Product Bundling Pays Off for Banks

Product bundling is a successful and profitable concept in some industries, such as cable television. But can it be utilized in the banking industry? Our view is that it can, based on a recent conference presentation and our own analysis of nationwide data.  

In a session entitled “Generating New Revenue Opportunities” at the recent BAI Retail Delivery 2012, speaker David Crumpler, vice president and director of marketing for East Carolina Bank, a nearly $1 billion-asset bank based in Engelhard, N.C., described various product bundling initiatives at his institution, such as “My Security Bundle,” which combines checking accounts with identity theft alerts, credit score reports, and other cyber-protection services.

The attractiveness of bundling identity theft alerts and credit score reports with a checking account is supported by a recent national consumer study by Market Rates Insight showing that 82.5% of current customers desire identity theft alerts and 73.7% want credit score report services.

Since the services were introduced by the bank on March 1, bundled account sales at East Carolina have increased about 60% with very limited advertising. Clearly, the concept of bundled services worked well in this case by increasing fee income, adding new customers and enhancing the customer experience.

This example prompted us to look at data on a national level to determine if this success was an isolated phenomenon. Two research questions were used in the national analysis: 1) Are customers, who are likely to use one service, also likely to use other services as well? 2) Are customers, who are willing to pay for one service, likely to pay for other services as well? Data from our consumer study used for this analysis included responses from 1,500 banking customers.

We looked at relations among the seven services included in that study: credit score reporting, identity theft alerts, personalized couponing, prepaid reloadable cards, overdraft transfer services, person-to-person payments and mobile remote deposit capture. Correlation analysis was used to check the strength and significance of the relations among these services.

On the first question, likelihood of use, the average correlation coefficient was strong (.385) and very significant (.000), which indicates that banking customers who are likely to use one product are also likely to use other products as well. On the second question, willingness to pay, the average correlation coefficient was very strong (.635) and very significant (.000), which indicates that banking customers who are willing to pay for one product are likely to pay for other products as well. Our analysis, therefore, supports Mr. Crumpler’s view that product bundling is indeed a viable option for fee-revenue enhancement and customer retention and acquisition.

Mr. Geller is the executive vice president of San Anselmo, Calif.-based Market Rates Insight, which provides competitive research and analytics to financial institutions. He can be reached at [email protected].