Bankers have long considered the active checking account to be the most important factor in forming a lasting customer relationship. Once a bank captures the checking account, according to the theory, customers will consider that bank as the primary financial institution and will turn to it first for other products and services — even if they can get a better deal elsewhere. Widespread dependence on the branch for routine deposit and payment transactions also drove this relationship.
Those days are nearing an end as the proliferation of new digital services make the customer’s engagement with the checking account less important.
As a result, Novantas believes that primacy is no longer driven exclusively by the checking account. It should be defined by and tied to the economic value derived from the relationship — regardless of the product that anchors it. It is also a continuum that can change based on the customer’s life stage and wealth position.
The challenge for banks is to understand each customer’s unique “primacy” and develop targeted treatments that drive recognition, loyalty and emotional ties, resulting in greater consideration for the customer’s wallet.
THE VALUE OF PRIMACY
The importance of primacy is evident in retail banking. Over the last 20 years, Novantas has observed that depth of usage (more transactions, more direct deposits, more bill pay) and breadth of product holdings (checking, savings, credit card, unsecured lending, home equity, and the ultimate anchor — mortgage) drives greater customer contribution.
Novantas research shows that deep, active relationships contribute, on average, ten times more than unengaged relationships, such as idle deposits or loan balances.
The value that primacy provides can be found in different ways. For example, Novantas research reveals that two-thirds of consumers who have established primacy with a financial institution will seek advice and/or solutions from that bank. Furthermore, Novantas has found that primary bank customers will accept rates 20% higher on loans and 20% lower on deposits than their unengaged/non-primary peers due to the convenience and value they receive from the relationship.
THE CHANGING ASPECTS OF PRIMACY
Active checking accounts aren’t the only metric to gauge primacy. Customer wallets and awareness are being fragmented by fintech payment solutions, robo advising. As a result, activities like debit card usage and direct deposit don’t have the same impact they once did.
Traditional measure of primacy —such as direct deposit, debit-card usage and online bill pay — are monolithic and don’t recognize the value that different customers bring to the bank. They also don’t take into account the future potential of that customer.
Primary checking used to matter more when branch interactions were the center of the sales experience. A focus on checking transactions was sufficient because consumers had to engage with the bank through ATMs and branches for cash and deposits, providing sufficient reason to stop the customer from moving elsewhere and creating ample opportunity to cross-sell.
Now, as consumers abandon the branch, customer engagement through other channels are becoming more powerful.
Novantas believes the path to digital has changed customer primacy permanently because it has reduced the opportunity cost of maintaining multiple financial relationships. Indeed, two-thirds of Americans don’t consolidate their financial products under one provider, according to Novantas research.
THE NEW WORLD OF PRIMACY
The shifting nature of primacy means that banks need to consider how a customer views the bank’s solutions, ranging from “dead or dormant” in which the customer doesn’t even use the products that they have access to — such as an inactive checking account — to a “franchised” customer who uses every relevant product and promotes them to others.
Based on this, primacy can change depending on one’s life stage and wealth. That means measurements that only assess transaction volume or balances may be obsolete. Instead, the sense of primacy changes based on the context of the customer.
Asking a customer whose income comes from freelance work and is living paycheck to paycheck to do bill pay or have direct deposits for the benefits of primacy doesn’t make sense. Active person-to-person payments may be a better measure of primacy for that customer. Similarly, assessing the debit-card usage of an affluent customer who prefers credit cards isn’t the right way to assess primacy either.
IDENTIFYING THE PRIMACY RELATIONSHIP
In the past, banks developed uniform benefits for primacy, such as free checking accounts, discounts on lending products, interest bonus on deposit products that were based on static views. Novantas believes that these traditional mechanisms don’t adequately balance the value exchange for customers and the primacy each customer has brought to the bank. Should a customer who has checking, savings, credit card, and total balances of $50,000 and a $100,000 mortgage be thought of the same way as someone who has $50,000 in active checking and has $1.5 million in a brokerage account at another firm? While both customers are engaged with the bank, it is hard to conceive the second as primary.
ESTABLISHING NEW FORMS OF PRIMACY
The challenge in supporting primacy, like all good relationships, is about setting expectations. A bank can bestow benefits on customers who are considered valuable, but such efforts are meaningless unless the customers feel the same way. Many banks used to offer premier packages that included free travelers checks and safe deposit boxes as in incentive for consolidation. In today’s world, many shoppers prefer higher mobile deposit limits (even with longer hold times) to recognize they are a trusted member of the institution.
Similarly, customers place value on different types of benefits, whether they are price-related or not. My grandmother, for example, liked being recognized by name and would accept CD rates that were below other banks.
There no longer is a single type of “primary” customer. Banks must identify and master each customer’s behaviors to establish primacy and then recognize them in a way that is valuable to that individual customer. For this, AI and machine learning can provide tools to find the perfect fit.
Director, New York