Are retail banks building strong foundations for cross-sell or forfeiting major opportunities? A lot depends on the approach to onboarding, a set of activities aimed at cementing and expanding new customer relationships.
Onboarding has received more than a decade’s worth of attention and extra effort. The best programs are quite formal, replete with detailed routines for customer contact, communications and product introductions. But questions are surfacing about the orientation and objectives of these programs. Often, performance pressures lead to a hurried short-term focus on “selling what we can while we can,” with far less foundation-building than is needed to set the stage for a profitable cross-sold relationship over the long term.
Take the most common case: opening a checking account for a new household. For customers who follow through and make full use, this account becomes central to their daily banking lives. In turn, the primary checking account is invaluable in providing the information, access and bank rapport that is crucial to high-value cross-sell.
Yet in U.S. banking today, typically less than half of new checking accounts are active after the first 90 days, the typical time span for onboarding activities. Most inactive accounts wind up closed, with the result that closed checking accounts are a major portion of total account attrition in a bank.
The larger issue with onboarding is that it needs to do a much better job of fostering customer loyalty and relationship development. The more a bank can meet a customer’s daily financial needs, the more loyal the customer becomes and the higher the odds for fuller “wallet penetration” over the life of the relationship.
Instead of an initial burst of “product cross-sell,” as often is the case today, onboarding programs should seek to establish the bank as the customer’s primary cash management provider, in line with the needs of each individual. This includes presenting the right family of products and ensuring activation and full usage.
Onboarding has reached a critical juncture as consumers shift more of their banking activities from the traditional branch to alternative electronic channels, primarily web and mobile. The first time that a new customer walks into a branch to open an initial account may be the last time for a visit to a lobby.
This increases the pressure to optimize the dwindling amount of face time with new customers. It also pressurizes follow-up onboarding activities, which now must address the broader experience of multi-channel banking and all of its complexities.
In this increasingly delicate situation, a single goal often dominates the bank response: sell whatever can be sold. The sales urgency is driven by longstanding research showing that a big chunk of a customer’s total product purchases from a particular bank typically occur during the first 90 days of the new relationship.
But recent Novantas research suggests a different approach is needed. First, the majority of sales to a new retail banking customer typically are either booked or instigated on day one, right at the original point of sale. A stream of offers during the 90-day onboarding period often yields little revenue and can become off-putting to new customers, discouraging activation and usage of their initial accounts.
Second, not all originations are created equal. The best possible start with new retail customers is to provide the fullest possible range of products within the defined space of cash management, or offers that will help them to manage their monthly household finances and payments. This point-of-sale (POS) “center of gravity” should be supported by product bundles and reflected in performance metrics and incentives.
Third, the bulk of the onboarding period should be devoted to capturing “share of balance flows,” as reflected in both the inflow of paychecks and other financial resources and the outflow of cash and payments that keep the household running. Encouraging direct deposit and electronic bill pay is a start, but ultimately it is about facilitating transactions and payments however each customer wants to do them.
The main thing is getting in touch with the way that retail relationships evolve. A relationship expansion strategy cannot be guided simply on the basis of product count. It needs to reflect how a customer engages with the bank, which in turn determines the bank’s brand permissions for cross-selling and deepening that relationship.
In this sense, the benefits of the primary cash management relationship cannot be overstated. It, more than any other category of banking products and services, gives the bank permission to talk with customers about their full range of financial needs. It also provides incredible insight and data for marketing and sales; reveals the most about household financial condition; and is interwoven in consumers’ daily financial activity.
The resulting advantage shows up in the formation of total consumer balances (checking, savings and certificates of deposit). Our research indicates that the lion’s share of retail funding comes from customers with active checking accounts, with only a trickle of balances associated with inactive accounts. In one multi-bank study, the funding contribution of active checking customers was roughly 10 times that of inactive accounts, as measured by total retail balances per checking relationship.
Primary cash management relationships also are the most profitable. Our research indicates that when such relationships are cross-sold into multiple needs categories over the life of the customer involvement with the bank, they can yield up to 10 times the value of single-service relationships, or relationships built upon non-primary accounts. Strategically successful onboarding sets the stage for such results.
Clearly, the value is not booked during the initial onboarding period. It shows up over time. In fact, the right measure is not products sold or balances transferred during the first 90 days, but rather whether the account is active with multiple transactions after just 60 days. Profitability and deposit balances will follow.
The bottom line is that following the enrollment of the new customer, retail banks should be doing everything in their power during the onboarding period to encourage the cash management relationship, including account activation and usage and the introduction of logically-related products and services. This will lay the best foundation for cross-sell over the ensuing months and years.
Mr. Spitler is managing director and co-CEO and Mr. Meleis and Mr. Israel are managing directors at Novantas Inc., a management consultancy based in New York City. They can be reached at firstname.lastname@example.org, email@example.com, and firstname.lastname@example.org, respectively.