Digital Onboarding and Marketing Will Be Critical As States Re-Open
Banks have spent nearly two months entrenched in the fallout from COVID-19, with intense focus on keeping employees safe and setting a new path for branches to operate in ways that have never been seen before. Yet this is also the time for banks to pump up efforts in other areas that will be increasingly critical in the months to come.
Many banks still do a poor job of getting customers to open accounts online. In fact, some smaller banks still don’t even offer that as an option to customers — a mind-blowing fact when online shopping and bill payment are a part of daily life for many Americans. And even those that do have robust digital account opening programs often don’t do enough to onboard those customers in a way that promotes continued engagement. This capability is now more important than ever.
Banks will also need to keep close tabs on local geographies in coming weeks and months as states — and portions of states — slowly re-open. The trends — especially commuting patterns — will be difficult to monitor, analyze and are likely to stay in constant flux. But tracking these local developments will be critical to determining how and when to market to customers and future customers. With tight budgets in place, it makes sense to use these marketing dollars wisely.
Agenda for This Week
DIGITAL ONBOARDING NEEDS WORK IN POST-COVID ERA
While the industry places a lot of emphasis on driving new customer acquisition, there are significantly fewer tools and data to help banks navigate onboarding and utilization. Most banks have different onboarding programs in place — typically a combination of outbound calling and emails — but today’s programs are relatively stale with mediocre results that haven’t changed in years (and actually many have gotten worse). Banks should be willing to spend about $4-5 million per 100,000 accounts acquired to fix this problem, but many banks aren’t focused on resolving their issues.
The onboarding challenge is only exacerbated when you bring digital account opening into the mix. By opening the account online, you introduce a number of new challenges — from the opening process to funding and utilization. The gap in the quality of accounts opened in a branch versus digitally is massive: accounts opened online have a retention rate that is more than 30% below those opened in a branch, according to benchmarks from Novantas’ SalesScape. Furthermore, online balances are a fraction of those that come in through branches.
Household Retention Index (Avg = 100)
Household Avg Balances Index (Avg = 100)
Note: All numbers reflect 8 months on book | Balances include Non-Interest Checking, Interest Checking, Savings/MMA, CD, and IRA
Unfortunately, this issue isn’t unique to banking. Industry merchandise return rates for brick-and-mortar stores are 8-10% compared with 20-30% for e-commerce. But that doesn’t mean banks should accept this poor quality.
Industry Merchandise Return Rates
Source: SalesScape | https://www.shopify.com/enterprise/ecommerce-returns
An analysis of the different onboarding procedures between branch and online demonstrates an enormous gap. First, fewer products per customers are sold in the digital channel, most often because the process for opening multiple products is clunky. Second, funding the accounts is much more challenged — and often convoluted — via digital account opening. (For example, banks typically don’t let people fund new accounts via Venmo or PayPal.) Third, many onboarding programs (including branch-based calls) lack insight on where the customer is in the onboarding journey and which services they have activated.
Finally, communication with customers who open an account through digital channels is typically inadequate. While branch-based new customers are typically contacted as part of a calling program, those who open accounts digitally often only receive emails. Most customers have a marked preference for channels of communication that must be considered.
The demand for digital account opening is only expected to grow as the shift to more online functionality precipitated by COVID-19 lingers after the pandemic retreats. While this is good in theory, the challenge today is that the bank maintains fewer of these accounts and receives fewer deposits. Assuming that at least part of the gap is related to the process, it suggests that a 25% shift in accounts to digital account opening would lead to a similar 25% of new-to-bank deposit decline, even though the same number of accounts were opened.
THE RETURN-TO-MARKET PLAN
There are promising signs of a slow return to normalcy. Visits to all retail establishments increased across every single market in the dataset last week as many markets slowly began re-opening. This 9% week-over-week increase represented the first uniform gains.
As banks consider their re-opening strategy, it will be important to keep traffic patterns in mind and continue to track them closely. For areas that are still lagging in both retail visitation and sales, these are likely places where marketing activities should remain constrained. On the other hand, markets that only had a 15% decline in retail visitation and show few signs of a spike in infections can potentially go back to business-as-usual marketing spend.
The picture is complicated, however. It was widely reported this week that the number of COVID-19 cases are still rising around the country once New York’s recent declines are removed from the equation. Additionally, some of the cities that have experienced minimal change in commuter patterns, like Sioux City, recently had the highest number of new cases per 1,000 population. This suggests that cities that are opening up could go back into lockdown mode or that other regions that have had few restrictions could actually tighten. Banks, therefore, need to consider that many of the markets will be in very different situations at any given time. Banks will need clear market-based strategies that can adjust quickly as new information becomes available.
Store Visitation Trends (1.0 = Avg Weekly Visits from Jan. 30 – Mar. 4)
Source: Novantas Analysis, NovaLocation, PlaceIQ
PAYCHECKS, STIMULUS FUNDS HELP PUMP UP ACCOUNT BALANCES
Average checking-account balances rose for customers who received stimulus funds, largely due to end-of-month paychecks and other inflows. The disbursement of paper checks also helped to augment balances.
A full weekly deposit tracker is available to CDA clients. Contact Adam Stockton at email@example.com for details.
Industry Consumer HH Production*
INDUSTRY CHECKING ACCOUNT PRODUCTION*
NEWS OF THE WEEK
Nearly a quarter of credit-card holders have gone deeper into credit-card debt as a result of COVID-19, with millennials being hit the hardest, according to a survey from Creditcards.com. Some 47% of U.S. adults are now carrying credit-card debt, up from 43% in March.
Digital bank N26 has raised another $100 million in funding. The German-based start-up, which launched its U.S. challenger bank in the U.S. last summer, so far has raised $570 million in its Series D investment round. Backers include venture capitalist Peter Thiel.
U.S. lenders tightened underwriting standards on terms for commercial and industrial loans as they also reported stronger demand from large and middle-market firms, according to the latest senior loan officer survey released by the Federal Reserve. On the consumer side, banks tightened standards for credit-cards loans, auto loans and other consumer loans, the Fed said. Demand weakened for all categories of consumer loans.
LendingClub said that 11% of its outstanding personal loans have been enrolled in its program that provides two months of payment deferrals. The company also said it is rolling out additional hardship programs for customers.
The Department of Justice charged two men with filing fraudulent loan applications to receive funds under the Paycheck Protection Program. The men, of Massachusetts and Rhode Island, were charged in the District of Rhode Island with seeking more than $500 million in forgivable loans by falsely claiming to have dozens of employees working at four different business entities. They were the first people charged with defrauding the program.
The U.S. Bureau of Economic Analysis reported that the personal savings rate (as a percentage of personal disposable income) rose to a 39-year high of 13.1% in March, up from 8.0% in February.
Payroll processor ADP said businesses with fewer than 500 workers cut 11.3 million jobs in April as a result of the COVID-19 pandemic. Most of those reductions came from businesses with fewer than 49 employees.
The CEO of Gap told CNN that its biggest challenge in re-opening stores will be navigating the requirements that are set by individual counties and states. The company, which owns the Gap, Old Navy, Banana Republic and Athleta brands, plans to re-open 800 stores this month and take certain protective measures, such as quarantining returned clothes for 24 hours before putting them back on the sales floor.
Just over 80% of apartment households made a full or partial rent payment by May 6, up from 78% on April 6, according to the National Multifamily Housing Council, which surveys 11.4 million apartment units across the U.S. The latest figures represent a 1.5 percentage decline from year-ago levels.