This post is an excerpt of an article by Dragnet Solutions CEO Greg Cote for Western Banker Magazine.
For most banks, non-interest income has been hovering around 2 percent since the recession. Banks are making various efforts to grow that income – efforts that include taking a hard look at fee structures and re-emphasizing loan products.
For consumer products, it’s important to recognize that all customers are not alike, and that the customers most likely to keep a large balance in a DDA account are the same customers most likely to open multiple DDA and savings accounts, to open credit card accounts and to apply for mortgages and vehicle loans.
These are your most profitable customers, and your institution should act swiftly and prudently to become the anchor institution for these customers. The financial rewards of doing so will be unmistakable: a growth in deposits, and a growth in fees from multiple products and services.
Hard Numbers: The Differences between Profitable and Unprofitable Customers
A study conducted by StrategyCorps and published by BankDirector.com found that high-value customers can generate 18x more revenue as other, less financially stable customers. For example, profitable customers keep an average DDA balance of $8,000. Unprofitable customers keep a balance of only $812. Profitable customers have a 54 percent chance of having two or more DDA accounts with your institution. Those odds drop to 17 percent for unprofitable customers. Sixty percent of profitable customers will open a saving account, compared to only 23 percent of unprofitable customers. Thirty percent of profitable customers will end up taking out a loan from your institution, whereas only 3 percent of unprofitable customers will.
Perhaps the most noticeable difference between these two types of customers is in the total revenue contribution per year. Profitable customers contribute $1,650 on average. For unprofitable customers, that number drops to $92, which fails to even cover your institution’s costs for maintaining the account.
From these comparisons, a few things are clear. Some of your customers will be highly profitable; others will be unprofitable. The profitable ones will open multiple accounts and be willing to consider other products, such as consumer loans, that your institution may be promoting now with renewed interest now that the economy is solidly improving.
These profitable customers are your “keepers” – the customers you want to keep for many years, so you can benefit from their deposits and earn fees by meeting their needs for DDA accounts, loans and other financial products. By serving these customers over the long term, your institution can grow profits and reduce churn.
Find the “Keepers” to Grow Deposits and Fees
It’s well known that the majority of effective cross-selling occurs in the first few months of a customer’s relationship with an institution. Institutions should take advantage of the knowledge that these customers are likely to open many accounts over the years and ensure that the customers are aware of every relevant product the institution offers. The idea is not to barrage the customer, but rather, through the onboarding process and subsequent communications, to discover the customer’s various needs and ensure that the institution responds with appropriate offers.
By taking advantage of the latest real-time Big Data analytics, branch staff and online account-opening applications can identify these customers on Day 0 (the moment of account opening), so the sales curve can begin its steep upward swing as quickly as possible. That operational difference can lead to a substantial boost in non-interest income, and lead to more loyal, satisfied customers, as well.
Incidentally, the real-time account screening that identifies these “keepers” can also help ensure that customer data is correct and entered error-free in data systems such as CRM systems. Welcome letters, checks, and debit cards will be correct from the moment the account is opened, and the customer onboarding experience will not be marred by typos. A fast, efficient, and error-free onboarding experience makes a customer more likely to trust an institution and open more accounts.
Institutions considering this strategy would do well to ask themselves the following questions:
- Are we segmenting customers today, or are we treating all new customers alike, regardless of variations in their financial stability and likely profitability?
- Are we able to identify our profitable customers at account opening? After one year? Five years?
- If we knew that a new customer was more likely to open an additional account, take out a loan, or use some other product, how would we change our onboarding process?
- Given that every community includes these “keepers,” how do we find them today?
Every community has its fair share of keepers. The goal is to identify these customers, meet their needs, and earn their loyalty before the competition does. Data-driven insights can help.