Why People Leave Their Bank

According to seventh annual household banking survey of 5,000 households conducted by Javelin Strategy and Research, it appears that fees and customer service continue to be the primary reasons a person leaves their bank (in addition to moving). What may be surprising to some, however, is that many millennial (ages 18-24) leave their bank due to the lack of ATMs while there is a growing percentage of households moving to a new bank to get mobile banking services. In fact, according to the study, 'ATM availability' edged out 'online features' as a factor that can predict customer attrition.


According to the study, there is one factor that does not predict whether a customer will leave a bank . . . errors by the financial institution did not move the needle as a reason why a customer attrites. This may be because banks have gotten much better over the years on not making as many errors in the first place and quickly addressing errors made as part of their focus on the customer experience.

Is Cash Really King?

The competition is again heating up in the checking account cash wars. In addition to banks that have traditionally offered cash incentives to open checking accounts such as JPMorgan Chase, Capital One, Fifth Third and PNC Bank, banks that in the past have offered premiums for the opening of new accounts like KeyBank are now also joining the money for checking acquisition game.

While incentives with some institutions are still $50-$75, many of the more aggressive institutions are offering rewards of $150-$200 to new customers that open accounts and meet some qualifying stipulations such as signing up for direct deposit, online billpay or a minimum number of signature debits. A recent program by Capital One offering $300 for a new account was the highest premium seen in years.

In a review of recent checking campaigns using the search service Mintel Comperemedia, more and more firms are offering the higher incentives. The question remains whether these high incentives pay off.

According to a 2009 study by Novantas, as many as 50% of new checking accounts are usually inactive when analyzed by looking at debit and credit transactions on the new account. In addition, the BAI has fielded many studies that find that as many as 30-40% of new accounts are closed during the first year. Unfortunately, many banks that I visit do not measure the new account activity level or rate of attrition as thoroughly as they measure the number of accounts that come in the front door. If measured using a full year view of the acquisition costs of new accounts, it is possible that some banks are paying double or triple their cash incentive for new relationships which may make the programs unprofitable from both a short and long term perspective.

It may be a more prudent strategy to reallocate this investment to strengthen current customer relationships through cross-sell and up-sell programs instead of attracting short-term, opportunistic customers with such high incentives.

Alternatives to Online Bill Payment May Drive Stronger Engagement

Research has shown that one of the strongest engagement tools for new and existing checking customers is to have the customer set up online bill payment. Unfortunately, even with aggressive 'switch' programs, the success banks have had trying to get customers to sign up for online bill payment has been less than overwhelming.

To try to simplify the signing up for online bill pay (and reduce first year attrition), some banks have moved to promoting the payment of bills using debit and credit cards. In the case of using a debit card, the payment still is taken from a customer's checking account and the process for signing up can actually be easier than with a traditional biller. In addition, using a debit card for bill payment can generate interchange income for the bank, rewards for the customer, and if the payment is recurring, it will not be subject to the new Reg E stipulations.


Chase Bank has done an excellent job of promoting bill payment using debit and credit cards through an online tool called Chase Payee Directory. With this tool, a customer can select the company they want to pay with an interactive directory.

With the goal of getting new and existing checking customers to use their checking account becoming as important as retaining the customer, these forms of moderate innovation will certainly become more commonplace.

Mobile Banking Can Improve Customer Acquisition by Sixty Percent

One of the more startling takeaways from the Mobile Banking and Emerging Applications Summit this week was when Bob Hedges from Mercatus mentioned that mobile financial services could improve customer acquisition rates by as much as 60% in key customer segments (age under 50) for early moving banks. In fact, according the research findings which were presented at blinding speed at the conference, a bank's mobile presence was more important than online banking, ATM presence or even the convenience of local branches in a customer's decision to select a bank.

Combined with the statistic that more than 30% of U.S. consumers are either using or considering using mobile financial services in the next year, and it is understandable why the best quote from Hedges at the conference was that, "Making a business case for mobile banking is like making a business case for oxygen"!

Other findings shared by Hedges at the conference included that mobile financial services users have higher incomes than traditional customers, use more services and have up to 12% lower attrition (which has been supported by other findings provided by banks recently at other conferences).

Finally, Hedges emphasized to the more than 300 bankers in attendance that the rate at which consumers are adopting mobile banking is must faster than originally anticipated, with an expectation that the number of mobile banking consumers could surpass those who use online banking by 2015.

Given the positive impact that introducing the mobile channel could have on acquisition efforts, servicing costs, utilization of services and attrition, there is no doubt that mobile banking will be emphasized by banks over the next 18 months. Obviously, the spoils will go to those fast moving banks that can introduce mobile banking to their customers and prospects the quickest and who can continue to promote and enhance their offerings to a increasingly technology driven target audience.

Effective Onboarding Begins with Good Insight

In 2003, the BAI released a research study entitled, 'The Ninety Day Window of Opportunity', where interviews, deposit statistics and segmentation models revealed that nearly 75% of all cross-sell opportunities and the vast majority of attrition occurred in the first 90 days of a new customer relationship. These findings continue to be verified in the marketplace, with expanded concern recently around the lack of funding, engagement and use of new products by these new customers.

More than ever, financial institutions need to begin the onboarding process by capturing an accurate and robust view of the customer which can be used across the organization to enhance the customer experience and expand the relationship with the bank. In short, to optimize the customer experience during the first critical months and year of the relationship from both the customer's and bank's perspective, you need a 360 degree view of the customer. With online account openings, this process becomes even more critical.


Unfortunately, with so many data entry points and so much emphasis on operation efficiency and regulatory requirements, the capture of many key elements of customer insight gets overlooked or is done inconsistently by the front line. Beyond address, birth date, gender and identification information, financial institutions need to begin to collect insight such as email addresses, primary decision maker on the account (it is often the female in the household even though we usually address correspondences to the male), the preferred channel of communication (which is often email), the reason for coming to the bank (move, dissatisfaction, previously unbanked) and what services they use elsewhere (the holy grail of insight). Of course, with more and more of the collection process occurring online, organizations are under increased pressure to validate this insight (especially the address).

With this insight, you are in a much better position to communicate with the new customer in a personalized and relevant manner, using the right channels to the best person in the household offering a service or solution that is geared to their needs. These communications should begin on day one and continue throughout the early stages of the customer relationship enhancing the customer experience and increasing loyalty and retention. Multiple channels should be utilized to improve effectiveness and measurement of all touches should occur to gauge the ROI of the process.

Mobile Banking Summit Illustrates Topic is Hot

You don't need to look any further than the attendee list to realize the importance of mobile banking to our industry. Not only is almost every major institution in attendance at this year's Mobile Banking and Emerging Applications Summit, but the number of participants has increased by more than 50% according to officials from SourceMedia.

The program kicked off Sunday with a workshop by David Eads, Founder & CEO of Mobile Strategy Partners LLC where he discussed the basics of getting a Mobile Banking strategy off the ground. He also shared the first of a wave of industry statistics that made it clear to the SRO attendees that this year and next will be pivotal to the mobile banking industry. He also shared keys to developing a business case for introducing mobile banking. He emphasized that while cost reduction (mainly from offloaded balance inquiry calls) could many time justify the investment in mobile banking by itself. a drop in attrition and an increase in revenue from increased interchange and cross-sales will also improve the ROI.


A parade of speakers including Pam Joseph and other players from U. S. Bank, Bob Hedges from Mercatus, several panel discussions, and Jeff Dennes from USAA provided an amazing array of customer research, case studies and predictions for the future of this channel. During the U.S. Bank presentation, there was discussion of a new Mobile Shopping Concierge application where coupons, offers and even store layouts may be provided and the discussion of upcoming introductions of both a Remote Deposit Capture application as well as a P2P application (probably the most discussed new application of the day from many organizations including Bank of the West).

The best line of the day came from Bob Hedges, who began his presentation of a ton of industry research by saying, "Making a business case for mobile banking is like making a business case for oxygen"! One of the more unusual moments came from 10-11 AM PT, when it was obvious many in attendance were using their phones (and a surprising number of iPads) to get immediate updates on today's speech by Steve Jobs. Another helpful use of phones came throughout the day when pictures were taken of the slides in the presentations  by many since SourceMedia does not include the presentations in the conference materials, and then only partially share presentations 2-3 weeks after the event.

I will be digging much deeper into my notes over the next couple days to share insights from this great conference that ends tomorrow. In addition to key research, I will be sharing marketing ideas that were discussed as well as significant trends that we will probably see in 2010 and 2011.

By the way, for those unable to attend, the location of the conference was at the M Resort which was beautiful, but seemed like it was in LA due to the distance from the strip and the temperatures today approached 110 degrees. So yes, the conference was HOT!

Onboarding Communication - How Much is Too Much

As I discuss multichannel new customer onboarding program development with financial organizations, it doesn't take long before the client asks about how much communication is too much early in a new relationship.

Interestingly, according to our research at Harland Clarke as well as research from J.D. Power, the number of new products sold and the customer satisfaction ratings both increase as the number of contacts increase during the first 90 days. In fact, according to J.D. Power, the average number of accounts sold increases from less than 2.5 to more than 3 if the customer is communicated with 4-7 times or more. In addition, the satisfaction ratings increase by more than 10% if more connections are made with the customer who opened up a new account.


Unfortunately, there are still several institutions who do not have a robust communications sequence with customers who open a new account, which impacts new customer engagement, cross-sell potential, customer satisfaction and even retention. For those banks that effectively reach out multiple times using email, phone, and direct mail, the results are consistently better across the board.

One of the strongest onboarding programs I am aware of is at a regional bank in the west. Their robust onboarding process proactively takes control of the customer experience for the entire first 90 days, stressing engagement and by offering products and services that are best matched to the customer's needs. The process begins at the new account desk, where there is a selling mentality but also an emphasis on collecting key information that will assist in future communication with the customer. Email addresses are collected from as many as 85% of customers opening new accounts, which is significantly above industry averages and which allows the bank the leverage for multi-channel communication throughout the entire customer lifecycle.

An initial email that is delivered in the first two days of the new relationship discussing what the customer can expect from their bank in the upcoming months are to provide key contact information if there is a problem. This is followed by a branch personalized Thank You letter with a series of engagement service offers. Subsequent communication (beyond standard debit card mailings, etc.) include a welcome call on day 15, an engagement reinforcement letter and email on day 30, and a cross-sell direct mail and email communication based on next most likely product modeling on the 60th day of the relationship.

The bank has found that the ability to offer integrated, multi-channel communication is critical in their quest to achieve the best engagement and sales results and to reach the highest levels of customer satisfaction. Delivering early, relevant and persistent communication has help them improve retention by more than 5%, significantly increase engagement levels and improve both cross-selling and balance build efforts compared to their control group. They achieve these results by 'touching' the new account opener 6-8 times during the first 60 days and by using personalized jump pages to enhance the experience.

While the planning and development for this program was definitely more extensive than a single touch welcome program, the return on investment using all metrics validated the effort.

How many contacts does your bank use to onboard new customers? What channels do you use to reach and engage the customer?

Post August 15 Reg E Strategy Provides Opportunity

For the past several months, every bank I visit has been working tirelessly to educate and encourage customers to opt-in for OD coverage in response to Reg E. Multi-channel communications, including direct mail, email, outbound phone, statement inserts, online banners and in-branch literature have all been focused on helping customers understand the potential impact of the regulation while hopefully limiting the lost fee revenue associated with the regulation.

While the regulation took effect on July 1 for new customers opening accounts, banks realize that the real impact will be felt after August 15, when transactions are denied and overdraft fees can no longer be collected from current customers who have not opted-in. So what are your post August 15 strategies for customers who have not opted-in?

First of all, realize that despite your best efforts to reach out to customers using all available channels, the majority of customers at your bank who have not opted-in will not understand the real life impact of a denied transaction at an ATM or merchant until it occurs. This will lead to a noticeable increase in customer complaints that will require proactive communication and the preparation of all customer facing employees.

When a transaction is declined, speed of follow-up communication will be key. If you have a valid email address of the customer impacted, it is best to use this channel to explain why the denial occurred and how it can be avoided in the future. An electronic link to your opt-in jump page will be a requisite. In addition, many banks will be reaching out to the impacted household with a phone call and even a letter with an opt-in form (or link) included. Other options to cover overdrafts should be communicated through these channels as well.

All front line employees also need to be prepared for irate customers who have had transactions denied. This preparation should at a minimum include:

• 
  
  A reinforcement of the basics of Regulation E
• 
  
  A series of anticipated complaints and questions that they will confront
• 
  
  Samples of all customer communications that were used during your opt-in campaign
• 
  
  Tools to facilitate the opting-in of the customer

In communicating with a complaining customer, it would be helpful if employees have access to approximate dates the customer may have received the communication and whether the customer opted-out (or if there was simply no response to the communication). There should also be additional FAQ brochures available to assist the customer in either changing their opt-in status or better understanding the impact of opting-out.

A customer who has a transaction denied poses a significant threat of attrition to your bank. Alternatively, this customer also provides a great opportunity to more fully explain that the regulation is universal with all banks and that there are alternatives going forward. This full disclosure can result in a 'saved' customer as well as significant retained fee income or even a cross-sell opportunity.

I would love to hear from you regarding your bank's post August 15 communication strategy. Are you going to use multiple channels to communicate? Is any bank going to have a strategy for households that reach a low balance threshold other than an overdraft?

Banks Need to Make Love Not War

Over the last three days, leaders from the top banks across the country convened at the Barclays 2011 Global Financial Services Conference in New York to present investors with a review of results so far in 2011 and provide an outlook for 2012. Unlike the past two years, where this conference was dominated by bank presentations focused on TARP, credit risk, capital reserves and liquidity, this year's presentations highlighted the opportunity for organic growth and improving client's share of wallet.

For instance, Jim Rohr, Chairman and CEO of PNC Financial Services Group said that PNC will be focused on adding new customer relationships and cross-selling going forward. "If we cross-sell new clients, we'll see an almost $220 million increase," Rohr said during his presentation.

Similarly, Tim Sloan from Wells Fargo discussed significant opportunities that exist as a result of the integration of Wachovia. According to the presentation done by Sloan, there is a variance of an average of one product per household between legacy Wells Fargo (6.25) and the results from the Eastern footprint (5.29). He further illustrated that there is a variance of two products when legacy Wachovia is compared to the top Wells Fargo region (7.36).


When reviewing the presentations done by all of the top 20 banks, virtually every organization referenced their strong branch footprint and their focus on cross-selling and improving share of wallet going forward. Interestingly, only SunTrust referenced a focus on the retention of current customers (a drop of 8% in checking account closures between 6/30/11 and 6/30/10).

I am definitely a major proponent of cross-selling (see previous post: Seven Common Sense Ways to Increase Cross-Sales), but how do ALL of the leading banks think they are going to battle each other for a greater piece of the pie if the pie itself isn't getting any larger? Sure, it makes more sense to cross-sell existing customers as opposed to acquiring brand new ones, but isn't showing love and retaining current customers a viable path to growth as well?

Over the past year, I have visited most of the major banks in the country and still find that the first year new customer attrition ranges from roughly 25 percent to greater than 40 percent, usually based on the aggressiveness of a bank's acquisition efforts (the more aggressive banks usually have a higher level of attrition). Unfortunately, this is a number that most banks, as well as many marketing and product areas continue to ignore.

Before banks beat each other up trying to reach Wells Fargo's household cross-sell objective of 8 services, or move all of the budget that was spent in 2011 on acquisition into cross-sell initiatives, maybe more thought and money should be diverted to help make current customers feel better about their decision to open an account at your bank. Onboarding programs, customer satisfaction initiatives, customer engagement strategies, rewards programs and recapture triggers can all assist retention efforts.

At a time when most of the leading banks in the country are increasing fees and reducing some of the benefits that customers had come to expect and enjoy (rightly or wrongly), maybe we should focus more on sharing the love for their patronage as opposed to waging war on each other vying for a greater share of wallet.

Maybe next year's presentations at the Barclays Financial Services Conference will have more presentations around how many customers were saved in addition to how many were cross-sold.

I'd love to hear what you think.

Links to Barclays 2011 Global Financial Services Conference Investor Presentations:

Bank of America
BB&T
Capital One Bank
Chase
Huntington Bank
KeyBank
PNC
Regions Bank
Suntrust
TD Bank
U.S. Bank
Wells Fargo
Zions Bank

Collecting Behavioral Insights Increases Value of Relationship

Over the past 30 years, the new account opening process hasn't changed very much. Sure, there is a far greater use of technology at the new account desk and there is the opportunity to open accounts online, but the overriding objective for most banks is still operational efficiency as opposed to building the foundation for a lasting relationship.

This is why new customer onboarding has become so important to the banking industry. Without a rapid deployment of communication around the best way to use the product(s) opened and encouragement to expand the functionality of the product by taking advantage of engagement services such as online banking, direct deposit, bill-pay, mobile banking, etc., the customer experience will be lessened and the potential for attrition increases.

In fact, first year attrition continues to be a strategic challenge at most banks, with defection rates of 20%, 30% or even 40% not being uncommon. For those organizations with a multi-touch, multichannel onboarding program, however, the rate of attrition drops significantly. Unfortunately, even for those banks that have an onboarding program in place, the program may not be optimized due to a reliance on transactional and demographic insights as opposed to psychographic and behavioral insights.

While demographic and early transactional data can provide directional guidance, a deeper knowledge of the customer's financial goals, channel preferences, product usage, preferred channels and reason for coming to your institution is needed to personalize the onboarding communication and move the customer from product engagement to relationship entrenchment. The importance of gathering this additional insight was highlighted in the Javelin Strategy research entitled, '2010 New Account Onboarding: Using a Systematic, Tactical Approach to Deepen Financial Customer Relationships'.

According to the research, communication channel preference, messaging, offer selection and even transaction channel choice can be impacted by behavioral characteristics such as why the consumer came to your bank in the first place, the lifestage of the customer and the financial services the customer has used in the past.Unfortunately, these types of questions are usually not pursued during the efficiency-driven new account opening process.

To fill in this knowledge gap, best-in-class financial organization supplement traditional new account opening with an onboarding process that includes a short survey of needs and behaviors of the new customer. While this survey can also measure customer satisfaction with the new account opening experience, most banks focus on gathering insights into the reason for opening the new account, communication channel preferred, the financial goals of the customer and what financial services the new  customer holds elsewhere. In addition, some banks ask questions to determine key life events that may be on the horizon and determine who in the household will be in charge of managing the new account.

According to Sherrie Riley, Vice President of Sales at Scantron, a leading provider of assessment and survey solutions, "New account surveying is another way that banks are reaching out to find out more about their customers. This first touch assessment fits within a series of strategic survey programs that help an organization measure, monitor and improve the customer experience". The new AllianceLink™ Financial surveys include the a New Account, Closed Account Survey, Teller Transaction Survey, and Product Survey. 



Source: AllianceLink Financial 

 Without new account surveying, banks are limited to just basic demographic and transactional data since the customer has no history with your bank. This limited insight relegates a bank to treating all new households the same or building segmentation on only limited information as to the household's growth potential. With the application of additional insight, we have found banks improve the overall value of relationships by 50%, 100% and even more than 150%, while reducing attrition and increasing both engagement and share of wallet. In fact, the question around services held at other organizations has had the ability to impact relationship cross-sell rates by 1.5 to 2 services on average during the first year of the relationship.

In the same way that using the opening balance in the account is a poor proxy for determining future value of a relationship, an incomplete picture of the customer's needs and behaviors can lead to sub-optimal communication treatments, offers and/or messaging. By using additional insights captured through new customer surveys, banks can improve their onboarding program by identifying those customers with the highest potential and can better serve customers with lower potential by providing services geared to their unique needs. This will reduce attrition and will increase the likelihood of share of wallet build.

Does your bank capture additional insights to enhance the new customer experience and increase the potential value of the relationship to your bank? I would love to know.

Big Bank Vulnerability to Attrition Provides Opportunity

On the heels of Bank Transfer Day, a new study suggests that many of the top banks in the country are vulnerable to continued outflows of customers and deposits. According to a just released 84 page study entitled, "2011 Retail Banking Brand Vulnerability Study" conducted by the Connecticut-based boutique consultancy cg42, the nation's top 10 banks are at risk of losing almost 9% of their customers and $185 billion in deposits during the next 12 months.

The study, based on surveys of 5,600 customers of the top U.S. banks used a proprietary Brand Vulnerability Index (BVI) to compare each bank's risk of attrition, decreased acquisition effectiveness and potential financial loss based on the frequency of customer frustrations; customer sharing behavior (for example, disclosure of frustrations on social media); the impact of frustrations on customer behavior; and the uniqueness of those frustrations to a particular bank. 

Source: cg42 Brand Vulnerability Index, 2011

Interestingly, the study was conducted between June 23 and July 25, before the announcement of new debit card fees at many of the larger banks (which were later rescinded). It can be assumed that the events since the study was conducted could only negatively impact the very largest banks.

Not surprisingly, the top four banks (Bank of America, Chase, Citibank and Wells Fargo) have the most at risk, accounting for $135 billion in deposits, or roughly 73% of the projected attrition over the next 12 months. Alternatively, PNC and SunTrust were the least vulnerable of the top 10 banks with 7.4% and 7.5% considering switching respectively compared to an historical annual switching rate of 6%.

Source: Relative Brand Vulnerability Scores of Top 10 Banks, cg42 2011

The following takeaways represent several key findings from the study:

• 10.3% of Bank of America's customers are expected to defect and move their deposits to another institution in the next year
• 71% of customers believe that banks merely claim to have consumer interests at heart but in fact only care about their own interests
• 50% of customers are uncomfortable with how large some banks have become
• 70% of customers prefer to diversify their financial relationships across several providers

In addition, the study found three frustrations consistently appearing at the top of every bank’s list of frustrations:

• Being nickeled and dimed
• Not offering competitive rates
• Being hit with overdraft charges
• And to a lesser extent, “Making promises they don’t keep.”

"It's no surprise that customers are growing increasingly frustrated and feeling like many of these institutions are taking advantage of them -- the data reflects that," said Stephen Beck, founder and managing partner of cg42. "But now -- for the first time -- we actually have a way to determine the effects of those frustrations on the balance sheet. It's critical for financial institutions to understand how their products, services and operating policies truly impact customer behavior."

The study also found a significant difference between the vulnerability of the top 10 banks when customer segments were considered. For instance, PNC had a much more positive score with affluent customers than the mass segment, while TD Bank had a much more positive relative score with the mass segment.

The benefits of the study for banks of any size are that it can provide guidance as to how to allocate resources to improve customer satisfaction and retain relationships while also providing insights into how to exploit large bank competitor weaknesses and capture market share. While the number of people who say they will switch are usually significantly less than those that actually take action, it is clear there is an opportunity for customer disruption in the marketplace. And while the stud indicated that 59% of all consumers survey thought it was too much of a hassle to switch banks, it is clear from the past weekend that patience is wearing thin for many consumers.

What Can Banks Do To Take Advantage of Opportunity

For those banks who would like to take advantage of what appears to be an opportunity for market share growth, a 'disruptor' program many times is effective. In brief, a disruptor program is a form of guerrilla marketing where specific market areas of opportunity are targeted for direct communication.

Usually, a bank will evaluate their branch locations and determine where a trade area overlaps between a bank/branch they want to target and their branch trade areas. The overlapping areas provide an opportunity for unique targeting of customer and prospect communication. At times, multiple organizations are targeted.

Disruption communication can be targeted to areas of trade market overlap

While used frequently when a competitor changes their name, closes a branch, etc., this same program can be used when a bank(s) experiences a drop in trust or loyalty or when pricing gaps are evident. Obviously, the findings in this study could provide opportunities for banks of all sizes if a shift in market share (and deposits) are desired.

Is your bank hoping to grow deposits over the next 12 months? Is your bank hoping to shed deposits in this deposit rich environment? Do you have a disruptor plan in place to take advantage of the opportunities identified in this study?


I would love to know.

Banks Need to be Proactive to Stop Switching Trend

According to the 2012 U.S. Bank Customer Switching and Acquisition Study just released today by J.D. Power and Associates, continued frustration with fees and service has resulted in increased levels of switching at large, regional and mid-sized banks, with smaller banks and credit unions faring significantly better.

The study found that 9.6% of consumers switched their banks in the past year compared to 8.7% in 2011 and just 7.7% in 2010. But not all financial organizations were impacted equally. In fact, there was a extremely wide disparity between the switch rates at larger banks (avg. of 10% - 11.3%) and the .9% switch rate of switching at smaller banks and credit unions (a reduction from 8.8% in 2011).

Interestingly, roughly half of those leaving big banks went to another big bank. This could likely be attributed to the importance of being able to serve the customer as their life circumstances change and the importance of convenience as defined by the customer. According to Michael Beird, director of the banking services practice at J. D. Power and Associates, "Our study showed that consumers at smaller banks and credit unions were more likely to shop for an alternative provider if their financial needs  changed. In addition, bricks and mortar and the availability of advanced mobile technology is a value proposition that has yet to be overcome by smaller banks and credit unions." The disparity between large and small bank offerings of mobile services was reinforced by the recent Javelin Strategy & Research study, Mobile Banking, Smartphone and Tablet Forecast 2011 - 2016.

And while fees continued to a primary reason for consumers to begin to shop for a new bank or credit union (especially at mid-sized, regional and the largest banks), fees alone do not necessarily make a customer switch if the value of their overall experience is strong.  As was found in the 2011 U.S. Retail Banking Satisfaction Study, being charged a fee does not necessarily result in lower satisfaction or an eminent switch. This was also the case in the J. D. Power and Associates 2011 U.S. Small Business Banking Satisfaction Study where M&I Bank performed well in customer satisfaction despite having more significant fees.

In this year's study, Capital One received high rankings in both acquisition and retention even though the bank's fees were not the lowest. In addition, at Huntington Bank, where marketing focused on lower prices and increased convenience, performance was strong in both acquisition and retention categories.

SWITCHING BEGINS BEFORE ACCOUNT IS EVEN OPEN
Today's consumer makes a very informed decision before opening a new account. They research online, listen to friend's recommendations and do a personal 'litmus test' before walking into the door of your branch (or opening an account online). As a result, there is the opportunity to lose a new customer before you even complete a new account application. This is best illustrated using the J. D. Power New Buyer Purchase Funnel shown below.

JDPA New Buyer Purchase Funnel (2011)

According to Javelin Strategy & Research, only 53% of new online account openers were able to successfully open and fund their account (2011 Online Account Opening:Faulty Process Hobbles FIs in the Battle for Customer Acquisition, Profitability and Retention). It is important, therefore to monitor and manage your online and in-branch product purchase abandonment. I also discussed online abandonment in my May, 2011 blog post, Seven Steps to Reduce Offline and Online Bank Product Purchase Abandonment.

NEEDS ASSESSMENT AND MULTI-TOUCH ONBOARDING IMPROVE ODDS OF RETENTION
As has been seen in previous J. D. Power and Associate research done over the past three years, the importance of completing a needs assessment and having post new account opening follow-up significantly improves satisfaction (and reduces attrition). Previous research from J. D. Power and Associates also showed that satisfaction increased as the number of communication touches increased up to seven touches (see 10 Strategies for an Award-Winning Onboarding Process white paper). In each case, the level of cross-selling also increased.

Finally, the channel used for account opening also impacts satisfaction and retention potential. According to Beird, "Online channels for account initiation garners greater satisfaction among customers. Those who utilize the online channel rather than in-person for account opening report higher satisfaction levels with account initiation." It was found that, even without any additional follow up contact from the bank, online customers average 763, or 73 index points higher in satisfaction (on J.D. Power’s 1,000 point scale) than those who open an account in the branch. Beird added, "We found that if follow-up contact takes place after the online account initiation, the customer satisfaction level jumps an additional 100 index points to 864, versus 849 for in-person account opening accompanied by follow-up. 

Does your bank have an accurate measurement of the number of accounts and households that switch annually? Is it broken down by tenure and value of the account and/or relationship? Do you have a proactive strategy to lower your attrition rate both before the account is opened (shopping and consideration stage) as well as after the new account is opened?


I would love to hear from you on what you are doing at your bank or credit union and the success you are having. Please post your comments below.


Note: For more information regarding the J.D. Power and Associates 2012 U.S. Bank Customer Switching and Acquisition Study, please contact Holly Zagresky at Holly_Zagresky@jdpa.com 

Big Data Provides Big Opportunity for Bank Loyalty

In a new regulatory environment, banks are faced with changing the foundation of rewards programs that were previously funded by interchange income from credit and debit cards. With debit interchange funding gone, FIs still need to continue to find ways to improve bank loyalty and drive the desired card behavior. In addition, banks need to leverage “big data” and mobile payments in the hope that they can replace some of the revenue lost as a result of Reg E and the Durbin Amendment.

Optimally, the future of rewards and loyalty will allow banks and credit unions to take advantage of the “Loyalty Trifecta” (my term for bringing together the benefits of 1) payment and transactional insight, 2) targeted offers and personalized communication as well as 3) mobile offers and payments).

To get an insider view of the challenges and opportunities available to banks today in the area of rewards and loyalty, I reached out to the leaders of four companies that provide unique solutions to the banking industry and who also will be co-panelists with me at the upcoming BAI Payments Connect 2012 Conference & Expo in a session entitled “Rewards in a Mobile Banking Environment.” 

Thanks to Tom Beecher, CEO, Cartera Commerce Inc.; Rob Heiser, President and CEO, Segmint; Schwark Satyavolu, CEO, Truaxis; and Rod Witmond, senior vice president, Product Management & Marketing, Cardlytics Inc who agreed to participate in the panel and contribute to this interview.

Note: An abridged version of this interview is also located as a BAI Banking Strategies article entitled, Big Data Drives 'Loyalty Trifecta' for Banks.

Q: What’s the current status of the banking rewards environment today and how can it be improved upon?

Witmond: Previously, U.S. banks brought offers to customers in a separate section of the bank website – often referred to as an “online mall.” Only a small percentage of their customers went there. It was not a loyalty solution. Various bank rewards solutions required the customer to enroll their card at a separate site and then hope they remembered to shop at a group of merchants providing lackluster discounts. Low engagement or difficult-to-use approaches won’t strengthen a retailer’s relationship with customers or move the needle on sales – for the merchant or the bank.

The banks’ business cases for the early generation, merchant-funded rewards programs promised significant earnings to the banks driven by large revenue shares. For the reasons stated above, retailers did not see these solutions as adding value to their current marketing mix and budgets did not shift. U.S. banks ended up with a big piece of a very small pie. New enhancements from loyalty vendors have refined the early approaches on several fronts.

Beecher: The scope and strategies for banking rewards have changed dramatically in the past two years. Durbin has forced banks to re-imagine how loyalty programs are designed and funded. Also, the development of card-linked offers – where consumers earn cashback or points when using their bank’s payment card at participating merchants – has opened up new incremental revenue opportunities for banks. Finally, the growth of Groupon and deals in general has made consumers (and banks) much more aware of the power and importance of local merchants and online offers.

Satyavolu: Most banking rewards in the past had four defining aspects: 1) they were mostly available on credit cards and less frequently on debit cards (due to being funded by interchange from merchants); 2) they were mostly one-size-fits-all (everybody gets the same extra points/cash-back on certain categories whether or not you shop there); 3) they were typically limited to cash-back or points back benefits; and 4) merchants were not involved in the creation of these benefits.

Heiser: The way FIs interact, engage and communicate is driven more and more by their customers’ technological lifestyles. While merchant-funded reward programs were one of the first to react to this shift, success today involves the application and technology adoption that is driven by transaction intellect − knowing and understanding the needs of customers.

Q: What are the benefits of your solution (from both a bank and consumer perspective) compared to rewards programs used by banks in the past?

Whitmond: While most rewards programs in the past used a points currency to reward based on the number and/or level of transactions, we now can leverage all of the banks electronic transaction data to isolate customers into finely defined segments. By leveraging purchase transaction data, we enable retailers to invest aggressively to grow their business. Bank customers receive 20% when they shop at new retailer, not 1%. And since the customer is receiving these rewards as part of their online banking experience (where the customer is viewing their relationship 9 times per month and 25% view their relationship daily), retailers realize that customers interact with their offers over a 100 times more than with other digital channels!

Beecher: Instead of the bank funding the rewards program as in the past, merchants pay for the card-linked offers and also pay a commission on the sale which turns into revenue for the bank. Therefore, the bank gains a new incremental revenue stream, and increases customer engagement and card spend. Because Cartera runs these programs as a fully managed, pay-for-performance service, banks can launch and innovate quickly and at low cost. In addition, instead of the customer needing to visit a rewards site to select their gift, redeeming card-linked offers is as simple as swiping their payment card at the participating merchant. The reward is automatically added to the customer's account in the currency set by the bank.

Satyavolu: Due to the advanced analysis of robust transaction data (within the bank's firewalls), the merchant is willing to provide much richer rewards to the customer than they could in a normal online coupon based environment. They already know the customer is 'qualified', therefore a greater incentive can be offered. In addition, while there are national merchants involved in the program, the bank can include local merchants as well which can build a strong bond with a bank's small business and commercial customers. Finally, unlike previous rewards programs that are simply based on transaction levels, today's rewards are much more personalized with the selection of offers being improved as the customer engages in the program. This drives a higher degree of online and mobile engagement with 35% higher login rates.

Heiser: As opposed to being a program based on rewards, Segmint leverages digital marketing technologies to help FIs acquire, cross sell and retain bank customers through dialogue marketing. Our program is driven through the micro-targeting of bank customers and assigning of Key Lifestyle Indicators (KLIs) - unique identifiers based on individual spending patterns and lifestyle trends. If customer engagement is the primary goal, then FIs ability to use KLIs to understand bank customer life events and deliver a comprehensive set of relevant FI products and services is ultimately a win-win for both sides. With today’s savvy consumer expecting to receive highly-targeted and engaging information, this meets their growing demand for personalized service and simplicity.

Q: How can a bank 'customize' your solution to differentiate itself in the marketplace?

Whitmond: Banks have numerous ways in the user interface to design a solution that is completely integrated to their specifications. This not only differentiates our solution from others in the market, but also from other banks that may have installed our solution. Second, because the Cardlytics solution is software loaded onto hardware that is in the bank’s environment, the bank has complete control over the targeting solution. This also means the bank has complete access to any - and all - relevant data fields. As such, the bank has complete control over designing and deploying solutions around the rewards program. This has resulted in customized email, SMS, mobile and social solutions.

Beecher: Cartera programs are private-labeled and customizable for each of our bank partners. Each bank can control the program construct and currency (e.g., cashback, points) , marketing strategy and messaging, merchants and offers to include, consumer experience, and marketing channels to use. Cartera supports the full range of options with technology and services and allows each bank to launch and run a distinct, differentiated program.

Satyavolu: StatementRewards provides each FI access to a web-based dashboard where they can control the nature and quantity of offers their customers will receive. Some of the unique features of our solution include merchant-level purchase insights, geo-aware services, cross-sell capabilities, social networking distribution (customers can share rewards on Facebook and Twitter and brag about their loyalty status level as they shop), gamification (reward discovery incentives), and bill analysis (allowing customers to receive personalized, recommendations to help save money on monthly recurring expenses like wireless, TV service and gas).

Heiser: Data-driven CMOs can utilize Segmint’s analytics engine, instantly-actionable campaign management tool, and ad delivery platform for the micro-targeting of bank customers and to initiate and manage customized experiences. Whether a mix of FI products/services or bank partner offers/discounts, Segmint's solution helps FIs initiate interaction and generate real-time offers when it is the right time for the bank customer. Segmint’s solution also provides unparalleled speed-to-market and comprehensive metrics – ultimately resulting in optimization of marketing spend. 

Q: How can your own solution be leveraged in a mobile environment as opposed to an online banking or bricks and mortar environment?

Witmond: The Cardlytics solution is already leveraged in a mobile environment. We have bank solutions for SMS, mobile, and email in the marketplace. Additionally, we have ATM and social media solutions close to deployment. Most banks start with online banking because it provides the greatest exposure to the rewards platform. However, they quickly recognize the value of extending into mobile applications where they have complete control over the data and data fields. As such, they can drive mobile solutions at their own speed. Where a bank cannot deploy a mobile solution quickly, we offer a white-label mobile solution that can be deployed alongside or within an existing FI application.

Beecher: Mobile is an increasingly important channel for communicating with consumers -- particularly with the growth of in-store (national and local) offers. Cartera powers mobile apps that show consumers where they can use their payment card to redeem card-linked offers from nearby merchants. As Cartera partners roll out support for mobile wallets, this capability will become even more powerful by enabling consumers to find and redeem offers entirely via their smartphone.

Satyavolu: Truaxis’s StatementRewards product easily integrates with a FI’s existing mobile banking app to provide additional benefits to banking customers. Through the existing mobile app, bank customers will be able to view all of their rewards, both purchased and available, via the user dashboard. From this user dashboard, customers can instantly view, purchase and redeem rewards directly while they’re on the go.

Heiser: Segmint is not a merchant-funded rewards provider and, as such, our philosophy is grounded on generating loyalty through digital engagement with customers. Segmint is device-agnostic and can deliver across virtually any electronic medium. There is no doubt that opportunities exist within the mobile environment, but as with all mediums/channels, success revolves around the actual content delivery.

Q: What innovation do you see on the horizon around loyalty and reward platforms, both in banking and non-banking industries, in terms of leveraging social media?

Witmond: We have banks that have already designed how our solution can extend into social media and are deploying the same. The challenge with social media is that it is a “social experience” all about engaging on a person-to-person basis. That being the case, the extension of the core platform into social is only the first stage and the true challenge is in making the rewards solution one that engages on a person-to-person basis.

Beecher: Innovations in payments, big-data-driven marketing, and loyalty are all merging together to form what will ultimately be a new playbook for companies in these spaces and a new set of winners, including the new card-linked offers space. Mobile payments are seeing new non-banking entrants, all realizing that the incorporation of offers into the wallet is central to consumer adoption.

One of the new frontiers of leveraging big data with marketing is anonymous payment data, where new technologies and entrants are helping banks use transaction data that preserves privacy and provides real benefits to consumers. An example would be my purchase at McDonald’s alerting Burger King to make an offer to me. The entire funding model for bank loyalty programs is being turned on its head with merchants paying consumers through banks to shop with them rather than banks focused on taking money from merchants (through interchange) and then funding rewards themselves.

Satyavolu: The biggest innovation for these platforms will be the continued use of data to drive personalization and cut-costs. Both banking and non-banking industries are sitting on piles of data that they both don’t have the resources to utilize and if they did, they wouldn’t know where to begin. By working with third-party vendors like Truaxis, these companies will finally be able to utilize this data through innovative new techniques.

Analyzing transaction data from FIs is only the tip of the iceberg. As these platforms become more integrated across multiple channels and industries, companies will be able to understand and connect with their customers to provide them with the most value and ensure that each customer has a completely personalized experience that provides them with exactly what they need and want.

The data buried in social networks adds an interesting new twist to the personalization capabilities that are made possible, when you add them to the transaction data streams that FIs already have today. The concept of loyalty marketing will undergo a quantum shift in how it operates and who is in the key enabler seat for merchants, where FIs have a huge opportunity and upside to facilitate these interactions.

Heiser: Social media is a huge game changer for FIs and will become the “biggest bank branch” they operate. With nearly a billion active monthly users on Facebook, FIs must become socially actionable and interact with customers in their channel of choice. Last year Segmint introduced SegmintSocial, our social media technology solution that gives FIs the power to precisely identify their customers on the bank’s Facebook page, customize their experience and engage them in real-time, personalized dialogue.

EMBARKING ON A NEW ERA FOR BANK LOYALTY

We are obviously entering a new era for bank loyalty and reward programs, where banks can leverage transactional and payment data to build a personalized engagement process. Whether the program includes merchant-funded offers or simply uses customer insight to drive greater share of wallet and retention, banks can significantly improve the value of the relationship from both the customer and bank's perspective.

Since we are treading on new territory regarding the use of customer insight, there may be consumer push-back at first as they see rewards/ads integrated on their online banking statement, ATM screen or even their phone. There will be tests of geo-locational marketing with many of these reward program in the near future, where customers may receive their offers via an email or SMS message as they near a participating merchant. 

The potential payoff for this new level of engagement is significant, however. According to recent Aite Group research entitled, The Case for Merchant Funded Incentives: New Opportunities for Card Issuers, merchant funded incentives could drive US$1.7 billion in annual revenue for card issuers by 2015. In addition, the number of U.S. cardholders (credit, debit, and prepaid) who subscribe to merchant- funded incentive programs could exceed 460 million by 2015.

“Merchant funded incentives programs are a good deal for card issuers, and offer a new revenue stream,” says Madeline K. Aufseeser, senior analyst with Aite Group and author of the report. “Because the cost to operate merchant-funded incentives is less than that of traditional reward programs and will generate a greater profit per account, card issuers will most likely consider swapping some existing traditional reward programs for merchant funded incentives programs, especially on debit portfolios.”

It is definitely a time of change for loyalty, and a time when marketers will be armed with significantly more customer insight to build marketing programs. Rewards and loyalty programs only scratch the surface of opportunity available to savvy bank marketers who can make use of 'big data'.

Is your organization considering or already implementing a new rewards and/loyalty program? How will you engage your customers to participate? Will you 'localize' your program, including local merchants? Will you leverage social media to enhance your customer profiles or help market your program. I would love to hear from you.