Direct banks with digital acquisition capabilities are free of the geographical constraints imposed by a physical branch network. Still, they face one of the same big challenges as traditional banks: how to correctly identify the most likely customers for acquisition.
It is increasingly clear that the most successful of these digital banks are using sophisticated geo-locational capabilities to efficiently target and acquire new customers. Emerging digital brands in Canada, for example, are using advanced analytics for customer acquisition and posing a significant challenge to the big-bank establishment.
Traditional banks can also benefit from these tools as they accelerate their focus on acquiring customers who gravitate toward digital channels.
WHO IS READY FOR DIGITAL TARGETING?
There’s no question that a growing number of consumers are conducting most of their banking activity online. That is certainly true in Canada, where wide swaths of consumers live in remote regions without branch access. Novantas research has revealed, however, that only 11% are completely “digitally ready,” both practically and emotionally. Indeed, the largest consumer segment is considered “thin-branch ready,” meaning they mostly use digital channels, but still want to access a physical branch network if they need it.
This means that a digital bank (or digital brand of a traditional retail bank) is left with the task of finding that slice of potential new customers who would embrace a digital-only format.
To avoid wasting precious marketing dollars by pitching products to consumers who aren’t interested in switching to digital providers, direct banks in Canada are using advanced data analytics to identify consumers who are comfortable with digital banking and who don’t depend on branches.
LOCATION, LOCATION, LOCATION
Interestingly, the “digital ready” segment is surprisingly impervious to simple demographic correlation. For example, there is no significant relationship between digital readiness and age. Indeed, the 18-24 age group represents the largest percentage of “branch traditionalists” in the entire population. (See Figure 1.)
But geographical analysis reveals that certain provinces, such as Quebec, have more “digital ready” consumers than others. This is likely due to a combination of characteristics such as income, age, family structure, home ownership status and education. (See Figure 2.)
Yet regional analysis is too indiscriminate to be useful for specific targeting. Instead, banks can use more granular geographical definitions, such as micro markets. Novantas has identified 524 micro markets in Canada. By rank-ordering them based on the percentage of “digital ready” consumers, Novantas estimates that targeting efforts can be improved by up to 50%.
Digital banks that are using these geo-demographic targeting techniques are improving their costs-per-acquisition by up to 80%. This secondary benefit is achieved by finessing the medium and the message to optimize the response of the target customer.
Unfortunately, many leading banks seem unaware of the potential efficiencies that can be achieved from such geo-fencing. Instead, they prefer to invest valuable marketing dollars into broadly-targeted ads on Facebook or other platforms, straining limited marketing budgets.
If traditional banks want to compete with the direct banks, they must be far more efficient with their marketing investments by leveraging geo-location data for more surgical targeting of digital acquisition. Institutions that pursue such strategies can significantly improve their return on marketing investment, super-charging their acquisition campaigns and freeing up valuable dollars for other efforts.
The winners in the digital revolution in banking are not a fait accompli. Instead, the winners will emerge from the players who most astutely deploy the most advanced marketing techniques to meet their tactical and strategic objectives.
Principal, San Francisco