The tired stereotype of banks handing out toasters to attract new customers is alive and well but in a more 21st Century form. One of North America’s largest retail banks recently lured potential new customers by offering free 28-inch Samsung televisions to anyone who opened a checking account. Add a credit card and you can have a 40-inch TV, a perk worth $300.
But today’s customers have grown savvy to these kinds of come-ons. Online comments summed up how many viewed the offer—as a stunt to boost fees. One user wrote: “Buy the TV and avoid the bank altogether. Always throwing some cheap tech at people to sign up and potentially tie themselves up in credit card debt forever.” Definitely not as advertised on TV.
It’s no huge surprise that banks still leverage these old-school tactics: Competition for new banking customers is fiercer than ever. A growing number of financial-services technology disrupters use inventive ways to connect with customers, such as holding cocktail parties to build community among millennials. Savings company Acorns doesn’t give away free TVs; rather it deposits money in customers’ accounts. For example, it gave those who signed up for Blue Apron’s meals service $30 in their investment accounts. It offers similar promotions for customers who engage with other companies that millennials favor.
Yet as fintech disrupters chip away at the traditional banking customer, brick-and-mortar banks can take productive countermeasures.
Research suggests that instead of TV giveaways, financial firms should focus on experiences that will spur loyalty among existing clients and their business. The research suggests banks have a long way to go here; when customers want to expand their business—add a loan or a credit card—they only give it to their base bank about 64 percent of the time. That should amount to low-hanging fruit for banks. But roughly one-third of potential additional business moves elsewhere, according to Bain & Co., which estimates that an increased win rate of just five points could be worth about $5 billion in revenue for the 25 largest U.S. banks.
So why the profit leak? Much of the money goes to fintech startups with appealing digital offerings, such as SoFi, or online payment processor PayPal. Such non-banks now offer expanded finance services such as bill pay.
Banks also face competition from a growing number of local banks and credit unions with expanded their reach. These firms win over millennials in particular with a blend of great mobile apps and the personal touch of a smaller, more intimate financial firm.
Banks must get smarter about finding and keeping customers because the hunt is expensive. Snagging a new account costs roughly $200 per customer—higher for branch walk-ins—according to CustomerThink. (That number doesn’t even consider the cost of giving away merchandise.)
But the typical new customer generates about $150 in annual revenue, so when you add account servicing costs, it can take more than two years for a bank to break even—that is, if it ever gets the chance. About one in four new customers leave a bank during the first year, approximately half of those in the first three months.
But there is good news. Banks can lower acquisition costs when they attract new customers online. In fact, effective online marketing as opposed to print advertisements and silly giveaways cuts acquisition costs in half.
The key lies not in building a warehouse to store more kitchen appliances but a digital experience that makes banking easier and more convenient—something customers tell us again and again that they want. They would happily exchange their physical branch for a better digital experience. But while an online focus might seem obvious in today’s digital world, a survey by Gallup shows that online offerings fail to satisfy bank customers. Over the past six months—and despite a huge investment in digital banking—three in four customers still visited a bank branch and nearly half (48 percent) spoke to call center representatives.
To improve customer loyalty, financial institutions need to improve their digital offerings. This starts with an online app and then progresses to functions that complement core services. For banks, insurance companies and wealth management firms, this might mean giving customers access to digital documents and an encrypted, smart digital place to store bank statements, personal taxes and even birth certificates. Customers can also benefit from a single point of online access for all accounts at your institution, from checking to savings, mortgage and others. Wealth managers might add roboadviser tools to complement in-person service.
As financial services firms seek better ways to entice new customers, they should read PwC’s report, “Financial Services Technology 2020 and Beyond: Embracing Disruption.” It predicts that the cloud will become the dominant infrastructure model in financial services by 2020. Firms with cloud-based services will gain invaluable beta testers—their customers—who can help the firm as it develops new offerings.
All this requires placing the customer at the center of experiences: for example, offering mortgage information when data tells you a customer will likely buy a home, or organizing interactions into “episodes.” These might include helping the customer buy a home by walking them through the entire process, from pursuing a mortgage to insuring their most valuable possession.
That’s a proposition more valuable than another television, no matter how you view it.
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John D. Orr is a banking executive, lawyer, entrepreneur and investment professional and serves as the chief executive officer of FutureVault, based in Toronto.
If you enjoyed this article, check out: From customer experience to bank branch significance: Five predictions for 2018 and Five things we all get wrong about branch transformation.