Chase Bank Resumes Testing of Checking Offers

Chase Bank is again using direct mail to test checking offers from $125 to $200 across the country for the opening of a new checking account by the end of January 2010. These efforts mirror what was being done across the country during 2007, 2008 and early 2009.

New Checking Plans Emerge in Response to Reg E

Already experiencing loss of fee income due to lower transactions and lower OD/NSF fees resulting from higher balances, banks are beginning to develop and introduce new checking products that can supplement these lost revenues.

In place of traditional free checking accounts are value-based accounts that allow customers to customize their account for a fee. Features such as identity theft, rewards and even enhanced OD/NSF protection can be selected from a menu of enhancements that allow a bank to replace some of the fee income that already has been lost or will be lost in response to Reg E.

One of the first to build a new array of checking accounts was BBVA Compass which introduced Build to Order Checking more than two years ago.
With a foundation account that features online banking and bill payment, customers can select from a list of additional features for $2 a month. These range from double reward points or cash back on transactions to a free OD waiver, free foreign ATM transactions or interest on the acccount. Customers can even change the features they prefer as their checking behavior changes. According to representatives from the bank, this account represents approximately 80% of the new accounts opened. A few months ago, BBVA Compass expanded their product line to include a small business version of the Build to Order Checking.

Another interesting alternative offered by some banks is an account with a line of credit attached to cover any overdrafts on the account. Not necessarily new to the banking world, some of these accounts with a line of credit are regulated by Reg Z as a credit product as opposed to Reg E, which covers electronic payments.

Finally, there are some banks that are developing a much stronger online checking product with debit transactions and online bill payment requirements while some banks are linking checking accounts with savings accounts to enhance relationship depth and profitability.

It is clear that we are seeing a new wave of product innovation in response to market conditions and the upcoming new transaction regulations. I will continue to share new ideas as they are introduced.

Building Long-Term Deposits and Relationships Automatically

Over the past several years there have been a number of financial institutions that have built automatic savings programs where customers can set goals, establish recurring transfers between accounts to fund the goal(s), and track their savings progress.

One of the first programs developed was the Orange Savings Account from ING Direct which greatly simplified the process of opening new accounts for various savings goals. Following the success of the Orange Saving Account, SmartyPig was another program with that same goal in mind, making it easy for a customer to setup savings goals.

A customer can name their accounts, set the deadline for reaching their goals and even use an interactive calculator to determine the amount they will need to set aside each month. What makes Smartypig unique is that they added a social element to the mix . . . allowing other people such as friends and family members to contribute to the customer's goals as well.

The customer can even place a widget on their Facebook or MySpace page. Once the customer reaches their goal, they can either put all of your savings plus interest on a debit card, have it sent back to their bank, or receive bonuses by having the amount placed on a gift card from participating merchants like Macys, Amazon, Best Buy, etc.

While SmartyPig brings unique technology to its enterprise, it remains a one trick piggy (offering only savings accounts) and is a still-small Internet start-up. Being able to grow a savings account product from $0 to $500 million in deposits in less than two years is a phenomenal feat but its success can be assailed.

Full-service banks have begun to copy some of SmartyPig’s basic features and leveraged their own new savings features. For instance, U.S. Bank introduced the S.T.A.R.T. (“Savings Today And Rewards Tomorrow”) program in late 2009 in test markets, giving a $50 Visa gift card to a customer depositing $1,000 or more into a U.S. Bancorp money market savings account and establishing a monthly transfer from their U.S. Bank checking account. If a customer chooses to transfer between $.25 and $5.00 from their checking account into his money market savings account each time he uses his U.S. Bank debit or credit card, the S.T.A.R.T program counts those toward program term fulfillment.

In addition, customers maintaining a minimum $1,000 balance in the new savings account for 12 months will receive another $50 bonus, while U.S. Bank is offering another $100 bonus for establishing an automatically funding savings account tied to the bank’s standard checking account.

Building new products that encourage a long-term savings perspective supports the current trends toward more conservative money management while providing tremendous opportunity for additional cross-selling and relationship building. I fully expect more banks to develop both online and offline savings alternatives and to use these products as part of their onboarding and lifestage communication processes.

Mobile Banking Popular Among Smart Phone Users

According to the "Mobile Money Study" published last month by Data Innovation Network almost 70% of US smartphone users had used at least one mobile banking and/or payment service on their phone in the previous three months.

As has been found in previous studies and reinforced by Doug Brown from Bank of America at last year's BAI Retail Delivery Conference in Boston, the Mobile Money Study found that checking account balances was the most popular banking application (82%) followed by looking for posted transactions (62%). Account alert features were also popular (46%), with roughly 40% of those surveyed transferring money between accounts.


Interestingly, an overwhelming majority of smartphone users accessed mobile banking using their mobile browser (66%) as opposed to a mobile app (20%), with a large number of respondents interested in a mobile wallet concept where they could swipe their phone like a credit or debit card. This possibility was also found to be popular with a Gen Y panel when I attended last year's BAI Transpay Conference in San Diego.

As the penetration of smartphones continues to increase, consumers will become more and more comfortable with and demanding of mobile banking services. I expect the availability and ease of use of mobile banking to become a significant competitive differentiator in the coming 12-18 months for financial institutions.

Targeting New Movers for Enhanced Growth

According to the U.S. Census Bureau, the national mover rate declined from 13.2% in 2007 to 11.9% in 2008 - the lowest rate of moves on record. Still, over 30 million people changed residences during this one year period, representing a powerful opportunity for new customer growth. In fact, even though the demographics of movers has skewed younger, with a higher percentage of renters moving, this segment continues to outperform all other prospect universes from a new customer acquisition perspective.

While many of my clients continue to focus on checking offers for the new mover segment, more banks are realizing the benefits of promoting products such as money market accounts and even equity credit and investment services.
This is because people tend to more thoroughly evaluate their financial position during the three months surrounding their move, with more than 50% changing and/or opening new financial relationships during this period. It is believed that the process of portfolio evaluation has even increased over the past 18-24 months as the mortgage process has become more stringent.

The keys to reaching this transitional segment include; 1) being first in the mailbox of the new mover after their move when there is less competing clutter, 2) building a system for efficient and ongoing processing of new names and delivery of offers, and 3) measuring the impact of your new movers program and testing offers and timing.

Historically, many retailers such as Bed, Bath and Beyond, Pottery Barn, and local welcome wagon programs filled mailboxes with postcard format offers immediately after a household's move. Recently, however, many of these same retailers are opting to send much larger catalogue style communications 1-3 weeks after a move is completed. I also have seen some financial firms improve their ROI by using Standard Class mail as opposed to First Class since the difference in delivery dates by the post office has narrowed significantly over the past few years while the difference in cost has skyrocketed.

If a new movers program is not part of your neighborhood marketing process, you are leaving money on the table and losing out on a great opportunity for account and relationship growth. As the mover rate begins to rebound over time, a strategy for reaching this transitional segment will pay off.

Checking 2.0 Executive Forum to Discuss Reg E Strategies and Economics

On March 23 in Atlanta and April 20 in Chicago, I will be presenting along with leaders from Novantas, the Federal Reserve and others at BAI's Checking 2.0 Executive Forum. This one day session in two cities will allow senior banking executives to receive proprietary research and interact with peers in discussions around the best ways to respond to changing legislation impacting checking accounts. My lunchtime presentation will leverage the findings of research presented by BAI and Novantas, discussing ways banks are approaching the communication of Reg E changes with their customers and how future marketing initiatives will be impacted by this new legislation.

Free Checking Obituary

Seeing that a lot of industry writers seem to be already announcing the death of Free Checking as a likely outcome of Reg E, I thought it would be appropriate to write an obituary for this product that saw such an active and successful life.

While many may claim to be the father of this service, paternity tests will most likely point to Ralph Haberfeld as the individual who most nurtured this service during the formative years and who was the strongest proponent of the benefits of the fee income associated with Free Checking. Ten years ago, when some banks (and consultants) began "pushing" free checking, there was concern about losing the meaningful income of monthly fees associated with traditional checking accounts.


Well, here we are, ten years later, having the same concerns about NSF/OD fees. These fees, that grew faster than the growth of checking accounts, became the prime fee income driver of well over 60% of our industry in this past decade. Ever since the introduction of these fees, banks have found ways to optimize the opportunity with strategies such as 'large to small' check presentment order.

The Fed said it focused on ATM and debit card transactions for Reg E because these have been "a key driver behind the growth in the volume and cost of overdraft fees" (41% of NSF transactions). Finally, consumers and regulators both balked, which is, in part, why we're facing increased scrutiny and regulation.

So, is Free Checking really dead? Free Checking coupled with overdraft protection is a product that is still highly valued by a small but important segment of customers who prefer to use overdrafts as a way to make ends meet at the end of the month. The outgrowth of Reg E will most likely be pseudo Free Checking that includes relationship stipulations (direct deposit), transaction requirements (minimum number of signature debits) and/or channel restrictions (no teller access). There may even be Free Checking as we know it today for those households that decide to opt-in.

In other words, rumors of the death of Free Checking may have been greatly exaggerated.

Don't Forget Small Businesses With Your Reg E Communication

While small businesses are not impacted directly by Regulation E, many of the banks at the Atlanta BAI Checking 2.0 Executive Forum where I spoke last week indicated that they will be reaching out to their small business customers to explain the law and the potential impact on their retail business.

Not only do many smaller businesses use consumer checking accounts for their small business transactions (with the potential for debit card rejected transactions), but with the potential for so many customers of small businesses having payments for goods and services rejected after the implementation of Reg E, banks are communicating details around this consumer legislation and options as to how to deal with transactions that are rejected.

BAI Checking 2.0 Executive Forum Recap

I just finished presenting at the second BAI Checking 2.0 Executive Forum in Chicago where close to 50 financial institutions learned about legislative changes, customer perceptions, new product development and marketing opportunities around the checking account. While only a month has passed since the first Checking 2.0 Executive Forum held in Atlanta, it is obvious that there are a number of changes occurring in the marketplace.

There was consensus among the participants that while consumer trust and confidence in banks has been negatively impacted by the events of the past two years, there may be some uptick in these measures over the next few months if financial results continue to improve and if banks continue to focus on the customer experience.


A significant change from the March event was that virtually all of the participating banks have developed an alternative version of 'Free Checking'. Checking account product innovation has added stipulations to some accounts, benefits for a fee on others and alternative reward structures on other checking programs. In fact, in a quick survey of the participating banks, it did not appear that any of the 'Free Checking' programs were similar.

When discussions moved to how banks are responding to Reg E, there were some organizations that were well on their way towards communicating with their customer base while other banks had not yet begun their information dissemination. Surprisingly, MB Financial out of Chicago shared that they had already achieved close to 85% opt-in from their customer base (and nearly 100% from new customers) by leveraging a combination of postcards, traditional direct mail, phone call follow-up and branch level involvement.

The success of some of the participating banks illustrated the importance of a multi-channel communication process with strong employee involvement and call center follow-up.

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.

Chase Introduces Instant Action Text Alerts to Allow Customers to Avoid OD's Immediately

In the February 2010 Javelin Strategy and Research report on financial alerts, some of the major flaws of current alerts included difficulty of setting alerts up, lack of timeliness, not actionable enough and poorly marketed. In addition, the research found that one of the highest utility features from both a customer and bank perspective is the ability to alert and respond to potentially insufficient funds.

Expanding on their very popular low balance alert mobile banking feature, Chase Bank just introduced a new feature that addresses many of these flaws by allowing customers to easily respond to a low balance alert from the bank by immediately transferring funds through text messaging.


The new feature will allow customers to transfer funds from any eligible checking, savings or money market account simply by typing the letter "T" followed by the dollar amount of transfer desired (for instance, to transfer $100, the customer simply types "T 100"). If the customer has more than one eligible account with adequate funds, both accounts with the balance available to transfer will be shown, along with the option to use either account to fund the low balance account.

To be eligible for this service, a customer simply needs to be a Chase Mobile customer, have the ability to send and receive SMS texts, and sign up for the Instant Action Alerts. As an added benefit, the customer can even set the time they want to receive notification during the day.

While not promoted on the Chase homepage as of this writing, an animated landing page (shown above) is being used in conjunction with Google AdWords using search terms like "overdraft alerts" and "mobile banking alerts".

Payments innovation is becoming more and more commonplace with Chase Bank as indicated in several of my Blogs this year, including the introduction of Chase Blueprint. These innovations in most cases enhance the customer experience while also reducing operating costs. It will be interesting to see what other innovations are on the way from Jamie Dimon's team.

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.

Post Financial Reform Checking: Fee, Free or Wait and See?

With August 15 in the rear view mirror, the impact of the new regulations around overdraft protection (Reg E) are beginning to be played out in the marketplace. While most of the larger banks, such as Bank of America, Chase and Wells Fargo have declared an end to free checking without stipulations, most small and some regional banks such as US Bank, Suntrust and Capital One have left the product unchanged while many of the large regionals such as PNC, KeyBank and others appear to be adopting a wait and see approach.

In fact, according to research released this week from Moebs Services, only 63.6 percent of the largest banks currently offer free checking compared to 92.6 percent in 2009, while community banks’ use of free checking declined only declined from 78.3 percent to 71.7 percent.
As an industry, the offering of free checking dropped by 11 percent over the past year according to the study. This differential based on the size of organization may reflect the desire of the largest banks to improve the cost structure of their checking portfolio, while the offering of free by smaller banks may be a competitive repositioning of the free checking account as a possible counter to the national branch network advantage of the larger banks.

As I discussed in a BAI webinar this week entitled, Checking 2.0: Revenue Opportunities in a New Regulatory Environment, with the cost of maintaining a checking account being several hundred dollars a year, it appears that free checking, along with rewards programs and other benefits, could be the first major consumer banking casualty, as many banks reevaluate their checking continuum in the wake of the government’s financial reform.

But, is getting rid of free checking a good strategy? According to most research, free checking still has a strong appeal across virtually all demographic and economic segments. It even has a positive contribution margin (including the impact of Reg. E, Durbin and the current interest rate environment) when you remove shell accounts with little or no activity. Would it be better to eliminate some of the perks that have been added over the past few years such as free competitive ATM transactions? Many banks are also beginning to charge an annual fee for their rewards program after a first year fee waiver for their programs. Still other firms are considering removing rewards program offerings from their entry level free checking program.

Another way to offer a free product within your checking continuum is to offer free accounts only to customers opting for totally electronic accounts (ATM deposits and withdrawals, online statements and billpay) or to your most active or high balance customers. Bank of America is testing and electronic based checking account currently, where all fees can be avoided if the customer opts for electronic statements and does not use the branch for routine transactions. With a mobile banking customer base of over 4 million households, I suspect there is a strong appeal for this structure of product.

What is clear is that most institutions are reviewing the economics of this product offering and are doing extensive consumer and product research to build a new set of needs based products that are driven by the transaction and money management behavior of their customer base. They are attempting to move towards a stronger set of value based products with enhanced features and benefits while eliminating fixed costs that are associated with low margin (inactive) accounts to improve portfolio profitability.

Has your organization decided whether to offer free checking going forward? Have you introduced new products with enhanced benefits for a fee? Have you considered changing your rewards program? I would be interested in your thoughts.

DDA Under Siege

As part of the planning committee for this year's BAI PaymentsConnect 2011, I would love to take credit for the great title of this program track, but I am not sure even the great minds at the BAI could have foreseen how apropos "DDA Under Siege" would be for bankers attending this year's conference that wraped up today in Phoenix.

If there was a unifying theme from the many sessions I participated in this week, it was that revenue lost from last year's Reg. E and this year's Durbin amendment can not be completely recaptured through repricing. Instead there needs to be a stronger focus on targeted customer acquisition, share of wallet growth strategies, retention, product innovation and cost containment. While everyone at the event seemed to be interested in what others were going to do around checking repricing, the energy was definitely focused on building a stronger platform for the future.

Sessions at the conference started with a review of the BAI/Finacle Innovation Imperative Customer Sentiment Study completed last Fall, which found that while there is still a ways to go in the customer's confidence in the economy and the banking industry in general, the view of bankers is more closely aligned with the consumer than in the past couple years. This uniformity of beliefs should assist as banks try to build messaging around their checking repricing and try to improve the customer experience. The study also found that the customer's perception of their bank being 'innovative' tends to correlate with satisfaction, product ownership and overall confidence in their bank.

Steve Mott from BetterBuyDesign followed the BAI research presentation with a very fast paced competitive overview of the payments industry, including a discussion around Google, PayPal and several potential payments platforms from the U.S. and even China. His message was that it will be up to the banks to leverage their customer relationships, distribution network and trust advantages to maintain some level of ownership of the consumer payments continuum. He emphasized, however, that the bank 'ownership' of payments is anything but guaranteed.

David Stewart, Senior Expert from McKinsey & Co. expanded on his recent BAI Banking Strategies article, emphasizing the continued importance of the debit card in the bank's payment product arsenal. In addition to providing financial metrics around the value of the debit customer and the real impact of repricing with net interest margin and other fees are included, he emphasized that trying to move mindshare or marketshare from debit to credit may be close to impossible in today's economic environment. David also shared the view of McKinsey that the potential for merchants to 'steer' payments from one payment vehicle or another was unlikely since doing so may actually cost the merchant more in discounts than could be retrieved in interchange savings.

David also left the attendees with the following strategies for trying to reposition the debit product in the future:

• Base debit strategy on new debit economics as opposed to the old economics
• Price products for competitive advantage
• Rationalize customers on the relationship level not just checking level
• Remember that the debit product is still sticky and builds customer engagement

Ending the morning sessions was a presentation by Hitachi Consulting around the findings of their semi-annual Consumer Payments Preference Study released last Fall. Some of the highlights included:

• The millennial generation provides a good opportunity for growing payment volume (especially around mobile)
• Ease of use and convenience drive payments behavior
• Debit is still the preferred payment method
• Credit for online purchases expected to increase
• Micropayments will continue to increase

Hitachi also emphasized that security continues to be a concern of consumers and is impacting the take up rate of mobile for payments.

The afternoon sessions revolved around ways that banks are trying to take back the payments franchise and extend relationships beyond just the DDA, with speakers from the Federal Reserve, Fiserv, Comerica, Fifth Third, Peak Performance Consulting, Novantas, TD Bank and Huntington Bank all providing unique viewpoints. It was clear during these sessions that the days of every bank having close to the same product set are over. While some of the larger banks may retain a Free Checking program (PNC's decision was referenced often during the conference), many are completely revamping their deposit product portfolios in a way that reinforces their brand and leverages their customer franchise. All of the banks were also bullish on credit products as well as the need to continue to capture increased share of wallet.

Hank Israel from Novantas stated that banks should segment their customers based on channel preference and will most likely price their product set in one of the following ways:

• Keeping Free Checking (hoping to make it up on volume)
• Fee for services (make it up within the checking product set)
• Product bundling (packaging product sets based on customer needs)
• Relationship pricing (drive value from relationship perspective)

A strong case was made for all banks to move more to a relationship focus that can optimize customer profitability and focus on customer needs.

Tuesday's sessions focused on how banks can go on offense through mobile banking, prepaid debit and mobile payments as well as how institutions can better defend their customer base through onboarding and rewards. Some of the key takeaways from the mobile banking session presented by FIS and M&I Bank included:

• Smart phones will be used by the majority of consumers by the end of 2012
• Mobile banking will surpass online banking by 2015
• Remote deposit capture is the 'power app' that engages the customer (more are needed)
• Mobile banking customers have a 53% lower attrition rate (Tower Group)
• Mobile banking customers decrease VRU use by 55%

The speaker from M&I Bank also emphasized the need for banks to build mobile banking critical mass quickly, with a focus on expanding the solution set coming after 'getting the basics done right'. He referenced that mobile banking customers at his bank had higher balances, increased check card usage, and a better bill pay adoption rate than similar customers without mobile banking.

Greg Schreacke from First Federal Savings Bank and Robert Gitner from Velocity Solutions discussed the market potential for prepaid debit and how a bank could build a checking product set around the card. Research was presented that showed the following characteristics of a prepaid debit user:

• 53% have a checking account
• 50%+ want a prepaid debit because of overdraft fees
• 47% want immediate access to funds
• 46% believe they can get better service at a retailer than a bank
• 43% have had a previous problem that limits their ability to open a traditional checking

In the mobile payment presentation done by Calvin Grimes from Fiserv and Emmett Higdon from Forrester Research, the impact that mobile banking has on the customer relationship was again emphasized. It was shown that not only is a customer who uses mobile banking 30% more likely to stay with a bank, but the customer is also 26% more likely to recommend their bank. The team emphasized that now was not the time for banks to stand on the mobile financial services sidelines, but instead should be searching for ways to move their mobile solutions from being simply informational to being more transactional.

While many banks are still trying to build the business case for mobile payments, the following benefits were shared:

• Customer acquisition and retention benefits
• Lower cost of servicing
• Revenue generation potential and revenue retention
• Competitive parity
• Better customer experience
• Deeper customer engagement

It was also mentioned that, while security and privacy concerns still remail around mobile payments, these concerns will eventually work in favor of traditional financial institutions since customers inherently trust banks more than companies like Google, Apple or even their phone company.

The presentation that I did in partnership with Bill Stamp from KeyBank focused on the market trends around onboarding as well as the basics on development and implementation of a successful onboarding program. Interestingly, when the attendees were informally polled as to their current onboarding programs, while the majority were doing something, less than half were using more than one communication channel, very few were leveraging three channels, and only one bank was communicating with their customers more than 5 times in the first 90 days. It was stressed that this lack of a focused and consistent onboarding process could hamper organization's objectives of improving customer engagement, increasing fee income and definitely hurt cross-sale and retention efforts.

Bill's presentation around KeyBank's onboarding program illustrated that developing and managing an onboarding initiative is an ongoing process where testing of offers, channels, and communication sequence and cadence is continuously needed. Bill also shared how an onboarding process can reinforce cross-selling done at the new account desk and the importance of reinforcing engagement with services before the cross-selling of other products.

To further reinforce the importance of engagement and retention in a highly competitive and revenue challenged marketplace, Tom Brooks from Regions Financial Corporation, Lynne Laube from Cardlytics, and Aaron McPherson from IDC Financial Insights showed how a highly innovative merchant-funded rewards program may be the answer for banks looking to move away from a 'reactive' interchange funded program to a 'proactive' program that could be bring higher value to the customer and even make money for a bank.

Lynne Laube discussed two macro trends in the banking industry that has paved the way for a merchant-funded program:

• Digitization of payments (where and how payments are made)
• How customers relate to banks (>50% have online banking with 7 visits a month to their online banking site)

The benefits of a program like Cardlytics offering shared by the panel included the ability to target actual transactions for incremental growth and engagement. The benefit to the customer is that offers will always be relevant, while the merchant benefits from only providing offers to people very likely to be interested in their services. Since the targeting potential is so strong, more valuable offers can be developed as opposed to when a merchant is discounting to the masses.

While the program at Regions is relatively new, the benefits included:

• No enrollment is required (all customers with online banking and electronic statements are included)
• Ease of value transfer (no coupons are needed since the customer can electronically 'activate' an offer and 'redeem' the offer simply by using their debit card)
• Immediate notification of earnings/rewards
• Rebates deposited directly into account
• Offers are targeted and relevant
• Integrated user experience
• Fully funded as opposed to being a contingent liability like with points programs

The success of this innovative rewards program was probably best illustrated when Lynne mentioned that Cardlytics is partnering with 2 of the top 5 banks already and expect their customer base to grow from 15M today to more than 60M by the end of the summer. For more information on Cardlytics, read my earlier blog on the company done last year.

Without a doubt, this was a well-timed conference covering a broad range of topics on the front burner of many banks. On each attendee 'to do' list upon leaving, I am sure there will be a review of any pricing changes not yet implemented, a strong focus on ways to engage and retain new and existing customers we can ill afford to lose, and a much more accelerated movement to future payment products like mobile and even P2P.

I would love to hear from other attendees about their experience and takeaways.

Checking Changes Make Onboarding and Cross-Selling More Important

Over the past several weeks, many of the larger banks across the country have announced significant changes to their checking account continuum, including elimination of traditional Free Checking, discontinuation of rewards programs, ceasing reimbursement of foreign ATM fees, as well as potential fees and transaction limits on debit cards.

While each of these strategies are intended to reduce costs or generate revenue in response to Reg E and the Durbin Amendment, these changes could also present a challenge to banks as they seek to increase engagement and gain share of wallet. This is because debit card use and rewards program enrollment were two of the more important account engagement criteria and basis for a broader relationship growth.

According to an economic analysis on the effects of the Durbin interchange amendment presented to the Federal Reserve Board on February 22, between $33.4-$38.6 billion of debit card interchange will be lost during the first two years the new rules are in effect. This reduces the revenue on a personal checking account by $56-$64 and by $79-$92 on a small business checking account according to the study. These impacts make it more important than ever to optimize onboarding and cross-sell efforts for retail and small business customers thereby reducing costly attrition, improving engagement and providing a stronger foundation for ongoing relationship expansion.

Here are several of the steps financial institutions should consider as they begin to implement changes to their deposit accounts and debit products.

• Double Down on Onboarding Initiatives: While most banks currently have an onboarding process for new retail customers, many have yet to build an onboarding process for small businesses. In addition, many programs only reach out to the customer once or twice and don't leverage a robust mix of communication channels. The impact of recent legislation makes the opportunity cost of attrition more expensive than ever. Banks need to increase the number of 'touches' a customer receives by email, phone and direct mail with the message centered on maximizing the benefits of using the account the customer just opened. When the account becomes active, then begin to expand the relationship.
• Don't Walk Away From Debit: While the economics of the debit card have definitely changed, the use of this payment vehicle remains better than many of the alternatives and provides the consumer with constant brand reinforcement each time they open their wallet. David Stewart from McKinsey & Company wrote in a recent BAI Banking Strategies article entitled, "Keeping Debit in Focus Post-Durbin" that debit cards remain an important component of the anchor DDA. As a result, getting new customers to activate and use their debit card as part of the onboarding process should continue to be a primary objective.
• Expand The Definition of Engagement: In the past, most banks focused on debit card utilization, enrollment in online banking (with bill pay) and the sign up for direct deposit in their onboarding messaging. While you don't want to cover too much in the onboarding communication, there are some households you may want to encourage to apply for a credit card and/or activate an autosave transfer as part of welcome process.
• Encourage Channel Migration: Another way to stem attrition, potentially reduce cost and build share of wallet is to increase alternative payments channel use. As part of the onboarding process, some of my clients are building messages around the use of mobile banking early in the relationship lifecycle. This makes sense based on recent trend research done by Javelin Strategy and the potential for offline customer mobile adoption found in research done by Fiserv. While there may only be minimal channel shift from a payments perspective initially, there could be significant savings if call center inquiries are reduced.
• Focus on Share of Wallet Early: While I totally agree with Ron Shevlin in his Marketing Tea Party blogs (Honeymooning and Why Engagement Matters) that a new customer must be courted and engaged before they can be cross-sold, customers define the pace of this trust building as opposed to the bank. This level of engagement/trust is usually found by looking at transaction volumes and whether engagement services are active. Once actively engaged, the customer should be offered additional services that may improve their overall banking experience. This is where product propensity models and behavioral segmentation can be effective.
• Leverage the New Account Desk: Many of my clients have found that the new account desk can  be an effective cross-selling environment for the customer, especially if credit services such as credit cards, personal or small business lines of credit and even equity credit are pre-approved at the point of sale. The point of sale is also the best place to discuss the correct account to open in the first place and the benefits of engagement services and rewards alternatives.

The effective communication of your checking account changes to existing customers has been discussed in my recent blog (Minimizing the Impact of 'Unintended Consequences'). It is just as important to communicate well with new customers at the new account desk in the days, weeks and months immediately following the new account opening. Without an aggressive communication process, leveraging multiple channels and customized to the customer's stage in the engagement process, the investment in acquiring the customer will be lost or the value of the relationship will not be optimized.

How are you going to ramp up your new customer communications to maximize your marketing ROI? Are you considering new ways of onboarding your customer in the first 30, 60 or 90 days? Have you found a way to leverage any social media in your onboarding process? I would love to hear your ideas.

Minimizing the Impact of 'Unintended Consequences'

At the BAI Retail Delivery Conference in Boston in November of 2009, the overriding theme from major bank leaders, industry pundits and vendor partners to the financial services industry was the risk of 'unintended consequences' as a result of the yet to be implemented Reg E. There was the belief that, while the government was trying to protect people from excessive fees from overdrafts, there would be many consumers who would be negatively impacted as debit card transactions or ATM withdrawals were rejected. Based on a recent straw poll of many of the bankers I work with across the country, some of the same people the regulation was intended to 'protect' have been negatively impacted the most.

It has been almost 9 months since the implementation of Reg E, and the government has again created legislation that will have unintended consequences for a majority of bank customers. The still debated, but most likely to be implemented, Durbin Amendment to the Dodd-Frank banking bill will significantly lower the interchange income that banks can earn from debit transactions. In fact, many believe the impact could cause a reduction of 60-80% or more to this important non-interest income source.

Banks can't absorb this massive of a reduction in revenue without passing the costs on to the consumer in some form. On January 20 in an interview with the Los Angeles Times, Wells Fargo's Chairman, John Stumpf stated that new fees will need to replace those that are being eliminated. "We've begun to implement some changes," Stumpf said, apparently referring to a $5 monthly checking fee, imposed last July on new customers. "And there are more to come."


On the following day, Richard Davis from U.S. Bancorp echoed the sentiments of Wells Fargo, stating that they will soon will eliminate free checking and debit card rewards without strings attached, like minimum balances. At the same time, Chase and Bank of America are testing fees including a monthly fee for having a debit card, increased monthly checking fees and the elimination of rewards programs and free ATM usage.
So, how can bank marketers soften the impact of these fee adjustments and position new checking options in a more positive light?

• Know Your Customers: Take time to evaluate your customer database and understand which accounts are profitable to your bank and which are under water. But don't stop there. You also need to understand the customer's entire relationship to evaluate the potential impact of your repricing decisions.
• Look Out for Your Customers: Instead of converting a whole class of customers to a new pricing structure, you should determine which customers are no longer in the best account type based on balances, activity, relationship, etc. Over the past ten years, almost every customer was encouraged to open a Free Checking. Many of these customers will hold balances or conduct business in a manner that could retain their free status. For those who don't, provide clear guidance as to how they could retain a free or low cost alternative. Put yourself in the shoes of the customer and consult them as to the best way to bank with your institution.
• Communicate With Your Customer: In the past, most checking pricing changes were communicated using a statement insert. Since most banks will be implementing significant changes to their checking product portfolio, it is better to leverage the segmentation and targeting potential of more direct media such as direct mail, email and phone calls. These channels provide the opportunity to build custom messages for customers to guide them to the best product in your new continuum. In addition, leverage as many channels as possible to reinforce the best strategy for the customer going forward.
• Reward Your Customer: In almost every instance, there is the ability to structure your communication in a way that can reward positive customer behavior. While you may be eliminating the waiver of foreign ATM fees, can you reward the use of your ATMs? While you may be increasing the balances required to maintain minimal fees, can you reward the customer for selecting electronic statements? Finally, while you may be either charging for your rewards program going forward or eliminating the program for some categories of accounts, can you use points as a currency if the customer moves to a different category of account?

When I worked with a bank in Canada, we partnered with the bank to communicate significant checking account pricing changes on two different occasions. Each restructuring impacted the majority of the customer base. In both instances, we positioned the changes as a way to move many of the checking relationships into a better account for the customer and the bank. With clear and repeated communications, we not only increased balances by more than 10% overall, but retained more than 90% of the customers and minimized the number of customer service calls that needed to be handled.

How are you planning to communicate your changes to customers? Will there be unintended consequences from your communication? I'd love to hear from you.

Revenue Replacement in a New Regulatory Environment

In my travels over the past 18-24 months, a single unifying theme seems to be of primary importance for all of the banks I visit . . . the need to find new sources of revenue to help offset the impact of environmental, competitive and regulatory changes that have occurred in our industry. With the potential of the Durbin Interchange Amendment hanging over our heads, lost overdraft fees from Reg E in our rear view mirror, the ability to pay interest on business deposits and the implications of the Card Act just 18 months ago, bank earnings are being squeezed from all directions.

According to Novantas, the regulatory changes alone have slashed retail banking revenues by more than $50 billion per year compared to pre-crisis levels. To make this number even more staggering, Novantas estimates that the equivalent cost savings needed to offset these lost revenues would entail closing 50,000 branches or would require a 1500% increase in maintenance fees. Neither of these options are feasible.

As banks look forward, while it will definitely be important to control costs across the organization, the immediate challenge will be to focus on ways to generate revenues that are significant and sustainable over time. To do so, banks should analyze opportunities across the entire customer lifecycle including product innovation, repricing, new engagement and cross-sell strategies, channel migration, improved marketing and enhanced measurement of results.

Here are the top ten revenue replacement strategies I believe banks should focus on in today's environment. Some are rather rudimentary, while others may entail a paradigm shift within the organization in order to be implemented. Still others may not be consistent with your bank's brand or position in the marketplace. These strategies were the foundation of a presentation done at the 2011 Louisiana Bankers Association Annual Convention in New Orleans.

• Move Beyond Free Checking: With the implementation of Reg E and the potential impact of the Durbin Amendment, virtually every bank in the country is reviewing their checking product offerings to determine how they can positively impact earnings without negatively impacting their customer franchise. Much of this customer portfolio and product review is long overdue. The reliance on a 'free' lead product where penalty fees from the lowest balance accounts fund the majority of the portfolio is not sustainable. While some banks are building a much more robust segmentation strategy, where the relationship value will be more in line with the cost to the customer, other institutions are looking to a menu based approach, where components of the account (debit card, rewards program, ATM transactions, security services) are priced independently. Integral with this repricing strategy is the need for effective communication of changes and the opportunity to place customers in the best product set for their lifestage and transaction behavior. I cover this in a previous blog post entitled, Minimizing the Impact of Unintended Consequences.
• Focus on Quality Customer Growth: With the cost of new customer acquisition increasing and the quality of many new customers no longer meeting expectations, many banks are focusing their efforts on quality as opposed to quantity of customer acquired. Models are being developed that are based on incremental lift, potential for engagement, balance growth (using tools such as IXI wealth indicators) and likelihood for cross-sell and retention. In addition, many banks are fine-tuning their acquisition strategies to focus on branch trade area, neighborhood level direct communication as well as time tested programs like new mover acquisition. Many of these acquisition programs are at the carrier route level, taking advantage of postal economies. Finally, some organizations have had tremendous success leveraging their web sites, search engines and even social media to drive quality new account growth.
• Improve Customer Engagement: According to a study from Aite Group entitled, Measuring Customer Engagement: Making the Metric Matter, customers who have a higher level of engagement (more money movement, more transactions, online bill pay, direct deposit, more inquiries) are more likely to open another account with their bank in the next 12-24 months (27% vs. 5% for low engagement households), are more likely to recommend their bank to a friend (41% vs. 23%), and have a much more positive view of their financial institution. In addition, a more engaged household is significantly more profitable as shown by numerous research studies and covered in my blog post, A Business Case for Onboarding, where I illustrate the many financial benefits to a robust, multi-channel customer communication process in the first 90 days of the relationship.

Onboarding touchpoint roadmap example

• Restructure Rewards Program: In the past, the majority of rewards programs were funded primarily with interchange income. With the potential for this revenue stream to be negatively impacted by the Durbin Amendment, the structure and underlying strategy for bank rewards programs need to be evaluated. Options that banks are considering include the complete removal of a rewards component from some or all classes of accounts, an adjustment in the value of the reward program currency and even the potential for an annual fee associated with the program. Another strategy is to move the funding of the rewards program from the bank to the retailer with a merchant-based rewards program partnership. Leading providers in this space include Cardlytics, BillShrink, Segmint and Bling Nation as well as home grown options that connect the merchant to the customer. The benefits of a merchant-funded reward program are many, with the primary advantage being the offering of much more targeted rewards to a finite audience of the bank based on online transactions. For more insight into merchant-based rewards, visit my blog post on the subject. 
• Expand Share of Wallet Initiatives: In the BAI Banking Strategies article written by Sherief Meleis from Novantas entitled, Relationship Expansion: Sharpening the Focus, he points out that a bank would only need to increase the amount of business done by each customer by 15% in order to offset the $50 billion revenue shortfall facing our industry. While definitely not a slam dunk by any means, the concept of expanding share of wallet with current customers is far less daunting than trying to increase fees to compensate for the impact of legislation over the past 24 months. According to Novantas, approximately one quarter of deposits ($900 billion) as well as one half of loans ($4 trillion) and half of investments ($3.7 trillion) remain unconsolidated with primary financial institutions. Their research also indicates that as much as two thirds of these relationships are held by customers who are attitudinally willing to consolidate. The key for banks implementing this strategy will be to avoid boiling the ocean or overwhelming the customer with blanket communications. Instead, it is imperative to reach the right customer, at the right time, with the right message using the channel they prefer. A good discussion of some easy to implement cross-sell strategies is available on my blog post from April 15, 2011.
• Shift Debit/Credit/Prepaid Emphasis: While the Durbin Amendment may change the financial benefits of the debit card, it definitely doesn't change the importance of debit as an engagement and payment device. Some banks may be impacting the equilibrium of this payment device by adding annual fees, transaction fees and spending thresholds to the product. It is yet to be seen if these charges will stick or if they have a negative impact on the customer experience. Alternatively, banks can continue to encourage usage of the debit card while expanding their marketing efforts to include the potentially more profitable credit and prepaid debit cards. Serving alternative ends of the demographic spectrum, the appeal of credit cards is usually for people that want to leverage the grace period to their advantage. The appeal of the prepaid debit card is for people that want the convenience of a debit/ATM card without the fees of a checking account. The growth of the prepaid debit market has been significant in both the lower and mid demographic segments as people get frustrated with banking fees or have been closed out of the traditional banking system.
• Optimize Communication Channels: As the number of marketing messages received by each consumer has skyrocketed exponentially over the past decade, the control of consumption of these messages has definitely shifted from the marketer to the consumer. As economic growth has slowed and budget constraints at banks have impacted the amount of funding we have for marketing initiatives, there is a need to leverage less expensive, but potentially more expansive channels such as email, social media and even formal word of mouth strategies. Instead of replacing traditional media with electronic channels, however, banks need to manage a blend of channels that will yield the best results. For most initiatives, it is not an either/or proposition, but a media mix that needs to be optimized for each customer segment and marketing objective. This is definitely an area where a test and learn mindset is needed and where improved analytics are needed to determine channel attribution.
• Deliver on the Mobile Banking Promise: According to recent comScore research, 29.8 million Americans accessed financial services accounts (bank, credit card, or brokerage) via their mobile device in Q4 2010, an increase of 54 percent from Q4 2009. The report also found that preference for online access and security concerns topped the list of reasons why consumers have not yet used mobile banking. With such a skyrocketing growth and with the vast majority of banks now offering mobile banking, strategies need to be set forth that will ensure that mobile banking customers become engaged with their mobile banking provider as opposed to using the channel as a utility similar to an ATM. Studies show that mobile banking can effectively reduce costs related to call center usage and increase retention if the channel is enhanced with Personal Financial Management (PFM) applications and if the channel becomes more interactive and intuitive (a delivery device for rewards). The development of mobile banking strategies also need to include strategies for iPad applications that expand the mobile banking horizon far beyond what can be done on a smart phone.
• Reconfigure the Branch Model: As the use of electronic channels continues to increase, the functionality of the traditional bricks and mortar branch changes as well. Over the past several months, several innovative branch models have been tested including the Citi version of an Apple store as covered on The Financial Brand website. Going a different direction, but still focusing on the branch, Huntington Bank has recently purchased the rights to dozens of supermarket branches, extended hours to include evenings and Sundays and is in the midst of a $70 million branch refresh in which it will make over all of its 608 branches with new digital signage and e-merchandising. A third strategy is to significantly downsize the retail space, recognizing that the opening of accounts, responding to inquiries and handling transactions can be done using a much smaller footprint. The 'right' answer is not clear yet, and may reflect the bank's brand promise more than being strictly a cost or revenue decision. (Discussion on making the ATM channel more productive can be found on my November post)
• Increase Focus on Metrics That Matter: As opposed to being a cost center, marketing is increasingly being looked upon to generate revenue and to be able to show the impact of their programs. Measurements such as marketing ROI, incremental revenue lift, lifetime value and internal rate of return are all metrics that matter to the CEO and CFO and need to be built into all revenue strategies. In addition, where the sales cycle is longer, marketing is now expected to develop Demand Generation programs as opposed to simply lead generation initiatives, nurturing leads much farther in the sales funnel with an eye towards the final sale. I covered the new sales funnel in my blog post on February 26.

I am sure I have missed revenue opportunities that banks are pursuing to replace revenue lost due to recent changes in the marketplace. Can you share some of your ideas on my blog for others to react to?

Is Bank Transfer Day a Small Bank Trojan Horse?

"A Good Day to be a Credit Union" is the headline of an article from Myriam Digiovanni in the October 19 Credit Union Times discussing the upcoming November 5 "Bank Transfer Day".

REALLY??

According to numerous news articles and coverage in both mainstream and social media, community banks and credit unions across the country are rallying around the anti-bank sentiment that has germinated from the announcement of a $5 debit card fee by Bank of America on September 29 and the increase in fees by other large banks. Not only have new account openings reportedly increased at several large credit unions, but social media traffic on the official Bank Transfer Day Facebook page and on other national credit union sites such as www.ASmarterChoice.org and www.CULookup.com have also seen spikes.

But is all this attention and potential new business a fortuitous gift or a potential threat to the well being and revenues of community banks and credit unions? It may just depend on who you ask and how the financial institutions on the receiving end of the disgruntled customer exodus handle their new customers and members.

Bank Relationship Inertia is Powerful
First of all, the number of people who are complaining may be much higher than those willing to switch. "As angry as you might be, the effort of figuring out some alternative relationship, choosing one, getting set up and the risk that the new one might be no better than the old one . . . those are huge costs," states Peter Fader, a marketing professor at The Wharton School of the University of Pennsylvania in an interview with the Chicago Tribune. "Personal relationships, the accumulated points, the brand relationship, the start-up costs and the learning curve are all intangible costs, but they are very powerful," Fader goes on to say.

The power of the relationship is also reinforced in an academic study conducted by Purdue University entitled, 'Relationships and Individual's Bank Switching Behavior' where a very weak correlation was found between the propensity to switch banks and pricing. In contrast, a much higher correlation was found between the depth and tenure of relationship and the propensity to stay with a current financial institution.

Banks have worked hard to achieve engagement with their customers through the cross-selling of additional products and services such as direct deposit, online and mobile banking, online billpay and other services. At Bank of America, there is even the possibility of a linked savings account established as part of the Keep the Change savings program. This 'stickiness', in addition to the potential tangible costs of switching at some banks who may charge a fee for closing an account (especially a newly opened account where a premium or offer may have been involved) make the changing of banks daunting for many.

The Friction of the Switch Process
For those consumers who decide to switch, many will not complete the switch process either by not associating the aforementioned engagement services or by not funding the new relationship. As a personal example, while my family moved from California to Ohio over three years ago, I have not completely severed ties with my previous bank where direct deposit and automatic payments still remain. While my new banking relationship in Ohio is sufficiently funded to avoid fees, my primary checking relationship remains in California.

According to a brand new research report from Javelin Strategy and Research, 'Faulty Process Hobbles FIs in the Battle for Acquisition, Profitability and Retention', the process of opening account online is both flawed and frustrating. In a study of the top 10 banks and 5 technologically advanced smaller organizations, the likelihood of being able to successfully open and fund a new checking account is just slightly over 50%. If you are new to a financial institution, the chances of success go down even further.

With almost one quarter of new account holders opening their desired account online in 2011, the financial and relationship impact of a poor online account opening process is significant. Hampering the process at many banks is the fact that there may not be a way to open the accounts online according to the Javelin study.

The Demographics of the Disgruntled
According to an American Bankers Association study conducted in August, as many as 70% of consumers don't pay anything for their checking account today. These households either were enrolled in a Free Checking account or (more likely) held balances or related services that allowed the fees on the account to be waived. Of those households surveyed, an additional 11% paid fees of $3 or less. That leaves only 19% of U.S. households that were paying a fee of more than $3 a month for checking as of the August survey date.

So who is still paying a fee and might be the most vocal of the disgruntled? Most likely, it is those households who do not carry an adequate balance in their account(s), do not have a direct deposit or online banking relationship, or do not have a deep enough relationship to get their fees waived.

The scenario that Bank of America (and other large banks) may be actually 'firing' unprofitable, low balance relationships was well documented in Ron Shevlin's blog, 'Maybe Bank of America Has a Plan'. With the new fee being imposed, the customer has the choice to pay a fee for their debit card at Bank of America, expand their relationship at Bank of America or leave. In his post, Ron shows how Bank of America's profitability could actually increase with the diminishment of lower balance accounts and how the recipients of these relationships (smaller banks and credit unions) could be adversely impacted by the influx of new customers.


The Importance of Engagement and Onboarding
Finally, for those customers who are walking into the doors of a new bank or credit union, the importance of a robust process of new customer engagement and onboarding couldn't be more important. According to Mike Bartoo, Regional Manager at Marquis and  financial industry veteran, "Hope is not a strategy" when it comes to building new relationships. According to Mike, banks should look back to the last 6 months of account openings to determine how well they have done with getting new customers to open 'sticky' services. If success in cross-selling has been poor, attrition has been more than desired and relationships are not profitable, there is no reason to believe the new influx of accounts will perform any better. In fact, the results may be worse.

I have covered the importance of engagement, onboarding and cross-selling extensively in this blog over the past two years, illustrating that the future profitability of a relationship often will be determined by a bank's outreach during the first 6 months of the relationship. History shows that most relationships that are unprofitable after 6 months remain that way.

So, while there may or may not be a significant amount of movement of accounts between financial institutions leading up to and following Bank Transfer Day on November 5, banks should be cautious of the types of accounts they open and determine whether they are prepared to make sure these new relationships are profitable (or are relationships at all).

What is your organization's perspective on Bank Transfer Day? Does your institution stand to benefit or lose from customers leaving or coming to your offices? Or will Bank Transfer Day be a non-event in your opinion?

I would love to hear your thoughts.

Bank Brand Loyalty Tested With Every Move

When it comes to lifestage marketing events, new movers have always represented a significant opportunity and risk. This is because consumers who move tend to significantly increase spending in a variety of categories while also changing their brand loyalties as to where they shop, eat, buy personal services and even bank. 

But, with new home sales in 2011 being 80 percent below the peak in 2005 (making the number of existing and new home sales the lowest in almost two decades), should bank marketers still invest in this target audience? Do consumers still spend at the same rate as in the past? Is this target audience even scaleable?

Interestingly, despite the ongoing reduction in home sales, the number of people moving has steadily increased since mid 2009, indicating that consumers in transition still represent both a risk and opportunity for marketers. In fact, the New Mover Report 2012 from Epsilon found that consumers continue to spend thousands of dollars in the months following a move, representing a valuable opportunity for those marketers who can identify and effectively communicate to new movers. 

The study also found three major themes when they looked at consumer spending habits, brand affinity and channel preferences associated with a move from one location to another:

• Consumer brand loyalty is tested during a move, with new movers being twice as likely to change brands or service providers than non-movers.
• New movers have an interest in changing and/or upgrading services such as banking, credit cards and insurance after a move.
• Direct mail continues to be a highly valued channel for receiving information during a move, and is even highly valued by Gen Y consumers.

New Movers and Home Purchasers are Not Synonymous

According to the U.S. Census Bureau, roughly 17% of Americans move each year, representing more than 53 million people. Those who move tend to be younger, with the distance of the move also being greater for younger demographic segments. The only exception being those households reaching retirement (around age 65) who also are more likely to move. 

Research shows that while the economy is showing signs of slow and steady recovery, the volume of home sales continues to lag behind the highs achieved in the past. As a result, the ratio of renters on the move versus new homeowners continues to favor renters as it did in 2011. While this trend is not necessarily surprising given the scope of the housing market difficulties, marketers need to understand the difference between these two segments of movers as it relates to demographics, loyalty and purchasing behavior. The good news is that both new movers and home purchasers appear to be on the upswing.

The bad news is that as many as 33% of the people who move do not report their new address to the USPS (the central compiler of the National Change of Address (NCOA) file. As a result, targeting new movers (or even keeping a house file current) requires compiling multiple list sources including utility connections, phone changes, county records, etc.

Do Households on the Move Remain Brand Loyal?

Research shows that even when a household moves a short distance, marketers can't assume purchasing patterns will remain the same. According to the research done by Epsilon, brand loyalty is tested during a move, with the frequency of changing providers/brands being twice as likely for a new mover compared to a non-mover (some categories of services have a much higher propensity of change).

As shown below, some of the lowest levels of loyalty were in the category of professional services, where the difference in likelihood of changing brands between movers and non-movers were greatest for home insurance (3:1), auto insurance (2:1), credit cards (2:1), and banking accounts (3:1).

While a move, by itself, may not prompt a change in providers, it does appear to put loyalty to a specific brand or provider in play which indicates a defection risk for current customers and acquisition opportunity for prospects in a trade area.

When the research dug deeper into the reason for why movers changed brands, the overwhelming reason for change in the professional services category was the move itself (63%) compared to pricing (40%), service (19%) or any other feature/benefit offered.

Finally, beyond changing brands, new movers were also more likely to acquire or upgrade products and services in the professional services category. As was the case for the reason why movers switched brands, new movers indicated that the move itself as a major reason for acquiring or upgrading a professional service (59%), with pricing again being important but taking a back seat as a reason for upgrading (39%). 

What Communication Channel(s) are Best?

As consumers use more and more channels to shop and buy services, it should be no surprise that a multichannel approach is recommended to connect with new movers related to retaining or acquiring households on the move. While there is very little disparity between the preferred channel of communication between movers and non-movers, word of mouth (referrals), email and direct mail are the channels most often mentioned as the way households want to learn about products and services. 

It should be noted that recent research indicates the desire for direct mail being even more pronounced for the marketing of financial services as discussed in a number of previous blog posts including As Channel Proliferation Increases, Consumers Still Prefer and Trust Direct Mail for Financial Services Communication (December, 2011). This study also indicated a higher preference for direct mail among Gen Y consumers than for any other channel.

And while there is always a great deal of buzz among marketers around the use of social media, this channel is the least desired by both movers and non-movers. That said, social media should still be integrated as part of a marketing strategy since targeting new movers using social media will be much easier than with other channels such as mass media and email (due to list availability and accuracy).

Key Take-Aways for Marketers

As I mentioned in my previous post on the subject, Targeting New Movers for Enhanced Growth (February, 2010), the keys to reaching this transitional segment include:

• Be the first in the mailbox (or on the computer, phone or newspaper box) after a household moves to avoid clutter and benefit from early decisions
• Develop a system of immediate processing of prospects/customers to provide the foundation for being the first to reach the new mover in your category
• Measure the incremental impact of the program against your alternative acquisition/retention initiatives

For the majority of my clients, a new mover program is the foundation of their acquisition efforts, generating one of the strongest returns on investment and a steady flow of new households at a time when market growth is at a premium. In addition, a physical convenience is becoming less important for households, more and more of my clients are looking for ways to identify current customers who may be preparing for (or have just completed) a move to protect this household from attrition.

According to Don Hinman, SVP of Data Strategy at Epsilon, "An average household moves every five years on average and spends approximately $9,000 on a broad array of goods and services. By understanding at a deep level where new movers are spending and what opportunities are available to gain share of wallet, brands can create more effective, targeted campaigns to reach consumers during this transition."

The 2012 New Mover Report can be downloaded free of charge here.

Additional Insights:

U.S. Census Bureau Geographic Mobility/Migration Tables - December 2012