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Referrals: The Fastest Path to Turbo Charging New Account Openings

By Bob Sterner

Branch locations, direct mail and the allure of free checking once combined to bring new customers in the door, especially for community banks. The offer was unique, the pitch felt personal. And even with direct payroll deposit and ATM access to cash, most consumers and small businesses still went to banks that had operated a branch nearby for a long time.

But the branch-based account acquisition model that served community and regional financial institutions well for so long is under siege now. Branch building by big banks and smaller ones alike has intensified competition for what seems like nearly every street corner. Consumers take free checking for granted. They are inundated with mail and toss pitches from banks in the wastebasket without even opening the envelope. Innovative products, such as high-interest accounts or accounts with money management tools, are being introduced. More customers also are moving online, searching for and selecting new checking accounts there. An estimated 20 percent of new accounts are opened today over the Internet or at banks located through Internet searches; the share is expected to grow to 50 percent by 2015.
With account openings falling 14 percent percent in the last two years and balances down 10 percent, how can you best compete for new business? A number of banks are turbo-charging their account acquisition efforts with a time-tested strategy offering quick results: They’re leveraging customer referrals to bring in new business.
Recognizing the power of satisfied customers, many banks are actively managing the referral process. And it works. Top-performing banks regularly report that they get 30 percent  or more of their total account openings from referrals. Banks with referral programs document that 10 percent to 15 percent of their current customers will bring in at least one additional new customer each year. With 1,200 customers at an average branch, that means an additional 120 to 180 new accounts per year.
Before implementing an organized referral program, an average bank will open around 200 new accounts per year, meaning that those additional 120 to 180 new accounts will boost overall account openings by about 75 percent. Busey Bank in Champaign, IL turned referrals from existing customers at one branch into 246 new account holders in a recent month. As noted above, the average bank without an organized referral program struggles to open an average of 200 new accounts a year, much less 246 in a single month.
The work at Busey and other banks squares perfectly with the thinking in The Ultimate Question, a recent book by Bain & Co. management consultant Fred Reichheld. Reichheld argues that companies with sustained growth in just about all industries have enthusiastic support of their customers, who actively promote their interests. Indeed, he says a business’s growth potential can be defined by the number of referrals it gets.
In banking, customers who come in on the recommendation of another customer are especially likely to fund and actually use their new accounts, to bring multiple relationships to a bank and to keep their business in one place for some time. In other words, they’re the best bets to become engaged and therefore handsomely profitable customers.

Technology overcomes
referral challenges
Building a business around referrals has been challenging in the past for three primary reasons: (1) tracking and management of referrals was manual; (2) only closings were tracked; and (3) enthusiasm was hard to sustain. Significant advances in technology, however, overcome these problems and offer banks the opportunity to ramp up their account opening numbers.
With better measurement and targeting, referral programs benefit from science, not just enthusiasm. Careful analysis, for example, can show which customers are interested in making referrals and when those referrals actually motivate prospects to choose one bank rather than another. It takes analysis to discern and target customers interested in making referrals, and to determine when referrals motivate individuals to choose one bank over another. In addition, the program’s extensive use of online and electronic messaging reflects how consumers communicate and seek information today.
Today’s technology-based referral process starts with banks pointing customers to online fields where they provide contact information for their friends. Banks follow up. The beauty of the system is that banks know exactly how many referrals customers make and exactly how the friends are responding. It works, in part, because someone in nearly half of all online banking households visits his or her bank’s website regularly. Indeed, bank sites cumulatively have far more traffic than big Internet names like Google, Yahoo! and MySpace.
Automated tracking of online referrals sets the stage for experimenting with offers and making adjustments as experiences suggest. And, it lets banks analyze referrals in the pipeline.
The next step in managing the referral process is concentrating efforts on the customers who make the most referrals. A relatively small portion of a bank’s customer base will recommend the bank to their friends not necessarily just because they’re satisfied, but because they’re the kind of people who like to recommend businesses to friends. Managing the process means courting these customers and structuring rewards to really show appreciation for putting in a good word again and again.
Finally, a managed referral strategy includes careful tracking of results on a branch-by-branch basis. Whether an organization is selling checking accounts or industrial widgets, it’s critical to know which sales tactics work especially well and which are not as successful. Analyzing referral results for each branch paves the way to identifying best practices and starting conversations among appropriate managers about applying those best practices throughout an organization.
Busey Bank,  for example, has determined that events at branches and collateral material in the hands of salespeople make a big difference.

Growing the Customer Base
A steady stream of referral business can spell the difference between solid growth and steady erosion of a customer base. But just getting referrals isn’t a substitute for a comprehensive account acquisition plan. Internet capabilities, rewards and pricing are still important topics in any planning session about gathering deposits. Branches, too, will remain an important part of community banks’ retail delivery strategy for many years to come, and not just because banks have big investments in their facilities. Even as branch transaction traffic declines and declines, branches remain an excellent venue for presenting a bank’s expertise in financial matters. That can lead to cross-selling and relationship building.
Still, technology-based referral work is a must for branch banking operations. It works perhaps because it rests on one of the banking business’s foundation principles – that asset quality should be carefully nurtured. The asset in this case is perhaps the most important asset a bank has, its base of loyal customers.

 Bob Sterner is the Executive Vice President for My Rewards® (, offering comprehensive solutions designed to drive new accounts, generate more revenue per account, and reduce non-interest expense. The firm’s solutions include debit rewards, merchant funded rewards and account acquisition programs. With more than four million accounts, My Rewards is the leading provider of profitable rewards strategies for financial institutions. Bob can be reached at 910-254-9383 ext. 130 or at

Posted on Thursday, April 16, 2009 (Archive on Wednesday, July 15, 2009)
Posted by Scott  Contributed by Scott


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