By Joe Gillen
Sign up today for a free checking account and receive a roadside assistance kit!
This example of an all-too-familiar marketing campaign is a go-to strategy for community banks around the country. To the delight of bank presidents across the nation, it attracts a variety of potential customers to the branch.
However, as the industry has gravitated to this customer acquisition approach, the value in these ubiquitous offers has been severely diluted. Banking executives have begun to question whether this approach to growth lends itself to building sustainable, long-term customer relationships or whether it is a short-term solution.
According to the American Bankers Association, the average cost for acquiring a new customer is a staggering $3,500. To compound the issue, consumers are savvier and more financially self-reliant than ever before. This means a bank can no longer assume that collecting a consumer’s checking deposits results in loyalty with their savings, mortgage or credit needs.
Considering the substantial costs and competitive hurdles to gaining new customers, bankers are now redirecting their efforts inwardly to focus on strategic customer retention programs.
Free gift programs – offering new toasters, cash or iPods – do bring customers to the door. The problem is that the door has become a revolving one. This one-size-fits-all method misses the mark when it comes to identifying potentially profitable customers and understanding their specific needs, which will ultimately yield a greater share of the household wallet.
Free gift and reward checking programs can be effective when working in concert to fit the unique requirements of an individual market or branch location. A finely tuned coupling of these offers attracts the right type of customer whose needs the bank can meet consistently and profitably.
Sophisticated and tailored reward checking programs are elevating the discussion from simple customer acquisition to customer retention, which is truly where the benefits are realized. The proper implementation, compliance knowledge and marketing expertise gives bankers the confidence to adapt to changing market dynamics.
For instance, consumers’ growing preference for debit card transactions presents new opportunities for banks to serve a need while building in rewards that benefit the consumer and the financial institution. Debit card reward programs create a checking account bundle that helps generate non-interest income in a world of flat yield curves and creates loyalty through a core product: checking.
Reward checking programs lead to higher account balances, because customers want to take advantage of attractive interest-rate offers. This provides a two-fold benefit for banks. Customers are less likely to become future charge-offs, so banks reduce their risk of loss. And, these programs breed “stickier” customers – they are retained because of the competitive interest rates and are promising prospects for cross-selling with traditional products such as CDs or loans.
The top rewards programs clearly demonstrate benefits for both the customer and the financial institution. Successful marketing of these initiatives means customers are encouraged to use cost-saving electronic banking services that enable maximum efficiency and profitability. For example, consumers may be required to receive statements online, use their debit card a certain amount of times each month, use online banking or bill pay, and/or enroll in direct deposit. This lowers personal service costs and statement costs (for printing and mailing) and gives bankers the time and resources they need to focus on building relationships with key customers.
While terms vary from program to program, the benefit for customers is that they are typically enrolled in an interest-bearing, free checking account that has no minimum balance requirement and refunds ATM fees from other banks. Because the programs help banks trim operating costs, they can offer higher interest rates than typical checking accounts – sometimes as high as 6 percent. This competitive advantage allows community banks to edge out large, national banks and aggressive online depository institutions.
Trusted rewards program providers will work directly with the bank to determine which rate is most appropriate given their location, traffic patterns, market influences and customer base. Well-defined programs replace customer churn with strong relationship-building activities and increase average daily balances while driving efficiencies at the branch level.
Will a roadside assistance package or rolling duffel bag emblazoned with a bank’s logo lead to a better banking experience? Perhaps. But to generate sustainable results, banks must look to data-driven retention strategies that blend relationship-building tools with advanced integration, compliance expertise and marketing support.
Joe Gillen is CEO of Houston-based Pinnacle Financial Strategies (www.pinnstrat.com), which delivers turnkey solutions that help financial institutions improve customer service, productivity, performance and profits.