2013 holds much promise and potential for financial institutions (FIs) willing to think, believe and invest in checking product design and delivery that takes into account the top trends shown below. For those FIs that don’t, good luck waiting for overdrafts to make a comeback or for customers to start gladly paying for traditional checking-related benefits.
#1 Customer Friendly Fee Income Will Continue to Emerge
2013 will mark the beginning of many more FIs deciding to design checking accounts that are so good that their customers will actually want them enough to willingly pay for them. Design previously employed to devise complicated account terms and conditions that result in customer confusion and unfriendly penalty fees will be rechanneled into innovative design of great products focused on a fair exchange of value with customers for a reasonable monthly fee. This customer-friendly, fair value approach is the only way to generate massive, growing and sustainable fee income in today’s regulatory environment.
#2 Relationship Building Will Necessitate a More Engaging Product Experience
The rapid and projected growth of online and mobile banking (e.g. a March 2012 Federal Reserve study) has reduced branch traffic (25 percent over the past five years per consulting firm Bancography). This limits the number of opportunities for customers doing routine, checking-related transactions to interact directly with branch employees and experience firsthand exceptional customer service.
This means the checking product’s inherent value has to step up to play a larger role in building customer relationships. To do this, the checking account’s “customer connection factor” (CCF) will need to be much higher than it is today. In 2013, more and more FIs will realize the growing importance of the checking CCF and design and deliver accordingly. The top FIs are already there. In 2013, they will smartly integrate applicable retailing best practices like local, mobile and social into their design and delivery. Those that wait to improve the CCF and rely solely on great customer service will regret this decision.
#3 Fixing the Unprofitable Relationships Will Be Required
The primary revenue generators (loans and fees) will continue to struggle to recover in 2013, while operating costs will continue to rise. This stubborn financial pinch will necessitate that FIs can no longer ignore dealing with the approximate 40 percent of their checking household relationships that are unprofitable (and make up only 3.5 percent of total revenue and 2.2 percent of all other deposit and loan relationship dollars). FIs will fix these relationships by actively employing the first two trends and not depending exclusively on the elusive cross-sale. Otherwise, the financial pinch will continue its squeeze and hurt.
#4 Optimizing the Existing Base of Profitable Checking Customers
Just as important as financially optimizing the unprofitable relationships is getting as many of the approximate 60 percent of customers who are profitable to experience your product’s improved CCF. This is the plan to optimize protecting (retaining) and growing existing profitable customers.
The top way to do this is to let them experience checking products with higher CCF than what you offer them today. Getting this done means FIs must also use innovative ways to get these enhanced products into the hands of these customers via unordinary marketing strategies like sweepstakes, contests, satisfaction guarantees, email communication, viral promotion and small business community tie-ins. Free or modified free checking will still be the dominant product strategy (only 9 percent of community banks have gotten rid of it and another 9 percent plan to). The difference maker when it comes to optimizing the experience of your best customers is for products to be better, not just free.
#5 Simple, Simple, Simple Will Win
This has been a trend for many years before 2013 and will most likely continue for years after. There are the three simple things FIs can do to win the retail checking game more in 2013 than in 2012. First, simplify your line-up down to three accounts (two if you don’t offer free checking) and clean up the grandfathered ones. Second, don’t invest in a branch sales report that tracks more than just direct sales, cross sales and referral sales by product that can’t be ranked in terms of sales performance down to the individual employee. Third, your checking-related sales incentive plan must be always on, (not just “on” when connected to a product or marketing campaign) and explainable and calculable in less than thirty seconds.
Statistics stated are from StrategyCorps’ proprietary database of over two million accounts and polling research of about 100 FI executives.