How to Boost Customer Lifetime Value in Banking

Banks and credit unions may be concerned that digital customers are not as valuable as those acquired through physical branches. When viewed in a longer-term context, however, these digitally-acquired customers can end up building profitable, lengthy relationships with your financial institution.

Digital channels allow banks and credit unions to acquire a much higher volume of customers than they would through branches alone. By enabling consumers to open accounts digitally, financial institutions can expect to originate 20% or more of all new accounts online.

Yet the increased popularity of digital banking services has led many financial institutions to contemplate the value of their new, digitally-acquired customers. Banks and credit unions may be concerned that digital customers — though typically easier to acquire — may be less valuable when compared to customers onboarded through physical branches.

However, research demonstrates that when lifetime value (LTV) is taken into account, digital customers can prove to be high-value investments. LTV is a measurement of how valuable a customer is to your intstitution across the length of the relationship. For banks and credit unions, it is a useful metric in circumstances where immediate profit margins are thin and it may take a while to break even on acquisition costs.

Considering digital customers from an LTV perspective helps solidify the distinct advantages of growing your digital brand. Further, financial institutions that embrace this concept can work to effectively increase the LTV of their customers.

Why Lifetime Value Matters

LTV helps you determine how much time and resources to invest in acquiring a customer. Since it costs less to keep existing customers than it does to acquire new ones, increasing the value of your existing customers through cross-sells can be an efficient, ongoing way to drive growth.

LTV also helps uncover untapped opportunities for growth in different demographics. For instance, certain age groups may appear less profitable at the start, but provide a higher LTV over time. Typically, older customers have higher deposits and are the primary customers of bank products — but they also have a shorter life cycle with your financial institution.

Younger customers, on the other hand, have a longer life cycle with their bank or credit union and more opportunities to invest in products as they go through different life stages like marriage or homeownership. While their initial deposits tend to be lower than those of older customers, focusing on the LTV of younger customers can help banks rethink their acquisition strategy and how they capture value over time.

The Key Difference:

Older customers have higher deposits, but younger consumers offer opportunities to build substantial LTV as they move through life stages. But you must have the right digital acquisition strategy to attract them.

The personal finance company SoFi provides a compelling case study for fostering long-term relationships with digital customers. SoFi started by lending to high-potential college students whose educational backgrounds indicated that they would be more likely to pay off any loans — even though many of them did not have a strong credit history yet. The company found a way to bet on the students’ future earning potential and their ability to become profitable (in other words, their LTV) — and it worked.

Customer Satisfaction Boosts LTV

Beyond targeting underserved or niche demographics, maximizing LTV is about maintaining long-term relationships with customers. A tried and true way to improve LTV is to invest in customer experience. In fact, “highly satisfied” customers are two and a half times more likely to open accounts or consume new products with their existing banking providers than those who are merely “satisfied.”

Further, data from J.D. Power & Associates shows that offering relevant advice and guidance has a 17% positive impact on consumers’ willingness to use additional banking services. The advice offered could be as simple as helping people identify their needs before introducing a new product or carefully walking through the product’s features and benefits.

As is the case in the retail industry, people who engage with a bank or credit union through multiple channels tend to bring higher LTV. According to the same study from J.D. Power, customers who rank highest for customer satisfaction use a mix of physical and digital banking services.

Millennials, for instance, are the main users of digital services — but three quarters of Millennials and the emerging affluent also say they’ve visited a bank or credit union branch in the last three months. The importance of multichannel engagement tends to be an advantage for mid-sized financial institutions, as they outperform larger banks on branch-related satisfaction factors including courtesy, knowledge and a range of services.

Going Digital To Increase Life Time Value

Offering high-quality digital experiences is a crucial part of a long-term customer strategy. Throughout their (hopefully lengthy) relationship with your financial institution, consumers will likely require — and be willing to pay for — different financial products and services. Digital engagement can help to increase brand loyalty, improve financial outcomes for people and boost future sales of new products and services.

As customers deepen their relationship with your financial institution, they create endless opportunities to cross-sell into other banking products. People who use digital tools are more likely to have interactions with their bank or credit union involving eliminating or paying down debt, budgeting and spending, managing their investments and preparing for retirement.

Improving lifetime value begins with the basics — a superior online account-opening experience. Today, people expect opening an account to be a seamless process. They don’t want to deal with long wait times or multiple requests for the same information. MANTL’s real-time processing and simple, user-friendly interface can be the start to a lengthy, rewarding banking relationship.

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