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Relationship Banking Made Simple

An effective framework for developing relationships and growing cross-sell revenues sets clear objectives for each stage of customer engagement with the bank.

The vigorous pursuit of relationship banking strategies is not new to bankers. But in the current scramble for retail revenues, it often translates into a blizzard of cross-sell campaigns from various channel and product groups, many overlapping. This sales crush can be self-defeating, coming across to customers as repetitive if not somewhat random.

Fig 1: Major Domains of Retail Customer Needs

Compounding the cross-sell confusion is the ongoing shift in consumer channel preferences, especially with web and mobile banking. A coordinated outreach is required if the bank is to come across as relevant, informed and intentional to the customer.

These challenges make it ever more important to organize cross-sell efforts on the basis of how relationships develop. A relationship expansion strategy cannot be guided simply on the basis of product count. It needs to reflect how a customer engages with the bank, which in turn determines the bank’s brand permissions for cross-selling and deepening that relationship. For example, a wealth management “relationship” confers very different brand permissions than a primary checking account relationship.

Our research highlights four basic “needs domains,” each presenting a distinctive point of entry for relationship expansion (Figure 1: Major Domains of Retail Customer Needs). These include: 1) cash management for day-to-day living (checking, credit card, home equity line of credit, etc.); 2) investments for the future; 3) insurance for risk management; and 4) purpose-oriented credit for major purchases (auto, mortgage, etc.).

While consumers can begin a banking relationship within each of these categories, the most fruitful one for banks is the cash management relationship, centered on the actively-used primary checking account. A primary cash management relationship is grounded in the day-to-day banking needs of the consumer and is used far more frequently than one based on the other categories.

The benefit of owning the primary cash management relationship cannot be overestimated. It, more than any other category, gives the bank permission to talk with customers about all their other needs categories. It also provides myriad advantages in marketing and sales, given that it reveals the most about household financial condition and also is present in consumers’ day-to-day activity. First and foremost, bankers need an explicit plan to secure this foundational aspect of the retail customer relationship.

Powerful Economic Leverage

When measured on the basis of customer lifetime value, or “CLV,” it is clear that activating or acquiring the primary cash management relationship provides enormous economic leverage.

An engaged customer is valuable not just in terms of current period profitability (up to 3.5 times an entry-level relationship), but also because of the potential for future profitability (as much as 10 times an entry-level relationship). Trying to sell “unengaged” customers seldom is successful, and even when such cross-sold offers are accepted, they often just add to the pile of underutilized products.

This gets to the point about looking beyond product count. Going forward, banks will need to measure relationship value both in terms of breadth (number of categories a consumer holds) and depth (level of usage or engagement). The skews in customer relationship profitability are remarkable when viewed from this perspective, as illustrated by Novantas research (Figure 2: Drivers of Relationship Value).

Fig 2: Drivers of Relationship Value

A primary cash management relationship provides the most hospitable environment for cross-sell, given the brand permissions conferred to the bank. This dynamic is already strongly reflected in the relationship between active checking customers and the formation of total consumer balances (checking, savings and certificates of deposit).

Our research indicates that the lion’s share of retail funding comes from customers with active checking accounts, with only a trickle of balances associated with inactive accounts. In one multi-bank study, the funding contribution of active checking customers was roughly 10 times that of inactive accounts, as measured by total retail balances per checking relationship. This raises the question of how much more can be done to “activate” or engage the checking customer.

Activating Growth

In assessing various banking efforts to optimize cross-sell, Novantas research identified an overriding priority that seems so simple as to be obvious, yet is not receiving nearly enough attention — activation of the new checking account. In U.S. retail banking today, typically only about half of new checking accounts are in active use after the first 90 days (commonly viewed as the onboarding period for new relationships).

That leaves about half of new accounts idle in the early going. While such originations represent success for the reach of the network and equity of the brand, they also represent a failure to engage. These customers have clearly voted in favor of the bank for some element of their cash management relationship, just not their primary relationship. Ultimately most inactive checking accounts wind up being closed, representing the leading cause of account attrition.

Such outcomes can often be the byproduct of growth strategies and performance incentives that emphasize unit sales versus net growth in active cash management relationships. So how much lift is available from creating active cash management relationships?

In evaluating the potential returns from a hypothetical 10% performance improvement in three areas ­— checking activation vs. blanket cross-sell vs. customer retention — our research showed a three-fold payoff in CLV for activation, relative to the other options. This finding reflects the fact that the active primary account is strongly correlated with balance formation and retention; provides valuable information, rapport and access for cross-sell over the long term; and also has higher fee revenue potential.

The catch, however, is the need for swift engagement with new checking customers. Compared with the traditional notion of a 90-day onboarding period, the prime window for checking activation is more like 30 to 45 days. While tactics to encourage account activation can vary widely bank-to-bank, it is safe to say that the topic is deserving of much fuller attention at many retail institutions.

Stages of Relationship Development

Given that customers do not bring their total financial relationship to an institution from the outset, a framework is needed to develop relationships over time. While the four basic phases of acquire, engage, expand and retain are quite familiar, the retail bank needs to develop appropriate objectives for each phase (Figure 3: Relationship Development Stages). This preparation provides the best opportunity to organize the multi-faceted marketing efforts that strike many of today’s customers as random.

Fig 3: Relationship Development Stages

Acquire. While there are multiple channels and approaches to acquiring the customer, the objective should be the same across all. The bank needs to go after the primary cash management relationship. When customers open checking accounts they are implicitly raising their hands, willing to buy — but not anything and everything. The bank should recognize that the initial need usually is for “cash management” and offer as complete a set of cash management products as possible, even if not utilized initially.

Engage. The objective during onboarding should not be cross-sell per se, but utilization of cash management products. This includes any consolidation of payment activities, as well as consolidation of credit and debit balances (savings, HELOCs, credit card balances, etc.) that are in support of cash management.

Expand. In this stage the intent is to capture as much of the “situationally elastic” deposits and purpose-oriented loans as possible. This is the true monetization of the cash management relationship. Such efforts are often event-triggered and therefore benefit from the information generated by the cash management relationship. Targeting should extend across channels to reflect customer channel preferences for shopping and buying — as opposed to branch campaigns vs. mobile campaigns vs. web campaigns, etc.

Retain. This last stage is for the retention of customers (even those who don’t have deep wallets), including rewarding those who bring the bulk of their relationship to the bank. Retaining single-product customers can be important as well (even those who may not be profitable on a fully loaded basis), since they contribute to the high fixed cost of distribution. Recognizing and rewarding the best customers has obvious benefits.

Customer-Centric Coordination

This pragmatic, linear approach to relationship building seems obvious when observed from the customer’s perspective. The issue with delivering it is the need for customer-centric coordination across delivery channels and product lines.

Banks are too often fixated on “product units sold.” A bank-wide tagging and segmentation approach is needed to coordinate channel and product activities according to the right objective for the customer in the progression of the relationship. This is the key to winning in the emerging market. Bankers have to change to reflect the new realities. A simple, pragmatic notion of how accounts become relationships will become the new best-practice marketing approach.

Rick Spitler is Co-CEO and Managing Director at Novantas Inc., a management consultancy based in New York City. Hank Israel is a Managing Director and Lisa Brown is a Principal in the Boston office. They can be reached at,, and, respectively.

For more information, contact Novantas Marketing

+1 (212) 953-4444