Every new year comes with new challenges, and 2023 is no exception for bankers and other financial services executives. But among this year’s challenges, one issue should be top of mind for most bankers: new-customer acquisition.
A recent survey of bankers by BAI showed that new-customer acquisition was the No. 1 business challenge and investment priority for banks heading into 2023, up two spots from a year ago. As we emerge from a pandemic that changed the way many customers conduct financial transactions, bankers face a new environment that calls for a new approach to acquisition.
Another factor is Generation Z (those born between 1997 and 2012) coming of age. The oldest members of this group are now potential customers, creating a particularly ripe customer acquisition environment as these young adults look to expand beyond low-balance checking and savings accounts.
Acquiring new customers won’t be easy. Most customers are hesitant to change their primary institution, and they often look to their existing primary institution when they are ready to open a new financial account. The BAI study found that most customers view their checking account as their primary account, and that roughly half of customers with a deposit account plan to give all of their future business to their primary financial institution.
Banks and credit unions will have to work harder and be more strategic in customer acquisition. They can’t employ a one-size-fits-all strategy. There are variations in what different generations value and what they are willing to switch for. The best strategies for pursuing new accounts may vary based on which segments a bank or credit union chooses to pursue.
Looking at the needs of millennials and Gen Zers is particularly insightful. For example, they are more willing than other generations to change financial institutions. Only 38% of Gen Zers would give all of their future business to their current institutions, compared with 50% of millennials, 45% of Gen Xers and 55% of baby boomers. In addition, younger customers are more likely to need new products—such as mortgages and investment accounts—as they mature. Those factors combine to create a very attractive customer base on which to promote new products.
So how can bankers attract younger generations as new customers? Clearly, a strong digital offering is important. Younger consumers cited the features found in a digital offering as a key reason to consider switching their primary banking relationship. About 73% of Gen Z respondents in our survey said they would consider switching their primary relationship if another institution had a better digital offering—up 13 percentage points from just a year earlier. Millennials had similar responses, while digital offerings are less important to Gen X and boomers.
But let’s not forget the importance of branches. While Gen Zers and millennials clearly prefer digital channels for most interactions, they are still using branches. In fact, the BAI study found that these customers are interacting more often with branches than baby boomers are, perhaps because they tend to conduct many more transactions with their financial institution.
An additional area of concern in customer acquisition is an organization’s reputation and perceived values. Our study shows that values are important to Gen Zers and millennials—they want to support organizations with policies that align with their beliefs. Communicating about values can be a way for financial institutions, particularly community banks and credit unions, to differentiate themselves and compete with direct banks.
And community banks and credit unions have the most to gain by developing a strong new-customer acquisition strategy. Our research shows that direct banks are gaining in the percentage of customers who consider them their primary bank—and those gains are coming primarily at the expense of community banks and credit unions. The percentage of customers with primary relationships at large banks has generally remained stable.
Clearly, community banks and credit unions are getting squeezed by direct banks. To counter this threat, banks need to take a close look at their value proposition relative to direct banks. Can they compete on rates and fees? Or, more likely, perhaps they can play up their other advantages and say, “Hey, you can stop in a branch if you’ve got a problem and you need to talk to someone.”
As we move deeper into the new year, these institutions need to develop strategies to pursue new customers. But those strategies must be able to evolve as customer needs change. They also must focus on each institution’s strength and target the specific customer base the institution is pursuing.
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