Redefining Primary Relationships

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Ask 100 bankers to define what it means to be the primary financial institution for a consumer, and you’ll likely get 100 different answers. Ask 100 consultants to bankers what being the primary FI entails, and you’ll probably get 100 more answers.

Ask 100 consumers how they define which FI is their primary one, and you’re apt to get just a few answers. The most frequent answers will be: where my paycheck is deposited, or what I use to pay my bills.

At StrategyCorps, we talk to a lot of bankers about being the primary FI for a customer or member. We call this primacy. We talk about what they’re doing to lockdown primary relationships to keep from losing them, and what’s being done with non-primary customers to win them over and make them financially productive.

With few exceptions, most community and regional banks do not have a quantitative measurement or definition of primacy. It’s still very much rooted in a banker’s intuition or past experience, rather than a data-driven approach to determine precisely which customers are primary and which aren’t.

The Math
In our 20-plus years studying and analyzing retail checking relationships, products and pricing strategies, we have developed a database of well over 1 billion data performance points from hundreds of financial institutions.

We have found through this analytical approach a metric that holds true with nearly every FI we analyze, regardless of size or operating area location. Here it is: If the banking activity of a customer on a householded basis isn’t generating annually at least $350 in revenue, that household doesn’t consider your organization their primary FI.

Like clockwork, we find that when household revenue is less than $350, the banking relationship effectively nosedives. This typically is the case for 35% of all consumer checking accounts.

More specifically, we find this 35% of total checking account relationships represent slightly less than 2.1% of total relationship dollars and generate only 3.7% of revenue.

Address the Gap
Those customers are not engaged in a mutually beneficial relationship with their FI. They aren’t doing enough banking activities to generate enough revenue to cover the cost to manage and maintain their relationship. Many of those customers are primarily engaged at another FI and need a more compelling reason to bank with your FI than is currently being provided.

A major advantage of knowing specifically who does not consider your bank a primary FI is that you can develop product, pricing, communication and business development campaigns to move them closer to generating at least $350 in revenue. If you don’t, those 35% of relationships will continue to drag down financial performance. And this financial drag can be sizeable — conservatively speaking about $204 a year per relationship.

Do the math: If you have 20,000 checking relationships, 7,000 will be non-primary with a deficit of $204 per relationship. This equates to an annual loss of $1.43 million.

Build Profitability
Another major advantage of knowing precisely the amount of primary relationships at your institution is that knowledge provides great insight for a game plan to lock the relationship down even further with enhanced product offers, preferred pricing, elevated levels of customer service or, in some cases, a thank you. Doing one or more of those things diminishes the chances they’ll consider an offer from a competitor.

In today’s ultra-competitive marketplace, smart bankers realize a data-based definition of primacy in their retail checking base is necessary to make timely decisions. Banks that do so can better protect and grow primary relationships, and fix and grow the non-primary ones. By doing both, they optimize the performance and growth of their retail checking base and don’t leave the financial performance of their checking accounts to guesswork.

The Secret to Increasing Wallet Share

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Quick, name a bank.

Did you name your bank, or another local or national bank? It is often easier for people to think of a national bank than a local one, thanks to name recognition through advertising and branches.

But as important as top of mind awareness is, staying top of wallet is even more important. When your organization comes to both customers and prospective customer’s minds, you increase the chances at becoming their primary financial institution (PFI).

At Wallit, we define PFI as a customer having an active checking account, a debit card and direct deposit with a financial institution. There are five ways banks can accomplish this objective, increase deposit growth and boost non-interest income in a way that maintains healthy, growing customer relationships.

1. Elevate the debit card. The debit card isn’t just a payment card, method or option. It is a powerful and valuable lifestyle tool that many community banks underutilize.

At the point of sale, consumers decide whether to use a credit or debit card, based on their own needs. They make this decision multiple times each day.

I’m sure that most community bank customers that have a checking account also have that bank’s debit card in their wallet. But do they use it? Do they use a competitor’s card? Do they reach for a credit card?

2. Be Visible. Consumers have more options than ever when choosing financial services providers. So many, in fact, that consumers actively avoid marketing and advertising. Community banks have to be more visible, but not pushy.

Look for opportunities to connect your brand to things your customers value by linking it to places that your customers already think deliver value. Connect your brand to local businesses in the communities you serve, building and growing relationships with these businesses.

Promoting local businesses and providing information people need extends your bank’s reach and gets your name out there. This also borrows the brand halo of those businesses and makes your brand top of mind and top of wallet in the process.

3. Capitalize on Connections. The best businesses succeed through collaboration. Leveraging current relationships and connecting local merchants to local consumers unlocks the trapped value of your bank in the digital age.

Your bank can create a sense of belonging for members of your community, with your institution at the center. Think about it this way – Connecting buyers and sellers is far more valuable than merely connecting the bank accounts of buyers and sellers.

4. Generate Word of Mouth. Consumers will always share what they think of brands, products and services with others in their network across a wide range of communication channels. These recommendations are highly credible and relevant; they’re generally more effective than the marketing and advertising your bank currently pays for.

The best tactic to generate word of mouth is to impress current customers with a card-linked, cash back offer when they visit one of your local businesses. Your customers already have your bank’s debit card with them, making it a tool for spreading positive word of mouth, building your brand and driving revenue by offering and rewarding unique, highly personal, share-worthy experiences.

5. Experiment. Create a culture of experimentation. Start small and learn fast. Having the courage to apply new technologies and reinvent existing ways of working can improve financial performance.

Develop and improve your bank’s ability to be hyper-relevant and serve customers more effectively by sensing and addressing their changing needs. Consider starting a pilot with employees, then extending to scale with a portion of your customers.

Increasing share of wallet and becoming a primary financial institution requires intention, commitment and experimentation.

By leveraging your bank’s current strengths and investing in your debit card and merchant services programs, such as offering and marketing cash back rewards to local businesses and consumers, you can tip the scale in your favor.