Big data analytics for keeping at-risk members

Fortunately for many credit unions, new memberships are at an all-time high. At the same time, member attrition continues to be an issue.

There are a number of ways to prevent credit union members from leaving the cooperative for another financial institution. One of the most time-tested approaches is to learn from the members who are leaving today or have left recently. With Big Data analytics growing in both sophistication and accessibility, this is getting easier for credit unions of all sizes.

Investing in the analysis of departing members gives credit union leaders the opportunity to proactively identify and engage other at-risk members. The intelligence can not only be used to optimize marketing and other engagement plans; it can also inform the credit union’s overall SWOT analysis and strategic plan.

Recently, a mid-sized credit union in Santa Rosa, California, embarked on a plan to learn more about the behavior and attributes of departing members. The initial step was to determine characteristics of departing members so as to identify other members most likely to part ways with the credit union over the next four to six months. From there, strategies to retain those individuals would be developed.

Credit union leaders hypothesized the number of years a member had been with the credit union would be a telling characteristic for the likelihood of attrition. The thinking was that the longer a consumer had been a member, the more accounts or products he or she was likely to own. Therefore, the “pain” of transitioning these accounts or products to a new provider would be more acute.

The hunch of leaders was not enough, however. The credit union wanted to prove its hypothesis by taking a closer look at the data. Preliminary analysis confirmed the leaders’ suspicions. Analysts then dug deeper and found a series of additional attributes that indicated a member’s likelihood for attrition. These included the age of the member, number of products members owned, loan expiration dates and several other characteristics.

Once identified, members with the recognized attributes were segmented by product category. Specifically, the following segments were created:

1. Members with deposit shares
2. Members with both deposit shares and loans
3. Members with checking accounts

Members with deposit shares

Analysis of the credit union’s total deposit share population found approximately 21 percent of those members under the age of 18 were likely to leave the credit union in the next four to six months. Of deposit share members over 18, 24 percent were identified as likely to leave in the same time period.

Members with both deposit shares and loans

Among members with both deposit shares and loans, 30 percent were seen as being at risk for attrition. Although they may not have met all of the attrition criteria, any member with an auto loan expiring in the next six months was included in the segment.

Members with checking accounts

Of members with checking accounts, 33 percent were identified as at risk. This group was then divided into three segments: under 18 years of age, over 18 with a low checking account balance and over 18 with a higher balance.

Now that the credit union had identified and segmented those consumers most likely to leave the credit union, the goal was to set a course for retaining their memberships. Analysts determined the best product lines on which to focus were student credit cards, money market options and certificates of deposit with a higher rate of interest than the credit union was currently offering.

New product strategies to encourage loyalty

To retain the credit union’s younger members, the credit union is currently considering a student credit card with the following features:

1. 2% cash-back on specific categories
2. A credit line increase and/or an APR reduction for high FICO/engaged members
3. BT & spend offers to encourage use

Improving certificates and money market accounts will require the following adjustments:

1. An increase in the APY
2. A low APR loan offer on specific certificate balances after a particular duration of time
3. Partial amount withdrawals

For members with checking accounts, the following strategies were identified as most likely to increase checking account engagement:

1. Waiving annual fees
2. Waiving overdraft fees if the overdraft is less than $500
3. Offering a cash bonus for maintaining a particular balance level
4. Waiving or reducing the NSF fee
5. Offering a second checking option for business accounts

For new and used auto loans, HELOCs, first mortgages, and other loans, the credit union is considering pursuing member retention through:

1. A lower APR offer on the next loan
2. The last installment waived on the purchase of the next loan

If a member has fewer than two products, the goal should be to increase the number of products used. For members who always use more than two products, increasing engagement would be the ultimate goal.

Test and learn

To pin-down those product improvements most effective at lowering attrition rates, the California credit union is currently undergoing a one year test-and-learn strategy. In the first quarter, analysts will run a model on the latest data to collect a list of members at risk for attrition, also suggesting specific product offers for each of those members. Second quarter activities will be similar, yet the analysts will only check for new at-risk members.

In the third quarter, the credit union will monitor engagement of the product to gauge cross-sell effectiveness. By the fourth quarter, the credit union and its analysts will have compiled enough data to make informed decisions at to which attrition avoidance strategies are truly working.