Consumers have opened banking accounts in droves. Now what?

One in five Americans opened accounts with a new financial institution in a recent 12-month period — primarily at large banks, digital banks and credit unions.

The findings, from an Ipsos survey in early February of more than 1,000 Americans on behalf of the financial technology firm FIS, are perhaps a wake-up call for regional and community banks to work harder at customer retention.

But a closer look at the numbers shows that, in order to solidify their gains, the "winners" must seek to broaden the new customer relationships they’ve established, according to industry observers.

Here’s the key reason: Of the 20% of consumers who opened these new accounts, the majority did not move their primary banking relationship.

Generally they were opening secondary accounts for some specific purpose such as maximizing rewards or savings, or minimizing fees. Or they were young customers, or the unbanked, opening accounts for the first time to receive stimulus checks or for some other reason.

“If you really think about it, individuals during this time were going into crisis management” because of the pandemic and its blow to the economy, said Andrew Beatty, head of next generation banking at FIS. “They would be looking at, how do I optimize my money? How do I optimize my savings?”

The challenge for all financial providers is that the answers to those questions can fluctuate, especially as COVID-19 cases fall and the economy improves, and technology makes it easier for consumers to sample the competition.

Large national and global banks were the choice of 37% of consumers who established new banking relationships from February 2020 to February 2021. That was likely because those banks have the scale to offer sophisticated apps and rewards.

Credit unions got 18% of the new accounts and particularly appealed to Gen X customers and older millennials, while direct banks, such as Ally or Chime, appealed more to customers under 30 and ultimately captured 17% of new accounts.

Traditional banks say that proactive customer service and favorable rates on certain products have helped them to retain primary banking relationships.

Regions Financial in Birmingham, Ala., has said repeatedly that it was able to maintain and grow its customer base through the pandemic in part because it operates in fast-growing markets across the Southeast. While the $147 billion-asset company has increased its tech spending in recent years, last year it also benefited from drive-through windows at most of its branches, said Scott Peters, head of consumer banking.

Regions has typically sought broader relationships with its retail customers, and the company has trained its front-line bankers to have conversations with them about a variety of needs, including retirement and borrowing in addition to daily banking needs. Internal data, such as transaction activity, indicates that Regions is still gaining primary banking relationships, Peters said. He added that Regions seldom loses primary banking relationships to digital challengers competing primarily on rates.

“Very often we’ll see folks close some of those relationships and consolidate back with us because they don’t feel the rate advantage is worth maintaining another relationship,” Peters said.

Another key is making sure existing customers are set up with debit cards and direct deposit, said Matt Boss, head of consumer products at TD Bank.

Boss said that the $401.5 billion-asset TD Bank has also sought to add incentives for customers to broaden their relationships, like a new credit card offering that doubles cash-back rewards when they’re deposited into a TD checking account. And he said that the bank is looking to do more digital marketing and improve customer onboarding to compete with challenger banks.

“We’re going to have to respond, but competition drives better products and better outcomes for customers, which is a good thing,” Boss said.

Meanwhile, the fintech Green Dot, based in Pasadena, Calif., has seen a rise in new account openings during the pandemic, which CEO Dan Henry attributes to COVID-19-related relief and the movement toward digital banking amid social distancing. In March, Green Dot, which offers a prepaid card and low-cost banking products, opened roughly three times the number of accounts it did a year ago, Henry said, although he declined to give a total figure.

To keep those new customers, the company needs to offer them excellent customer service and sell them on Green Dot’s other products designed for low- and moderate-income consumers, like its secured credit card, he said.

Because Green Dot largely targets consumers living on the margins, Henry said it was also important for the fintech to offer its customers instant access to their federal stimulus funds.

“Our customers were receiving their stimulus funds almost five days faster than traditional banks,” he said. But he said that’s not a criticism of other banking institutions.

“This is a recognition that a low- to moderate-income consumer who’s living paycheck to paycheck needs a banking partner that provides them instant access to their wages,” he said. “Especially if you think about the consumers who were the hardest hit by the pandemic.”