Digital acquisition of customers is quickly becoming one of the most important metrics for the U.S. industry, joining the old standards of efficiency ratios, net interest margins and market-to-book. Fintechs have long focused on such metrics. As branches lose foot traffic, digital acquisition is critical to banks as well.
This is the time to emphasize digital acquisition internally. Consumers are increasingly comfortable with digital formats. Falling interest rates are creating more cost pressures that will inevitably lead to thinner networks. And whether or not branches are central to a bank’s value proposition, digital-acquisition capabilities are now a requirement for any bank’s success.
Bank leadership needs to take a realistic and holistic approach to a digital transformation that supports their value proposition, target network and customer demands. It isn’t enough to have a zippy app that lets existing customers transact online. The goal: to create a bank that has the technology and marketing power to acquire and service retail and corporate customers in a digital format.
Digital prowess was on display during second-quarter earnings investor calls, with several CEOs highlighting their banks’ achievements. This is only likely to intensify in coming quarters.
Bank of America, which has long touted its digital acumen, said digital channels represented 25% of consumer-banking sales in the second quarter, and half of those sales came from mobile devices. The bank also started releasing details about it’s digital efforts for commercial clients, saying that it is seeing double-digital growth in mobile usage on its platform that helps companies manage working capital.
Elsewhere, Regions Financial said its digital checking-account openings are up 53% this year. The bank also said 38% of its consumer loan applications were made through digital channels. Little Rock, Ark.-based Simmons First National Corp., meanwhile, hired its first chief digital officer in July.
But far too many regional banks still lag customer demand when it comes to basic digital capabilities. (See Figure 1.) The decision to open an account in a branch or via email should be based on customer preference, not a requirement based on the bank’s capabilities.
For now, a bank’s digital path is inextricably tied to its physical network strategy. A bank with a traditional dense network may have fewer immediate needs to serve all customers through digital channels for all of its products.
But that traditional network is quickly evolving as banks shutter branches and enter new markets with a thin, ultra-thin or no-branch strategy.
To succeed in this new environment, banks must pursue strategies to both acquire new customers and service them once they are on board. While these strategies are linked, they each have their own specific digital demands.
The most pressing challenge for digital acquisition is getting a foot in the digital door. (See Figure 2.) This is very different from when a potential customer walks by a branch and suddenly decides to stop inside. It means banks must become efficient in outreach when the branch isn’t the main acquisition engine.
To start, a potential customer needs a good reason to open an account. Most frequently, that reason is based on rate or price. Recent research conducted by Novantas found that two-thirds of consumers who were thinking about opening a new savings account said they would need a 1.1% increase in rate on their current accounts before they would consider a high-rate account at a direct bank.
But building a rate/price-based strategy can be tricky. A broad-based rate/price offer may attract as many “bad” or “hot money” customers as “good” relationships. Unless the bank can assess the value of prospective customers at the individual level, it runs the risk skewing the portfolio towards price-sensitive customers who will walk out the door if rates decline. The more broad-based promotions, the higher the dependence on price.
Novantas research has found that only 4-6% of the population starts a new primary banking relationship each year — and many of them may not be the ideal customer. Of course, this doesn’t mean much if the customer doesn’t know the bank exists. Marketing departments need to take center stage in the race to digital, with targeted ads that reach potential customers on the websites they frequent. Banks are often steeped in traditional channels for media spend. While a name on a baseball stadium can build awareness, a YouTube or Facebook ad also can reach prospects who may already be inclined to open an account online.
Banks can also step up their efforts to track prospects who abandon the account-opening process. The best online account-opening processes have few clicks, clear instructions and assurances about privacy. Consider adding a “save for later” feature that encourages the potential customer to resume the process at another point. And make sure that mobile account-opening tools, which are becoming more popular, are just as good as desktop versions.
Of course, once the customer has opened an account online, the focus turns to servicing that relationship in a digital format. Like any account, the onboarding process can set the stage for a lasting impression and the setting of expectations.
First, the bank should assess how valuable the account is likely to be to the institution. At many institutions, the average balances of digital accounts are typically lower than those opened in a branch, but there may still be opportunities to provide other valuable products to that customer.
Banks also need to find ways to engage with these customers who may never walk into a branch. While many customers ignore emails, some may be more inclined to respond to a phone call or a chat box that pops up when they log into their account. That said, the branch can still play a supporting role for customers who may prefer to engage face-to-face for some types of transactions.
Banks can take a lesson from other industries that form relationships with customers by providing them with valuable content that isn’t a direct sales pitch. Regional grocer Wegmans, for example, posts recipes and meal menus on its website. The company also engages with loyal customers by sending them regular surveys about their shopping habits and preferences.
Banks have made similar efforts that aren’t direct sales pitches, such as posting home-buying tips on their mortgage websites. But they can go even further. Why not include an article about how to choose a moving company or a list of the best perennial plants in the region?
Customer demand for digital banking appears to be ahead of the industry’s ability to supply it. Banks can’t expect customers to wait around, especially when fintech providers dangle features that help them save money and make their businesses operate more efficiently.
CEO, New York
Managing Director, New York