SAN FRANCISCO—A new study that recognizes the problems—and costs—from disengaged customers and members shows that effective onboarding and getting new recruits engaged ASAP can boost profitability by more than $200 per account.
The Javelin Strategy & Research study points to the importance of working quickly and effectively in the early days of the relationship, and providing as many ways as possible to make it simple for new members to break ties with their PFI. The study found that one in five new customers/members says it is too difficult to make a complete switch.
“FIs must make it easier for new customers to break ties with their previous financial institutions and take advantage of habit-forming services that lay the foundation for a growing, long-lasting relationship,” Javelin shared in the study titled "Convert 'Silent Attrition' into Banking Engagement and Profits.”
Doing things the right way, Javelin stated, boosts the profitability of a new customer/member an estimated $212 a year.
PFI 4 Times More Likely
The report, sponsored by Deluxe, found that fully engaged customers/members are four times more likely than inactive customers/members to identify the new bank or credit union as their primary FI.
Fully engaged consumers not only own 2.7 times more financial accounts than inactive consumers at the new FI, but they also intend to open more accounts in the next 12 months (3.0 vs. 0.5), the study shared.
“Fully engaging the 20% of new customers who do not enroll because they think switching FIs is too difficult will result in an 8% increase in the overall profit that FIs earn from new customers in the first three years. Inactive customers represent a net loss to banks over the first three years,” the report shared.
The study emphasized that none of the projected 8% increase in overall profit comes from the checking account itself. On average, checking accounts are unprofitable, especially among customers who are disengaged, carry low balances, and do not buy loans and other profitable products, Javelin explained.
“The payoff from investing in onboarding comes when the 20% of frustrated customers open new, profitable products,” the report said. The majority of the increased profit comes from mortgages (39%), credit cards (30%), auto loans (18%) and home equity lines of credit (13%). Brokerage and retirement accounts each contribute 3% of the profit.
The report summarized the key tactics for winning over new account holders:
- Promote engagement first, cross-sell later. Achieving status as a consumer’s primary FI hinges on making it convenient and easy for new customers to cut ties with their previous FI, and then engaging them to build deep, habitual interaction. “Active engagement is the bedrock for a relationship that leads to higher profitability from the sale of additional depository, loan, and investment products,” the study shared.
- Place top priority on “sticky” actions. Encourage repeat banking activity by making it fast, easy, and convenient to establish direct deposits, shift bill payees, activate debit cards, enroll in online and mobile banking, and turn on financial alerts. Promote that outcome by designing it into the account-opening process and creating incentives for engagement-building actions.
- Welcome and motivate new customers. Follow up with e-mail, notifications, direct mail, and messaging within online and mobile banking to welcome new consumers, the report said. “Promote the benefits of additional services such as bill pay, direct deposit, alerts, and personal finance capabilities, and set expectations for onboarding milestones, such as the delivery of debit cards. Monitor engagement and create incentives for new customers to take incremental steps toward fuller digital banking engagement, such as trying mobile deposit. Steer new consumers to online and mobile banking tutorials. Make specific, personal recommendations; don’t spam new customers with generic messages.”
- Make simplicity the touchstone. Streamline the account opening and onboarding process to ensure new consumers can conveniently and easily complete the switch to the bank or credit union.
- Adopt an opt-out approach to jump-start engagement. Onboarding should build on the presumption that new customers want to get the maximum value from their new accounts, Javelin explained. “Don’t confront applicants with separate decisions about activating individual services such as online banking, mobile banking, and alerts.
- Frame a new checking account as a full-service suite. Design the activation process to minimize decisions and maximize adoption of services.”
- Minimize obstacles that lead to silent attrition. Address factors that can entice consumers to open accounts that lay dormant. For example, assess whether initial deposits, account restrictions, and minimum monthly balances inhibit new members/customers from immediately using their new account and extend their reliance on their previous FI. Similarly, evaluate promotions to minimize the number of consumers who open accounts to park money or to claim incentives but have no true intent to engage actively and fully switch.
Healthy Debate
The study recognized the “healthy debate” within the banking industry regarding whether it is wiser to use account opening to aggressively cross-sell products or to focus instead on building engagement to reap rewards down the road.
“What’s certain is that the initial weeks, days, and even minutes after a customer opens a checking account are critical in determining whether that customer will break ties with the previous FI, and how deep and profitable that banking relationship will ultimately become,” the report explained. “FIs will reap a higher long-term payoff by focusing on engagement, with a focus on the use of online and mobile banking, direct deposit, bill payment, financial alerts, and personal finance management tools.”