter were additional ones for the customer, and 10% were replacement cards. Of the additional and replacement accounts that customers opened, 80% opened them with a different issuer than the existing or previous card.

However, just 21% of these new cards become the customer’s primary card. Still, the high rate of opting for a new issuer does suggest that customers are actively seeking better offers or additional credit and are less loyal to their current issuer, according to the report.

Seventy-nine percent of customers did not seriously consider multiple providers when opening a credit card, suggesting that customers are not shopping but instead are going directly to their new issuer because the rewards, fees/rates and sign-up offers meet their needs.

Another Soft Switching Hot Spot

Investment accounts are not immune from the soft switching trend, J.D. Power found. Overall, 48% of new investment accounts were additional ones, and 15% were replacement accounts. Fifty-six percent of these accounts were opened with a different provider than the previous one.

And as with banking accounts, eventual attrition becomes a factor. Half of additional or replacement investment accounts opened with a different provider eventually became the customer’s primary account. This indicates that customers may be consolidating assets or making significant changes when opening investment accounts, the report said.

Still, established firms remained the choice of customers opening investment accounts. Fidelity captured 13% of accounts opened, Charles Schwab 9% and J.P. Morgan Wealth Management 7%.

However, the report called SoFi’s performance noteworthy. Not only did it account for 6% of accounts opened, but the company also boasted an 80% conversion rate.

Attracting the Motivated Customer

With market headwinds creating a tenuous time for many U.S. customers, J.D. Power said that investment firms, banks and credit card issuers need to be aware of the soft switching phenomenon.

Unlike traditional churn, soft switching occurs when customers quietly shift their activities to a new provider without formally closing accounts or cutting ties. Chime’s conversion rate indicates that customers are going into their search knowing exactly what they are looking for.

By gleaning insights into what causes financial services customers to start looking around, and ultimately open an account with a new provider, investment firms, banks and issuers can attract a new crop of motivated clientele.