Customer acquisition is the name of the game for banks, as it offers a potential cure for the many challenges of the moment: rising expenses, higher cost of funds, eroding margins and fears around undercapitalization. BAI’s 2023 Banking Outlook survey showed banks pushing new-customer acquisition to the top of their priority lists, and that was before the tumult that led to several bank failures in March.
We’re seeing banks lean into strategies to “buy” new customers by using higher deposit rates to lure them one by one or buying another bank’s customers all at once through an acquisition.
But here’s the danger: You can buy a new customer, but you can’t buy their loyalty.
Rate sensitivity is back: Many banks and credit unions are out of practice when it comes to good old-fashioned customer engagement and relationship building after more than a decade of low rates that kept them flush with deposits. In this rising-rate environment, depositors are increasingly seeking out higher returns and are ready to switch if they see better rates elsewhere.
But for many banks, jumping into the frenzied rate competition just isn’t an option—and for more still, it’s not the best option. Shout too loud about “better rates” and you’ll stir the sleepy depositors that would have otherwise stayed put and lead them to start shopping around. Moreover, rate competition—like price competition in other categories—tends to become a race to the bottom in which financial institutions often end up overpaying for deposits.
Relationship pricing provides the antidote for this race to the bottom by enabling banks to establish a clear value exchange with the depositor.
Tiered deposit rates are the most obvious example. Banks can also tie other products or perks to deposit accounts—examples of this includes offering loan rate discounts for customers with a deposit account, providing cash rewards or credit-card bonus points when a customer opens a new deposit account, or offering preferred deposit rates when a customer sets up direct deposit or autopay.
Treat M&A like true customer acquisition: Banks may be more willing than ever to buy new customers through higher deposit rates, but a merger or acquisition can be the quickest and most cost-effective path to growth. Recent events in the banking world are driving a wave of mergers and acquisitions as banks look for smart ways to grow in a weakening economy.
But many acquiring banks take their newly acquired customers for granted—they fail to engage these customers. At best, this limits the potential of the acquisition by missing an opportunity to deepen share-of-wallet with new customers.
To be successful, acquiring banks need to treat M&A like a true customer acquisition situation. That means building a strategic onboarding and engagement program around their newly acquired customers.
Meet customers where they are: You can’t sell your way to engaged customer relationships—you need to meet customers where they are. They’re looking for a trusted financial advisor to guide them safely through economic uncertainties. That makes education on financial literacy and wellness the key to building engaged relationships.
Many customers have never lived in a rising-rate environment, and for those who have, it’s been so long that many may not remember what it’s like. They will appreciate basic educational content on different types of deposit accounts and compound interest calculators. They’re also hungry for more insightful guidance: how to evaluate different investment options, how to read the fine print of too-good-to-be-true rates, and how chasing higher rates can often cost more in hidden fees and lost perks.
Banks know they need to embrace the “grow or die” mentality right now. They need to grow deposits to protect profitability, and if they’re not actively acquiring, there’s a growing chance they may get gobbled up by a larger competitor.
But as hard and expensive as these growth strategies can be, banks can’t relax when the deal is done and the deposits hit their balance sheet. To realize the full potential of their customer acquisition efforts, banks need to an intense focus on customer engagement—this means doubling down on building and sustaining sticky relationships because you still need to earn loyalty.
James White is general manager of banking at Total Expert.
We provide insights to help shape and fine-tune your customer acquisition strategy and tactics in the BAI Executive Report, “Meeting the challenge of new customer acquisition.”
