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Addressing banking’s top business challenge

In the latest BAI Executive Report, we examine new customer acquisition, the leading issue identified in the 2023 BAI Banking Outlook survey.

May 25, 2023 / Consumer Banking

Each year, BAI’s research department asks bankers to identify the top business challenges that they expect to face in the coming 12 months. Topping the list in the 2023 BAI Banking Outlook survey was new customer acquisition.

In this month’s BAI Executive Report, we turn to those same research colleagues for insights on what banking institutions should know – both challenges and opportunities – as they develop their customer acquisition strategies.

In our lead article, managing director Karl Dahlgren delves into BAI’s recent research, along with some related demographic trends. The latter includes the drop in new household creation, which in 2022 was at its lowest level in six years.

This slow-growth environment presents a headwind for pretty much all banks and credit unions. Dahlgren says the odds for success improve when an institutions knows what potential new customers are looking for and target them appropriately.

“In the quest for new customers, banks should focus on bringing in primary relationship customers,” Dahlgren writes. “This means quality acquisitions and not just any acquisition—after all, hot money is only going to be rented for a little while.”

Isio Nelson, who heads client engagement for BAI’s research department, leverages BAI research in his exploration of why banking institutions should work on increasing their small business customer base. His bottom-line reason is that small businesses are “an untapped gold mine that may be hiding in plain sight,” and that appealing to these enterprises now – while they are small – can pay off in the longer run.

Merchant services present an especially attractive opportunity, Nelson says. The ability to make and accept payments are especially important to small businesses, and our research finds that cost and inferior technology are the main reasons why they look to fintechs and other providers for these services.

“By giving these operators attention and by tailoring offerings to their needs, banks have a great opportunity to develop an enduring relationship that can become far more fruitful over time,” he writes.

For this month’s Executive Report Q&A, I speak with BAI research intelligence expert Mark Riddle about the in-depth findings of the 2023 BAI Banking Outlook survey on customer acquisition, and also gather his views on how banks and credit unions might put those findings to good use.

He advises institutions seeking to grow their customer base to expand their efforts toward signing up more Gen Zers, many of whom are looking to open their first accounts. To be successful, the marketing push around products and services should be highly personalized, and banks should also offer an exceptional digital experience.

“Gen Z rates the digital (customer experience) at their primary bank much lower than any of the other generations, in large part because their experiences elsewhere have elevated their expectations,” Riddle says. “They are the I-want-it-right-now generation.”

Our article from James White from Total Expert gets right to the point in its headline: “You can buy new customers, but you can’t buy loyalty.” The buying part he’s referring to is, of course, dangling higher interest rates on deposits as a way to lure customer money away from other banks or credit unions.

“If banks aren’t doing the hard work to build and sustain relationships with new customers,” White writes, “they’ll see their money wasted when those customers jump ship for the next best thing.”

He makes a case for relationship pricing as a means by which banks can present a clear value proposition to depositors. Tiered deposit rates, various perks and product tie-ins are examples of incentives that institutions can offer to distinguish themselves from their competitors.

In her article, “Data-driven insights can improve your acquisition strategies,” Lisa Nicolas from Vericast writes that banking institutions should focus on the kinds of data that can be impactful for personalized marketing. These include first-part and third-party data derived from consumer behaviors, credit-related data to assess risk and understand needs, and broader competitive data that offers a view into trends.

She points to a number of potential benefits from putting data and analytics to work in a more wide-ranging way for customer acquisition. Among them, the ability to develop deeper insights that can help create more successful approaches that are based on specific customer needs – this can improve conversion rates in a cost-effective manner.

Terry Badger, CFA, is the managing editor at BAI.