A strong digital account opening strategy, when done correctly, can generate returns on investment that are both obvious and large.

Critical to this strategy, however, is to have a granular and holistic understanding of customer acquisition cost, or CAC. Customer acquisition cost is a broad topic and is usually composed of multiple channels. Digital account opening is a tool used to acquire customers, and therefore should be included in your financial institution’s CAC. u200dIt may even be able to reduce your current CAC.

Financial institutions define CAC differently, and there is no limit to its granularity. We advise financial institutions to separate user acquisition cost into two buckets: digital CAC and physical CAC. This piece will focus on digital CAC.

With respect to digital CAC, there are a number of inputs that can include:

  • The digital account opening platform;
  • social media advertising spend;
  • print ad spend (mailers, billboards);
  • general ad spend (commercials, radio);
  • retargeting ad spend (i.e. Adroll); and
  • creative costs.

Optionally, a financial institution can also include the salaries and bonuses of employees directly responsible for growth, any overhead related to employees directly responsible for growth and even physical CAC, if this is less than 20% of overall CAC spend.

How Does Digital Account Opening Reduce CAC? u200d
Digital account opening platforms are actually intended to lower your customer acquisition costs. Initially, this might sound counterintuitive: how would installing a digital account platform, which is an additional cost, reduce CAC over the long run?

The answer is scale.

For example, let’s say your financial institution spends $1 million on marketing and gains 10,000 new customers. This results in a CAC of $100 per customer. Compare that to spending $1.2 million on marketing that includes digital account opening. Providing the ability for customers to easily open accounts through online, mobile and tablet channels results in 15,000 customers, dropping your CAC to $80. In this example, implementing a fast and easy way for customers to open accounts reduced CAC by 20% and increased the return on existing marketing spend.u200d

Once you have a successful marketing machine that includes strong digital account opening, you will want to scale quickly. Marketing spend decisions should be driven by quantitative metrics. You should be able to confidently expect that if it increases marketing spend by $X, you will see a Y increase in new accounts and a Z increase in new deposits.

The only additional costs your financial institution incurs for account opening are per application costs – which tend to be nominal inputs to the overall CAC calculation. u200d

What is a Good CAC for a Financial Institution?u200d
CAC has so many variables and broad-definitions that it is nearly impossible to tell financial institutions what is “good” and what is “bad.” Across CAC industry benchmarks, financial services has one of the highest costs to acquire new customers:

Technology (Software): $395

Telecom: $315u200d

Banking/Insurance: $303

u200dReal Estate: $213

Technology (Hardware): $182

Financial: $175

Marketing Agency: $141

Transportation: $98

Manufacturing: $83

Consumer Goods: $22

Retail: $10

Travel: $7u200d u200du200d

Customer acquisition cost and digital account opening go hand-in-hand. Financial institutions should focus on the output of any marketing spend, as opposed to the input cost. Different marketing strategies will have varied levels of scalability. It’s important to invest in strategies that can scale exponentially and cost-effectively. By focusing on these principles, your financial institution will quickly realize a path towards industry-leading growth and profit metrics, putting your financial institution ahead of the competition.

WRITTEN BY

Nikhil Lakhanpal

Co-Founder

Nikhil Lakhanpal is co-founder of Narmi, a NYC based financial technology firm that builds enterprise solutions in digital banking.  Through Narmi’s digital account opening, mobile banking, online banking and banking APIs, banks can become digital-first companies.  Mr. Lakhanpal drives Narmi’s vision to provide a highly adaptable and open framework that empowers banks to reimagine what’s possible with digital banking.  He has long had a passion for technology and financial services as the former CEO of a financial institution and an investment banker at Citigroup.