Acquiring new customers always challenges banks and credit unions, but COVID-19 and the resulting economic downturn has increased the barriers.
Through much of 2021 many financial marketers cut back on activity and abandoned their original 2020 targets. But now that a 2021 “new normal” has started emerging, banks and credit unions have to start being proactive again.
Financial institutions must ensure their playbooks for meeting customer acquisition goals in this rapidly evolving environment are more effective than ever. Making the right loan and deposit offers to the right consumers requires even greater discipline.
Credit card marketing makes a good lens to view 2021 plan through. Devising fresh plans will take effective data analytics and putting insights to significant use to make up for lost time. Financial institutions will also need to balance the need to acquire new card customers with managing, and ideally mitigating, increases to portfolio risk, in the case of credit.
Institutions can benefit from end-to-end acquisition strategies and tactics that tap into timely and relevant data and analytics. Acquisition plans should also rely on experimentation to make quick decisions and incorporate critical learnings to develop cost-effective and strategic outreach to consumers.
Learning from the 2020 Experience
As COVID-19 infections made their way around the globe, many financial marketers modified their consumer outreach. Some institutions were understandably uncomfortable sending credit offers to consumers during such a challenging time. It also seemed risky and irresponsible to bring in new consumers who could face financial challenges not clearly reflected in traditional risk measures.
A few players did continue sending offers to consumers. Take credit cards. The assumption was that response rates would likely drop or that only high-risk prospects would respond, but uptake and quality remained surprisingly strong. Email was particularly effective — open rates were up 10%-20% above the benchmark throughout Q2, according to Hubspot. Marketing email open rates are now at 18% above pre-COVID levels.
2021 will represent new ground. What’s different with this downturn compared to 2008 is that delinquencies on credit card accounts have not ramped up quickly — in fact many consumers actually cut back on credit card spending. Government stimulus checks and credit card payment deferrals have helped and there is a new round of stimulus in play. But the global economy remains complicated and fluid.
Some consumers may not experience financial challenges until sometime this year. For example, in the previous two major recessions in the U.S., credit card delinquencies and net charge-offs skyrocketed and hit their peak within 12-24 months from the beginning of the recession, according to the Federal Reserve. This will have the most impact on people in service industries who may have lost their jobs and are struggling to recover, while others may still be working, albeit at home, are less impacted because they’re still drawing a paycheck.
Financial health is top of mind for consumers despite the health risks of COVID-19. In fact, according to a recent consumer survey by Resonate, 69% of Americans are more concerned with the economic-related effects of COVID-19 than the health-related effects.
The general pullback in marketing presents an opportunity for institutions as they look to acquire new customers. But it’s also a time for banks and credit unions to be strategic and thoughtful about their outreach.
Financial institutions should also take care of digital housekeeping now so certain foundational elements are working to connect with prospective customers when normal business returns. Financial institutions should:
- Bolster their owned assets by ensuring they have the proper search engine optimization and content strategies in place.
- Identify ways to improve the digital user experience, particularly the path to application to maximize conversion.
- Run a diagnostic audit of paid digital campaigns to identify gaps and make tactical enhancements.
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Mitigating and Honing Old Plans is Essential
Marketing planning and target goals for 2021 should be framed around the evolution of the economy and consumer preferences. Institutions must make sure that they’re efficient in reaching consumers and developing strategies to manage potential risks.
1. Mitigate Risk
When the pandemic hit, many issuers quickly started to mitigate risks in their card portfolios. Some have adjusted their application scorecards and adjusted who their offers reach.
As the economy evolves, issuers will need to continue testing, measuring and refining their risk mitigation strategies. Actual results won’t be known for some time, but adjustments should be made to meet expected results. On the flip side, there is always the possibility of raising the bar for new customers too high and missing an opportunity to connect with consumers who are less risky than they would appear.
In addition, test-and-learn solutions and other tools, along with data, can help financial institutions develop the most successful risk mitigation strategy. AI-driven models, for example, can predict risk across credit cycles.
There are also near-real-time tools for underwriting small businesses to assess revenue quality and the strength of their customer relationships. For example, issuers can determine a small business’s health based on credit and debit card receipts, which show revenue trends, how sticky their customers are, and whether the business successfully transitioned its revenue from brick-and-mortar sales to online.
2. Hone the Offer and the Message
Once banks have determined the best path forward to mitigate risk, they must choose the best approach for reaching the consumers who could benefit from their card products and at appropriate risk levels.
With consumer preferences evolving and the challenge of customer acquisition intensifying, testing campaign strategies and approaches will be critical to guide the 2021 strategy, requiring more targeted, as well as broader, acquisition campaigns across segments and channels to make up for the smaller, more risk-constrained prospect pool.
The challenge for financial institutions is knowing what will resonate with consumers and quickly pivoting as that evolves. Building in testing campaigns with specific consumers is table stakes. Many organizations struggle to do the analysis quickly and at a sufficient level of depth for quick decisions on future campaigns.
Experimentation can provide measurement. But experimentation will only improve marketing ROI if it’s well designed, reliable and precise enough to influence optimization plans for the next campaign.
The allure of what is believed to have worked in the past is very seductive and frequently prevents meaningful shifts in campaign targeting, offer or channel tactics.
For example, a financial institution that paused its marketing efforts for most of 2020 can launch small campaigns to assess the market and inform the approach for 2021. The campaigns can help them evaluate how their products resonate with various consumers based on different offers and rewards structures. The aim is to answer questions such as, which prospective cardholders could be more intrigued by grocery or delivery promotions? Do gas or travel and entertainment-based rewards resonate right now?
Understanding how to adjust travel rewards cards and other benefits will be important so that rewards programs remain relevant for cardholders. Some financial institutions are temporarily pivoting existing travel and entertainment rewards cards to more compelling offers in the current environment.