What Is Soft Switching, and How Can CFIs Spot It?
Most financial institutions can spot traditional attrition, where a customer closes their account and moves on to another organization. But there is another type of leak that’s often harder to see: soft switching.
A customer who soft switches keeps their account open while moving other parts of their financial life elsewhere — perhaps opening a savings account at a neighboring bank, or taking out a loan with a competitor. From a distance, the relationship may still look healthy. In reality, the community financial institution (CFI) is gradually losing share of wallet.
WHY IS SOFT SWITCHING SO EASY TO MISS?
A CFI can have strong overall satisfaction and a healthy number of open accounts while still losing share of wallet. That overall score might conceal, for example, a segment, age band, or local market that is becoming less loyal over time.
Soft switching may show up as more funds leaving the institution while accounts remain open, or as fewer customers considering an institution their primary (or only) CFI. The customer is still there, but the relationship is shrinking.
WHY DO CUSTOMERS MOVE THEIR MONEY?
One of the primary drivers of soft switching is service inconsistency. Even as banking becomes increasingly digital, relationships still matter, and a phone call that goes unreturned, or excellent service in one branch followed by a frustrating experience at another, can weaken an otherwise loyal relationship.
Inconsistency can take several forms:
- An issue requires multiple attempts to resolve.
- One channel is much harder to use than another.
- Service quality varies between employees, branches, or interactions.
Other factors can also encourage customers to move part of their financial relationship elsewhere, including limited branch access and gaps in technology or digital convenience.
HOW LISTENING PROGRAMS CAN HELP IDENTIFY SOFT SWITCHING
Because these shifts aren’t always obvious in operational data alone, a structured listening program can help CFIs understand whether customers are banking elsewhere and what may be driving them there.
For example, CFIs can ask whether account holders also bank elsewhere and whether they consider the CFI their primary financial institution. Combined with relationship data, that feedback can be segmented by branch, age, tenure, and other factors to identify groups where share of wallet may be shifting.
Feedback can also help explain why clients are opening accounts elsewhere. Is it because another institution offers easier access? Does its mobile app provide a feature they value? Are they receiving better service?
Even when customers don’t explicitly say they’re moving money, broader satisfaction trends may tell another story. Lower satisfaction within a particular group can indicate relationships that deserve a closer look, particularly when those clients also report banking elsewhere.
HOW SHOULD CFIs RESPOND TO SOFT SWITCHING?
When a customer begins moving money elsewhere, the first instinct may be to compete on rate. In many cases, however, changing a rate sheet quickly isn’t always practical, and continually chasing rates can reinforce the idea that customers should keep shopping.
Instead, CFIs can compete on the relationship.
Direct deposit, bill pay, and other everyday services can make an account harder to leave, but they aren’t guarantees. If satisfaction declines, customers may leave those services in place for convenience while directing new deposits, savings, loans, or investments elsewhere.
That makes communication especially important. Whatever initially brought someone to the institution — a competitive CD rate, loan, or other product — should be treated as the beginning of the relationship. Frontline employees can learn what else the customer needs, explain the value the institution already provides, and invite them to consolidate more of their financial life there.
That includes longtime customers. Some of the clients least likely to bank exclusively with one CFI are among its oldest and most loyal; over time, they simply accumulated accounts elsewhere because no one had asked.
Communication can be targeted rather than broad. At one institution, overall satisfaction with interest rates was above benchmark, but a particular age group was considerably less satisfied and likelier to leave over rates. The recommendation wasn’t to change the rate sheet; it was to communicate the value those customers were already receiving. At another organization, customers frequently closed accounts after paying off loans. We recommended using the years-long loan relationship to build loyalty and invite borrowers to expand the relationship before the loan ended.
Digital access matters here, too. As fintech competitors make opening another account easier, CFIs should evaluate their own digital new-account experience for friction that may make it easier for clients to go elsewhere.
Ultimately, identifying soft switching is only the first step. Someone still has to talk to the customer.
FEEDBACK AND COMMUNICATION PROTECT RELATIONSHIPS
Soft switching doesn’t produce the same warning signs as traditional attrition, and even closure reasons may not tell the full story. When a teller asks why someone is leaving, customers may offer the easiest or most polite explanation rather than discuss dissatisfaction, a competing institution, or other factors. A third-party listening program can give customers the opportunity to share what really influenced their behavior.
Avannis can help your institution identify signs of soft switching, better understand what’s driving them, and turn that feedback into action. Contact us to learn more.