Five major forces should shape the design and delivery of checking accounts in the next 12 months. Are retail financial marketers ready to face the new emerging landscape head on?
By Mike Branton, Managing Partner of StrategyCorps
2013 holds much promise and potential for those financial marketers willing to think, believe and invest in checking product design and delivery. For the others that don’t… well, good luck. If you’re waiting for overdrafts to make a comeback, or for your customers to gleefully start paying for traditionally free benefits, you can forget about it. That’s probably not going to happen.
#1 Customer-Friendly Fee Income Will Continue to Emerge
2013 will see banks and credit unions designing checking accounts that are so good, their customers will actually want the features enough to pay for them. Creativity previously applied to the fabrication of complicated account terms, confusing conditions and unfriendly penalty fees will be re-channeled into innovative design of great products focused on a fair exchange of value with customers for a reasonable monthly fee. Between the fiscal realities facing financial institutions and prevailing consumer attitudes towards checking-related services, an intensification of ingenuity in account design is a competitive certainty. And this customer-friendly, fair-value approach is about the only way financial institutions will be able to generate massive, growing and sustainable fee income in the context of today’s regulatory environment. Some financial institutions already subscribing to this innovative mindset are seeing an additional $75 per year per checking account from at least 30% to 40% of their customers. Run the math and you can quickly see this is a serious amount of fee income.
#2 Building Relationships Necessitates a More Engaging Product Experience
The rapid and continued growth of online and mobile banking has reduced branch traffic. Research from Bancography conservatively estimates a 25% decrease over the past five years. And this March 2012 report from the Federal Reserve proves the unstoppable ascent of the mobile channel. This has choked down the number of opportunities employees have to interact directly with customers who previously performed routine, checking-related transactions in branches, and often reduces the number of times customers can experience exceptional customer service firsthand.
This means a 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” will need to be much higher than it is today. In 2013, more and more financial institutions will realize the growing importance of the checking “customer connection factor,” and design and deliver accordingly.
Many of the top financial institutions are already there. And in 2013, they will be smartly integrating retailing best practices like local, mobile and social into the design and delivery of their checking products. Those financial institutions that wait to improve their “customer connection factor” will regret it. The days when a bank or credit union could create customer engagement solely by providing great customer service in branches? Those days are over.
#3 Fixing Unprofitable Relationships Is Imperative
The primary revenue generators (loans and fees) are forecast to continue to struggle to recover in 2013, while at the same time operating costs are predicted to continue to rise. This uncomfortable financial pinch will require band and credit unions to confront reality: approximately 40% of “householded” checking relationships are unprofitable, while only representing 3.5% of total revenue and 2.2% of all other deposit and loan relationship dollars. Forward-thinking financial institutions will address these relationships by actively employing the first two trends. You can’t count on those (always elusive) cross-sales if you’re hoping to extract more revenue from your unprofitable checking customer relationships. Fix your unprofitable problem, and you won’t get your bottom line stuck in this financial squeeze play.
#4 Optimizing the Existing Base of Profitable Checking Customers
Just as important as it is to financially optimize unprofitable relationships, you also need to create an improved “customer connection factor” for the roughly 60% of customers who are profitable. This should be the cornerstone of your plan to optimize, retain and grow your existing base of profitable customers.
Getting this done also means banks and credit unions will need innovative ways to get their enhanced products into the right consumers’ hands — e.g., marketing strategies like sweepstakes, contests, satisfaction guarantees, extended fee-free trial periods, purpose-driven email communications, viral social media promotions and community tie-ins. Even though “free” or “modified free” checking will still be the dominant product strategy (only 9% of community banks have gotten rid of it, and another 9% plan to), the difference maker when it comes to optimizing the experience of your best customers is for products to be actually better, not just “free-er.”
#5 Simple, Simple, Simple = Win
While this has been a trend for many years, it will most likely continue to be for years to come. There are the three things retail financial institutions can do to win the retail checking game through a strategy of simplification. For starters, simplify your checking line-up down to three accounts — only two if you don’t offer free checking — and clean-up all those crusty “grandfathered” ones. Secondly, invest in a branch sales report, one that tracks direct sales, cross sales and referral sales by product. This report needs should also rank sales performance down to the individual employee. Finally, your checking-related sales incentive plan must be “always on” vs. the all-too-common pure campaign focus. If your calculus for checking accounts takes more than 30 seconds to explain (to customers or internally), it’s too complicated and you’ve still got some work to do.