Bank Accounts Opened Online Are Less Profitable: How to Change That

Accounts opened in a branch have higher 'account quality' than those opened online. That's because consumers won't spend the time online discussing their needs the way they do in person. How an institution onboards new customers can change this dynamic.

The banking industry has put a strong emphasis on growing digital sales in recent years and has seen several positive outcomes. For example, digital sales in 2019 in developed countries grew to 28% of retail sales, according to McKinsey. Further, customer satisfaction with digital channels is materially higher, with net satisfaction at 79% versus 72% at the branch, according to Boston Consulting Group.

The growth in digital sales, however, is not without some concerns. North American financial institutions’ digital sales lag their global counterparts. BCG found that a typical U.S. bank scores 23 out of 100 for mobile sales capability, while European banks score an average of 69. This trend is due in part to a lack of widespread adoption of straight-through fulfillment of account opening (i.e. no human intervention).

An even more troubling phenomena, however, is that digital-originated accounts tend to be less profitable than those opened at the branch, which materially impacts customer economics.

The traditional branch-centric model depends primarily on the banker to deliver a quality onboarding experience. In a 30 to 40 minute onboarding session, a branch employee profiles the consumer, promotes initial account usage, enrolls the customer in digital tools, and offers services to address explicit and implicit needs. These critical activities drive higher account quality, measured by a number of criteria, including account usage, digital engagement, balances, cross-sales and early attrition.

Account quality is a fundamental driver of primary core relationships and long-term customer profitability. From discussions with many bank executives in 2021, it’s clear that the need to have digital onboarding be as effective as an in-person experience is a top priority, particularly for regional banks.

The Need to Move Past an Excellent First Impression

Many financial institutions have invested in streamlining digital account opening, which has resulted in fewer clicks and less time required. But that’s just the first step and it doesn’t help deepen customer relationships. Achieving that requires rethinking the historical approach of banker-driven onboarding.

Key Difference:

Customers won’t spend 30 to 40 minutes reviewing their needs in a digital account-opening session.

A digital onboarding experience that drives higher profitability is built on three broad principles:

  • “Micro-onboarding” sessions that replace the single onboarding event that typically occurs at the branch.
  • Building customer intelligence in the first 90 days drives tailored interactions to improve outcomes.
  • Creating a delightful early experience can show customers the bank is committing to know them, value them and advise them.

The following data-driven tactical steps assist financial institution to implement the above principles.

Read More: Emphasis on Digital Banking Demands Changes to Onboarding Rules

Four Enablers of Successful Digital Onboarding

1. Tailored onboarding interactions
Banks and credit unions should tailor interactions to customers’ current status in the onboarding process. For example, when the institution confirms a recurring income deposit, it should deliver a contextual insight informing the customer of the deposit with a call to action promoting direct deposit and auto pay set-up.

Not surprisingly, highly engaging early experiences result in better onboarding outcomes. UOB, a bank based in Singapore, gamifies early engagement by providing a temporary cashback boost from 3% to 5% when customers complete a number of onboarding actions. UOB recognizes the impact of quality onboarding on long-term profitability and makes it fun and rewarding for customers to execute.

2. Intelligent and automated customer ‘needs profiling’
One of the most valuable onboarding activities conducted by a branch banker is needs profiling. The information gained typically is leveraged in future outbound marketing efforts.

For digitally originated accounts, customer profiling can be done through a series of personalized digital interactions over the first 90 days. For example, when customers set up their initial payment on a student loan, a bank or credit union can prompt them to determine the loan’s goals — faster payoff, lower monthly payment or lower interest rate.

Similarly, when an institution sees money transferred to an external wealth manager, it can proactively ask if the customer is saving for a goal. Collecting information interactively in this manner demonstrates the institution’s commitment to knowing customers and advising them effectively.

3. Adaptive value-based onboarding strategy
Banks and credit unions should adapt their onboarding strategy based on consumers’ potential value. For example, an institution may want to have an all-digital onboarding approach for low balance, non-credit eligible customers, and a banker-led approach for mass affluent customers with high-value potential.

By evaluating early transaction activity and reassessing potential value, the institution can adjust the approach. When a consumer funds an account with $2,000, their value may not be readily apparent. But after booking a jumbo mortgage or multiple credit relationships, the bank or credit union can reclassify the customer as mass affluent and execute a hybrid onboarding approach.

In that case a financial advisor may reach out and offer a free financial fitness checkup, or the customer may be prompted to engage in life-goal planning, such as Bank of America does with it’s Life Plan, which incorporates such a hybrid digital/human approach.

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4. Contextual up-sell of product bundles
Many financial institutions promote product bundles or packages during account opening. However, the adoption rate of package sales in digital originations is materially lower than in-branch originations. Over the first 90 days, banks and credit unions can increase adoption rate by offering a package upsell when most relevant for customers.

For instance, after analyzing customers’ cash flow behavior and recognizing they have excess balances in checking to cover planned expenses, the institution can promote a package that includes an automated save/invest solution and personalize the benefit for that particular customer.

The Upside:

Consumer purchase behavior may be permanently shifting away from the branch, but that doesn’t mean account quality and customer profitability should degrade.

Achieving superior onboarding outcomes requires financial institutions to leverage customer transaction data, apply data analytics and tools to that data, and use the results to effectively combine digital and banker resources. When executed well, consumers will develop greater trust with their provider by seeing that it knows them, values them and advises them.

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