Growth in Deposits Presents Opportunities and Risks

The American Banker today had an article detailing the recent trend of low cost deposit growth experienced by the major banks in the fourth quarter of 2009. According to KBW Inc.'s Keefe, Bruyette & Woods, the top 40 banks experienced a deposit growth rate of 8% in the quarter, with only a couple large banks intentionally allowing higher-cost deposits inherited during acquisitions to run off during the year.

Even though interest rates remain extremely low, consumers were still saving at a rate of 4.7% as a percentage of disposable income in November, according to the Bureau of Economic Analysis primarily due to uncertainties in the marketplace and due to the view of banks being the safe harbor for funds accumulated during a time of reduced spending.
While bank revenues will not return to high levels until consumers begin to borrow again, productive deposit gathering should help banks lessen the impact of the Obama administration's proposed "financial crisis responsibility fee," which would subtract government-insured deposits from the covered liabilities on which the 15 basis-point tax would be based.

There is an opportunity and risk associated with this deposit growth however. For banks that have well developed onboarding and cross-sell programs in place, this deposit growth and the resultant increase in new accounts provides a tremendous foundation for developing long term relationships with an enhanced ROI. In addition, with households continually evaluating where to place their funds, firms with aggressive aquisition programs will benefit the most.

Conversely, those organizations who become complacent during this time of deposit growth could risk seeing the deposit growth over the past 15 months evaporate, moving either to other banking organizations or eventually to the equity markets as the economy grows stronger. I am recommending that my clients continue to focus on deposit acquisition programs and reach out to those new households they have recently acquired or households who have expanded their relationship and further secure the relationship through insight gathering, engagement programs and improved retention processes.

Eventually, it is expected that consumers will become more confident and will seek additional investment and savings options. When this occurs, it will be those organizations with the best customer experience and strongest relationships that will lose the least.

Chase Card Innovation Gives More Control to Customers

Last September, Chase Bank introduced Chase Blueprint, an innovative set of features that improves the way customers can manage their credit cards with tools to pay down balances, manage spending and pay off major purchases. Available at no charge to more than 20 million consumer and small business Chase credit card customers, Blueprint is fully integrated into the account and consists of four unique features that Chase calls Full Pay, Split, Finish It, and Track It.

The components of Blueprint provide the following benefits:

• Full Pay: The customer can set aside which charges they want to pay off in full on any given month and avoid paying interest on those items (groceries)
• Split: Lets the customer select the number of payments or monthly payment amount for things like large purchases (appliance or home improvement)
• Finish It: Simply select a date that a customer wants to pay off a purchase and Chase does the math to determine the monthly payment and provides charts to show progress
• Track It: Provides the ability to see spending by category online on demand as opposed to annually like most card companies.

According to Caryn Kaiser, Senior Vice President from Chase, the Split feature has the highest levels of customer satisfaction since the introduction of the program. The Track It feature has also resonated with affluent customers who want to know where their dollars are going.

The development of Blueprint arose out of customer research that showed that consumers usually hold multiple credit cards for specific purposes. It is hoped that by offering this capability within one card, consolidation of balances will occur and retention will improve.

While other banks may try to follow Chase's lead, this integrated set of credit card benefits do not seem easy to replicate, giving Chase a 'first mover' advantage. I also expect Chase to follow-up this innovation with similar innovation on the debit card side around rewards, alerts and tracking of purchases. The timing of these changes will most likely coincide with the massive media attention around Regulation E.

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.

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.

Ten Steps to Onboarding Success

Later today, I am presenting at the Oregon Bankers Association 105th Anniversary Convention at Sunriver Resort on the topic, Stemming Attrition and Building Relationships Through Effective Onboarding.

In addition to sharing recent statistics from J.D. Power and Associates around the positive impact of increased attention early in a new relationship and the positive impact of using multiple communication channels from case studies across the banking industry, I will be sharing the ten key steps to onboarding success that I have seen over the past five years.


These ten steps are:

1. Acquire the right customers: The most important component of a successful onboarding program is to acquire customers that have a greater liklihood of future value based on modeling and geographic targeting.
2. Communicate early and often: The sooner you can build dialogue with the customer and the more often you can connect in the first 90 days, the more successful you will be in retaining and building relationships.
3. Integrate across multiple channels: Reaching out to the new customer using phone, direct mail, email and personal 1:1 communication will greatly improve the success of an onboarding program. We have seen lifts of 25-50% when multiple channels are used.
4. Build in learning from day one: An onboarding program should not run on auto pilot. The competitive environment, customer behaviors and transaction trends change all the time. Your onboarding program also needs to adjust on a dynamic basis.
5. Engagement is key: Cross-selling the new customer should not begin until after you encourage engagement with the new account. This can include direct deposit, online banking and bill payment, autosave, credit utilization, debit/credit card utilization, etc.
6. Build a cadence of communication: A successful onboarding program uses a sequence of communication to improve the customer experience by helping the customer understand their new account, get to know the bank brand and eventually build trust and a stronger relationship.
7. Develop personalized offers: Once the customer has demonstrated a satisfactory level of engagement with their new account, offers targeted to the specific needs of the customer should be communicated.
8. Use a test and learn mentality: Testing should always be done with an onboarding program to determine the right offers, timing, channels and cadence for each customer segment.
9. Measure results: Results should be measured consistently against a control group. Common metrics include changes in attrition, engagement, cross-selling, balances and satisfaction on both a customer and household basis.
10. Provide a single point of responsibility: Since most banks do not have Directors of Cross-Selling or VP of Retention, it is important to assign the onboarding process to a single person who will 'own' the development and impact of the onboarding process. This person will work with segments, product managers and marketing teams to ensure the success of your program.

There has never been a more important time to develop a successful onboarding program. With fee income being attacked by Reg E and net interest margins at historical low levels, it is imperative that financial organizations attract and keep customers with the highest potential lifetime value.

Drop in Loyalty and Impact of Premiums Should Concern Bankers

According to the 2010 U.S. Retail Bank New Account Study released by J.D. Power yesterday, large banks captured a higher proportion of prospective customers compared with regional banks. Based on responses from 3,770 consumers who shopped for a new banking account or a new financial institution during the past 12 months, larger banks acquired 70 percent of prospective shoppers while regional banks secured only 59 percent of these shoppers.

According to the study, the higher capture rate by large national banks was significantly impacted by the use of promotional gifts and attractive short-term interest rates, with 24 percent of those opening an account with a large national bank saying that was the primary reason for selecting the bank (compared to only 13 percent for regional bank customers).


What should be concerning for those banks that are using premiums or short-term rates as an incentive for new customer acquisition is that almost one quarter of these customers say they "definitely will" or "probably will" switch banks again in the next 12 months. This was almost twice as likely than for those customers who opened an account for another reason (convenience, referral, safety, etc.).

"While offering a promotional gift, cash award or attractive short-term interest rate may lead to increased selection by customers, it is important to keep in mind that the increased selection rate doesn't necessarily lead to an increased retention rate," said Michael Beird, director of the banking practice at J.D. Power and Associates. "The short-term boost in acquiring customers can become a retention challenge in the long run."

The study also found that when customers decided to avoid a particular financial institution, brand image was the key driver, with larger banks experiencing the highest avoidance rate. This correlates with the J.D. Power and Associates 2010 U.S. Retail Banking Satisfaction Study released last month that found that the likelihood of switching was significantly higher for customers of larger banks as opposed to smaller banks (only 32 percent would definitely not switch from a larger banks compared to 41 percent for smaller banks).

These two studies should be a bit of a wake-up call to banks interested in acquiring new customers. Not only is it more important than ever to improve the customer experience and customer advocacy, but there should be a stronger emphasis on acquiring a potentially a higher quality of customer as opposed to simply a higher quantity of customers.

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?

What Bank Marketers Can Learn From Apple

After two and a half weeks of waiting, a lost FedEx delivery and an eventual call and visit to a local Apple store, I am finally the happy owner of a 32GB 3G iPad. While the delivery experience wasn't as smooth as I would have liked (no fault of Apple), the device more than delivers on the promises made and the positive reviews.

The purchase, however, got me thinking about why I (and obviously tens of millions of others) feel so compelled to emotionally purchase devices from Apple that may not be perfect (no flash, no USB port and no camera) and will usually be outdated due to upgrades in a few months.


The fact is, there are probably few logical or technical reasons to buy the iPad or even for most people to upgrade to the iPhone 4. Yet we do so, or at least I have done so with numerous versions of an iPod/iTouch and now with my iPad. Then a collegue forwarded a great 48 page presentation from Slideshare entitled, Eight Easy Steps to Beat Microsoft (and Google) by Ouriel Ohayon that outlines his take on the strategies used by Apple to continuously beat their competition. As I read this presentation, it was clear that these same strategies could be used by bank marketers and product developers as we try to build market share and emotional bonds with our customers.

The eight strategies are:

1. Believe in the simple: Rather than stopping at the initial development stage when solutions are more complex, drop the 20% of non-required functionality and perfect the other 80%
2. Design a full experience: While the store contributes minimally to profits, it adds greatly to the overall experience. The product line is very lean with vertical integration of product and channels alowing for complete central control.
3. Lock customers in: Much like Apple's iTunes, 'Keep the Change' and PNC's Virtual Wallet combine services in a way that locks the customer in which reduces churn.
4. Sell as a premium: By focusing on the customer experience, Apple charges a hefty premium on their harware. Banks can do the same by innovating and focusing on the needs of the more affluent segments.
5. Cross-sell your product line: The iCustomer puchases one product and then is converted into buying more halo products that appeal to the same senses. In fact, there is a direct correlation to iPod and iPhone sales with the sales of the Mac. By buying more, the experience is enhanced. Again, the Virtual Wallet does this seamlessly and online.
6. Balance control vs. freedom: Apple controls all elements of the products it produces and sells, yet allows enough freedom that the customer is still satisfied. Customers will consolidate their relationships and even accept some concessions if one provider offered a far superior product.
7. Think different: Instead of building products and finding the customers who will buy them, Apple starts with how the customer buys and/or uses products and then builds them. Banking could learn quite a bit from this customer first strategy.
8. Assess risk and competition: Apple doesn't respond to the market, it makes the market. Therefore, the biggest risk Apple faces is also it's strength . . . control and innovation. By innovating, they continue to control.

While there are definite differences between the emotion attached to sleek and shiny technology and financial services, Apple has found a way to differentiate itself from the competition and charge a premium for their products. In an environment where margins are being squeezed and many people believe the delivery of financial services is a commodity, those who succeed will continue to innovate and be customer focused.

How is your bank investing in product and/or channel R&D? Have you spent time innovating your checking account structure in response to Reg E?

Onboarding Needs to Reflect Bank Customers' Diverse Preferences and Needs

According to a new Javelin Strategy and Research report issued today, many banks are not leveraging the insight available early in a new relationship to develop customized offers and to utilize preferred channels of communication. In their study entitled, 2010 New Account Onboarding: Using a Systematic, Tactical Approach to Deepen Financial Customer Relationships, the importance of collecting key pieces of information such as age, income and the customer's previous banking experience is emphasized. With this baseline insight, Javelin proposes that communication channel determination and messaging can be improved, thereby leading to improved engagement, retention and cross-sell results.

The findings in the robust 44 page study are a refinement of a previous Javelin onboarding study from 1997 and are consistent with what I have found visiting and speaking with banks across the country. In fact, two of my clients (Zions Bank and KeyBank) are referenced in the study.
Both banks initially communicate with all new account openers, focusing on the engagement process, with an emphasis on online banking and bill pay, debit card utilization, direct deposit and more recently autosave and overdraft protection (in response to Reg. E). In addition, both banks leverage multiple channels for communication, including email, direct mail and either centralized or branch-based phone calling. At both institutions, segmentation of the customer base and the process of customized messaging and cross-selling is done after the more overarching process of getting the customer familiar with and engaged with their service. The collection of transaction history provides the foundation for leveraging propensity models to drive cross-selling later in the relationship.

While the Javelin study (which was based on research collected online) indicates that consumers prefer to receive email communication regarding their new account, research done with the majority of my clients show that results are enhanced when multiple communication channels are utilized (even for online account openers). These findings are not inconsistent, but reflect the online banking focus of the Javelin research. In fact, by leveraging personalized jump pages, online banking messaging, help/switch lines and even statement messaging and inserts, results can be further enhanced.

Additional recommendations from the Javelin research include establishing a paperless relationship at account opening and during onboarding (many banks I work with are building marketing programs around this objective) and collecting mobile phone numbers.

In conversations with Mark Schwanhausser, Senior Multi-Channel Financial Service Analyst for Javelin in the development of this report, he found it amazing that banks were not focusing on the collection of mobile numbers as part of the account opening process due to the significant number of households making their mobile phone their primary communication media and the increasing preference of data distribution via mobile channels (alerts). The collection of email addresses should also be a required component of the new account opening process even though many banks still do not leverage this channel effectively.

While an emphasis on a strong onboarding/welcome process seems to be universal throughout the industry, there are dozens, if not hundreds of ways to implement such as process when you take into account messaging, timing, channels, target audiences, etc. I am interested in onboarding success stories and additional insights you can share. Feel free to leave a comment or learnings on my blog.

Worldwide Response to the Importance of Cross-Selling

Last July, I posted a question on the Retail Banking Network Group on LinkedIn asking how the goal of cross-selling is prioritized in relationship to the goal of new customer acquisition at banks today. Since my posting, I have had more than 80 comments from bankers representing large and small financial organizations all over the world.

For instance, Lance van Wyk, Regional General Manager at Nedbank Ltd in South Africa believes that education, reward and recognition of employees is needed to improve cross-selling. In addition, he believes the timing of cross-selling is important and states, "Proactive investments in cross-selling at the acquisition stage could prove highly rewarding".

An ongoing contributor, Serge Milman from Optirate in San Francisco believes that smaller community banks and credit unions can only compete with the much larger financials that provide both a more innovative product set and greater convenience if they expand their view of their marketplace beyond their own back yard. He also believes that in addition to better cross-selling, these smaller organizations need to pursue more aggressive growth and strategies. In later posts, he emphasizes the importance of marketing products nationwide by smaller institutions but acknowledges that the skills needed to effectively gather customer insights and build segmentation strategies may be beyond the skill sets (and budgets) of a smaller bank or credit union.

He further believes that differentiation is needed to achieve cross-sell growth objectives. Serge states, "Why is it that a typical bank has a portfolio of 60%+ customers with just one product? It is not because customers are unaware that Bank XYZ offers other banking products; it is because Bank XYZ has not convinced customers that its products are in any way differentiated from the 16,000 other banks and credit unions".

Nikhil Datar, a management consultant from the U.K., agreed with Serge that an understanding of the customer is needed in order to be effective in cross-selling. He further emphasizes that a bank can't only cross-sell when the bank has product needs. According to Datar, this type of effort becomes unsustainable. "Many customers are irritated when they are contacted only when the bank wants to sell something".

As a training specialist from Australia and a frequent contributor to the Linkedin discussion, Simon Offer suggests that a key to effective cross-selling begins with a well trained staff. Simon states, "A life cycle is used to help identify at what stage the the customer is at and what is the main priority for that customer. This technique enables the staff to target their discussions to customer. Using different channels, the techniques and targets will be different depending on the communication needed. To be effective, the education needs to be reinforced on a regular basis and tools made available to the staff such as desk charts, manuals etc."

Jay Kassing, the owner of Dallas-based financial services solution provider Marquis reminded his fellow bankers that achieving growth of 12-15% annually is made exceedingly difficult when annual attrition rates for most firms average 15% or more. He believes the focus should also be on stemming attrition, thereby reducing the level of sales needed just to break even. Bob Isola from Content Critical, LLC. in New York also reminds bankers of the power of the monthly statement to reinforce sales messages on a personalized basis.

Probably the most active contributor to the cross-selling discussion was Bob Critchfield from RLC Performance Management in Detroit. One of his ongoing themes has been that most current customers are not fully served by any particular bank and that we should not confuse product sales with providing solutions to customer needs. As he mentions, each of these needs provides the opportunity for sales, revenue and even enhanced customer satisfaction. In addition, he provided a real life example of where secondary business signers on an account are not normally pursued for personal relationships.

Finally, a dose of reality was provided by Jan Floyd-Douglass, a Director from The 9 Situations in the UK, who reminded us that many of the internal sales policies and targets can actually result in artificial 'sales' that divide a customer's relationship to the disadvantage of the customer. This type of activity also has a negative revenue impact on the bank.

I encourage you to visit and participate in the Linkedin discussion around cross-selling within the Retail Banking Network Group. Or you can visit my original Bank Marketing Strategies Blog entry.

The Business Case for Onboarding

SELLING STRATEGIES

Over the past several months, I have spoken to large and small groups of bankers from organizations of all sizes and have been surprised by the number of banks that still do not have a formal onboarding process for customers opening new accounts. 

Given the amount of trade press, webinars, white papers and research done on the value of onboarding, I would have thought that virtually every bank would be communicating with customers aggressively during the instrumental 90 days after account opening.

According to a J.D. Power and Associates study, 2011 U.S. Retail Banking Satisfaction Study, one of the most powerful ways to unlock customer value is to build a multi-channel, multi-touch onboarding process that begins at the new account desk with needs identification and extends to a post-sale communication sequence that builds engagement and share of wallet.

In a presentation at the Retail Financial Services Symposium in Miami, J. Michael Beird from J.D. Power and Jean Lubbert from BBVA Compass shared that a strong onboarding process is needed in response to the 'perfect storm' of challenges facing banks including:

• A reduction in core deposit growth from customers opening new accounts
• An increase in customers switching their primary financial relationship
• A rise in the average number of financial institutions considered before final selection

The best onboarding practices shared reinforced results of the same study done in 2009 and 2010, where it was shown that both satisfaction and sales increased with relatively rudimentary steps such as a thorough needs identification, a timely post-sales follow-up, and a series of communications that emphasize early product engagement. In fact, the studies even showed that satisfaction and sales increased with each subsequent contact in the first 60 days up to seven touches.

The good news is that, compared to last year's report, each step in the onboarding process is being done more frequently than in the past. Unfortunately, only 64% of households surveyed indicated that there was any follow-up done (vs. 61% in 2010), with only 17% of the households saying that any contact was made within 2 days.

A new component of this year's study was the correlation between an optimal onboarding process and both the intent to reuse the same financial institution in the future and the intent to recommend the bank to others. According to Beird, "intended advocacy is an additional bonus to implementing a high contact onboarding process". He also shared that BBVA Compass sets the bar on almost all components of a strong onboarding process with a resultant recommend rate at the high end of all banks reviewed.

So, given the potential positive impact on retention, engagement, sales and customer satisfaction, what are the key components of building a business case for onboarding?

When working with clients, I always begin with the impact onboarding has on attrition, since it is both the easiest to measure against a control group and because the financial impact almost always exceeds the cost of the onboarding program. While first year attrition at banks across the country usually range from 20% to 40% (dependent on aggressiveness of a bank's acquisition efforts), a conservative benchmark for first year reduction of attrition is between 2-3% assuming a multi-touch onboarding process. While that may not seem like a significant movement from norm, the cost of this attrition is significant.

In the example above, I provide a very simple calculation using different annual account opening levels, different attrition rates and the financial impact of $400 for each account lost. I use a $400 cost of lost account based on a $200 replace cost for the lost customer (very conservative) and an additional $200 in annualized revenue potential lost due to attrition.

Moving beyond retention, a well constructed onboarding program also has a positive impact on the level of account engagement compared to control groups. For most banks, engagement includes the cross-sell of direct deposit, online banking, bill pay, the active utilization of the debit card and in some cases mobile banking and reward program enrollment.

According to Novantas, the positive impact of direct deposit and bill pay alone can increase relationship value by more than $400. Assuming an increase in engagement compared to control of 5%, the financial impact for a bank opening 10,000 accounts a year would be $200,000, with the impact jumping to $2 million for a bank opening 100,000 accounts annually.

Capital Performance Group found similar results with banks they worked with when evaluating the impact of households adding online banking, bill pay and direct deposit.

Finally, onboarding definitely has a positive impact on average account ownership and share of wallet as illustrated by the 2009-2011 J.D. Power and Associates studies. In my experience, however, the financial impact on cross-sell effectiveness is the most disputed within banks where an onboarding program is implemented due to factors including an inability to set aside a control group large enough to measure product level results and the desire by many banks to focus on new account engagement as opposed to cross-selling during the first 30-120 days of the relationship.

The critical nature of the first 90 days of a relationship has been known to the financial services industry for years but internal obstacles and a lack of focus on organic growth has limited deployment of this foundational program. Today, as the cost of new customer acquisition continues to escalate and the need for revenue replacement increases, the most successful banks are discovering ways to implement and enhance onboarding programs using multiple channels and customer touches. The result is improved retention, increased engagement, accelerated cross-selling, an improved customer experience and optimized customer lifetime value.

Successful onboarding can quickly cover the both the cost of new customer acquisition and the deployment of a robust onboarding program in a very short period. Instead of having a period right after account opening where nobody from the bank communicates with the new customer, you can reach household profitability faster and achieve a quicker return on investment.

I have covered the onboarding and engagement processes extensively within my blog over the past year and will continue to focus on the benefits of using multiple communication channels to generate positive results. I am interested to know how well your onboarding program is going or, if you don't already have an onboarding program, what hurdles to implementation still remain.

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

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.