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.

Giving Banks a Better Way to Cross Sell

Giving-Banks-a-Better-Way-to-Cross-Sell.pngArlene Vogel, vice president of commercial banking services for Central Bancompany, understands missed opportunities firsthand. When she paid for a recent product, she noticed that the store owner was using a credit card processing service that connected to a smartphone. That store’s business checking account was with a Central Bancompany bank.

“When I asked why she had signed up with that company, she said, ‘It was just so easy,’” Vogel said. “We missed the opportunity when we opened her accounts because we hadn’t addressed that need. Those companies are marketing a specific product around a specific need. We’re marketing mass products. A lot of it is about capturing the few opportunities you have when you have the customer in.”

Banks like those under Central Bancompany—a holding company for 13 regional banks in Missouri, Kansas, Illinois and Oklahoma—face missed opportunities like this each day. Banks are under historic pressures, from regulators as well as competitors that focus on one item in a bank’s significant portfolio of services. One may take merchant services while another offers Small Business Administration loans. And those competitors are taking customers away permanently.

Bancompany.pngBut there is another trend that is playing in banks’ favor—if they are able to take advantage of it. Busy business owners prefer to streamline relationships with one vendor—not multiple service providers.

When Central Bancompany engaged Ignite Sales, it needed to help its front-line associates improve relationships with its business customers. Using Ignite Sales’ Recommendation Guides, the front-line representative now has a tool to better serve business customers while growing its services.

At Central Bancompany’s banks, the customer service representative sits down with the business customer, turns the computer screen where both can see it and logs on to a Central Bancompany-branded page. The business customer answers a series of questions and the program then provides products and services based on those responses.

Central Bancompany initiated the program as a pilot in February 2014. Already, it has doubled the services that a new business customer typically opens from three or four to six or seven.

In many ways, banks are in the early stages of a shift that has happened in all forms of retail in recent years: a proper sales process. Most banks cannot ensure accurate product recommendations across all channels. They are not making recommendations and not tracking what’s being recommended versus what’s being opened. Because these recommendations are not tracked, opportunities for strategic follow-up are lost.

Central Bancompany has taken the initiative to do these things and it is paying off. Not only have its banks seen an increase in the new services opened, but customer sales representatives also say they feel more confident in sharing a full range of products using the program, which is called Business Analyzer.

“Prior to the Business Analyzer, we had products to ask questions around, but our CSRs [customer service representatives] wouldn’t because they were afraid the customers would ask a technical question about the product,” Vogel said. “Now, because these products are recommended in response to questions asked by the analyzer, they have more confidence in explaining it. With a marketing piece that explains the service, the customer is more confident in purchasing.”

Ignite Sales’ is providing Central Bancompany with information about how its CSRs are performing with bank goals as well. Perhaps more importantly, Central Bancompany’s customers are becoming more aware of the range of products available. “It’s been the biggest eye-opener how much our business customers did not realize we could have done for them,” Vogel said. “We’re using the analytics to improve our product design, bundling and pricing. We’re trying to watch particular business types. Is there a standard set of products that they are falling in to? We don’t have the answers on that yet, but we’re doing a deeper dive into cross sales.”

That is consistent with what many of Ignite Sales’ customers find. As they receive better data, they can realign products to what their customers want—not simply model their product line based on what the larger banks in the region offer. It leads to pretty dramatic improvements in the sales process.

And it’s not just for new customers. When Central Bancompany initiated Ignite Sales’ Recommendation Guides, one bank piloted a test around existing business customers. Representatives presented it as a business review. On average, each existing customer opted for at least one additional product.

At a time when competitors are nibbling around the edges of a bank’s customers, increasing existing relationships by one product—and doubling the number of products a new customer selects—can lead to major successes.

Using Technology to Grow Your Customer Base

For many community banks, continuously communicating with their customer base can be challenging given limited resources and rising compliance requirements. In this video, Michael Tipton of emfluence discusses how using an automated messaging platform for new accounts can help banks cultivate and grow customer relationships.