What to Do About the 35% of Checking Customers Costing You Money


Consumer checking, while the simple hub product for most retail deposit and loan relationships, produces some not so simple challenges related to financial performance.

Here’s the composition of a typical financial institution’s checking portfolio, based on the revenue generated by a household relationship. “Super” customers generate the highest percentage of a typical bank’s revenues although they make up only about 10 percent of its customers. Super customers also make up the highest percentage of overall relationship dollars, meaning they have more combined deposit and loan balances with the bank.strategycorps-chart-5-11.png

Super: household produces annual revenue over $5,000. Mass Market: produces $350 to $5,000 in revenue. Small: produces $250 to $350 in revenue. Low: produces less than $250 in revenue. Figures are based on the average bank in StrategyCorps’ proprietary database of more than 4 million accounts.

The challenge: What to do with the Small and Low relationships that make up 35 percent of customers yet represent only 1.6 percent of all relationship dollars and 2.9 percent of revenue?

A deeper dive into the profile of these segments is enlightening.

Segments Small $250-$350 Low <$250
Distribution 9% 26%
Per Account Averages Averages
Relationship Statistics    
DDA Balances $1,561 $682
Relationship Deposits $444 $117
Relationship Loans $161 $32
Total Relationships $2,166 $831
Revenue Statistics    
Total DDA Income (NII + Fees + NSF) $160 $62
Relationship Deposit NII $16 $4
Relationship Loan NII $6 $1
Total Revenue $182 $67
Account Statistics    
Have More Than One DDA 28.9% 14.5%
Have a Debit Card 71.4% 57.1%
Have Online Banking 27.3% 22.0%
Have eStatement 17.1% 13.9%
Debit Card Trans (month) 13.3 5.0
Have a Relationship Deposit 31.5% 17.9%
Have a Relationship Loan 7.1% 2.7%
Have Both a Deposit and Loan 2.5% 0.7%
Average Age of Account 3.1 3.4
Average Age of Account Holder 48.9 48.8

Obvious is the lack of revenue generation from these segments given average demand deposit account (DDA) balances and relationship deposit and loan balances on an absolute dollar basis and a comparative basis to the Mass and Super segments.

Less obvious is that the other revenue-generating (debit cards) or cost-saving activities (online banking, e-statements) of the average customer in the Small and Low segments is not materially different from the Mass and Super relationship segments. For some products, like a debit card, the percentage of customers in the Small and Low segments who have one is higher than Mass and Super segments.

The natural response from bankers when confronted with this information is, “let’s cross-sell these Small and Low relationships into more financial productivity.” This is well-intentioned, but elusive and arguably impractical.

First, for many consumers in these relationship segments, your FI isn’t their primary FI, so they are most likely Mass or Super segment customers at another institution. Second, if you are the primary FI, these segments simply don’t have financial resources or the need for additional financial products beyond what they already have today. At their best, these are effectively single service, low balance and low or no fee customers. Therefore, traditional cross-selling efforts either compete unsuccessfully with the primary FI’s cross-selling efforts or don’t matter because there aren’t available financial resources to be placed in other products.

How then does your FI competitively and financially engage with these Small and Low relationship segments to improve their financial contribution by increasing the DDA balances, relationship balances or generating more fee income? The answer is to relevantly offer them a product that impacts how they bank with your institution.

More specifically in today’s marketplace, this relevant offering is accomplished by being a bigger part of your customers’ mobile and online lifestyle. Consumers of all types are in a relationship with their smart phone, tablets and computers. A FI’s checking product has to be a bigger part of that relationship. It can’t just be another online or mobile banking product they can get at pretty much any FI. For the unprofitable customers who have a primary FI somewhere else, the mobile and online offerings have to be engaging and rewarding enough to move deposit balances to your bank or buy more products from your bank to generate more revenue.

For those unprofitable customers who simply don’t have the financial resources to aggregate deposits or be cross-sold, the mobile and online banking solutions have to include value worthy enough to willingly pay for. Why? Because generating recurring, customer-friendly fee income based on non-traditional benefits or functionality is the only way you’re going to make them more profitable. Top retailers like Costco, AAA, Amazon and Spotify understand this retailing principle, which is transferable to FIs if they will design and build their checking products like a retailer would instead of a banker.

For consumer checking financial performance on both the Small and Low relationship segments as well as the Super and Mass ones, a more detailed executive report is available if you’d like more information.

Can Frank Keating Tame Dodd-Frank?


Frank-Keating.jpgFrank Keating started his new job this month as president and CEO of one of the largest lobbying groups in the country, the American Bankers Association.

The group is licking its wounds after losing a major legislative battle last year in the form of the Dodd-Frank Act.

Dodd-Frank Act was hugely unpopular with bankers.

The problem is: It was hugely popular with non-bankers. A USA Today/Gallup poll in August found that 61 percent of Americans supported financial reform, making it the most popular piece of major legislation to come out of Washington in the last two years. Health care reform got an approval rating of 39 percent.

So what can Frank Keating do about all this? Will his background as a former Republican governor of Oklahoma and co-chair of John McCain’s presidential campaign make him too polarizing a figure to deal with the Obama administration?

He once said during the presidential campaign that Obama should admit he was a “guy of the street,” had been “way to the left” and had used cocaine. Granted, this isn’t the worst thing any politician ever said about another. After all, the same was said about George Bush. The voters thought it had zero impact then, too.

Keating said in an interview with Bank Director this week that the “guy of the street” comment was not racial. Keating, a former FBI agent, said that meant Obama was a street organizer.

Keating said he was proud to be a Republican and didn’t consider himself a polarizing figure. But almost all of Keating’s financial support has gone to Republican candidates, according to OpenSecrets.org, which tracks campaign contributions. Keating said that in his most recent job as president and CEO of the American Council of Life Insurers, he was bipartisan and kept staffers with connections to both parties on his staff.

“Trade groups have to be bipartisan if they are going to be effective in Washington,’’ said Arthur Johnson, chairman of the search committee that selected Keating for the ABA. “That’s what Frank (Keating) told us right away. We have very effective people in our association staff at ABA that have both Democratic and Republican associations. (Plus, Keating) was the only two-term Republican in Oklahoma history. That didn’t happen without him being able to work with Democrats.”

After all, is it all that surprising that the new head of the ABA is a Republican? This isn’t Greenpeace, after all.

“From my standpoint the important thing for any organization is to have an important set of contacts from both parties,’’ said Steve Verdier, executive vice president of congressional relations for the Independent Community Bankers Association, another bank trade group that has often disagreed with the ABA.

ABA officials have said they think Keating will represent successfully the interests of bankers on Capitol Hill and that he has the experience needed to run a major trade organization (he spent eight years at the ACLI). He also served under presidents Ronald Reagan and George H.W. Bush in the U.S. Treasury, Department of Justice, and the Department of Housing and Urban Development, the last one working as general counsel and acting deputy secretary. He also comes from a family of bankers or bank directors that include his grandfather, father and twin brother.

Will all that be enough? Now that Republicans have control of the House, maybe Keating will have more ears in Congress. One problem is even the Republicans can’t be counted on to roll back Dodd-Frank. Banking opinion isn’t uniform, either. After all, the Independent Community Bankers Association wanted the government to break apart large financial institutions, under the idea they posed a risk to the economy. Not surprisingly, the ABA, which represents both large and small banks, was opposed to that.

At this point, it looks as if the best bankers can hope for are modifications that tone down Dodd-Frank, not repeal it. For example, could the new Consumer Financial Protection Bureau get some oversight by other bank regulators, as many bankers want? How will the new rules get interpreted by regulatory agencies?

Keating said the ABA is working on a list of legislative priorities. And while he may have an impressive background to lead the organization, the road ahead is tough and the past is littered with defeat.