Should Banks Kill Sign-On Bonuses for New Checking Accounts?

When there is an incentive of 'free cash,' it's bound to bring new faces to the table. But some banking experts argue it's not the best method for building long-term loyalty — especially for local banks and credit unions. In fact, it might actually do harm.
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Sign-on bonuses are a popular marketing tool for hundreds of banks and credit unions. It might seem like the perfect new-account magnet equipped with the one incentive no one can ignore: “free money.”

But the practice stirs up surprisingly strong reactions and cautions among industry experts. Onboarding software company MANTL had one of the milder takes, stating in an article that cash bonuses are not all that great as an onboarding tactic (especially for community banks).

“For the overall benefit of your bottom line, sign-up bonuses may not be the way to go,” the article states.

Laurie McLachlan — Chief Marketing Officer at Digital Onboarding — says she has a bone to pick with sign-on bonuses, especially when they are handled poorly. She uses Chase Bank’s $600 cash bonus for new checking customers as an example.

“Chase already spent probably $300 in advertising to get the person,” says McLachlan. What the $600 bonus tells you, she explains, is that the only way for Chase to attract customers is with a cash offer, because they aren’t good enough to pull customers in otherwise.

Food for Thought:

Does your marketing team use sign-on cash bonus incentives? If so, you might not be creating long-lasting customer connections.

Angie Coleman, the Marketing Account Manager at marketing automation software company Onovative, has a mixed view of sign-on bonuses.

“They are certainly a legitimate way to grow,” Coleman acknowledges. “Savvy consumers know there’s a trade-off and they will either be paying fees, a higher rate, tying up their money or be required to conduct card transactions for interchange fees to earn the upfront incentive.”

But, there is inherently a problem built into offering cash bonuses when customers sign on for new accounts, Coleman points out. “Many are willing to jump through whatever hoops that are thrown at them to get the cash and then [they] leave when the next bonus lures them away.”

Read More: Why Banks Need to Fix Their Poor Digital Onboarding Experience

A Banking ‘Sign-On Bonus Is a Bribe’

The MANTL article suggests sign-on bonuses are problematic for smaller institutions, who already have limited resources.

“Community banks are small and serve very well-defined market areas. Unlike their big bank competitors they often lack the agility, technical expertise and capital to offer sign-up bonuses and other incentives to compete in real-time and fuel growth,” the article states.

McLachlan strongly emphasizes, however, that new-account sign-on bonuses in most cases come off as bribes.

“Banks and credit unions pay cash bonuses to bribe customers to go through the pain of using their products,” she says. “If you have to pay someone to use your product, your product is broken.”

Take Apple for instance, she says. The tech company is so confident in its products that it would never pay someone to try out a MacBook or a new iPhone.

The marketer does concede a sign-on bonus can be an attractive method to get people to notice a new brand. She has tried it herself. McLachlan says when she and her partners launched digital bank PerkStreet Financial in 2009, they tried out a sign-on bonus for customers who opened a checking account. Ninety days later, they discovered a critical mistake in their wording.

“If you have to pay someone to use your product, your product is broken.”
— Laurie McLachlan, Digital Onboarding

“Stupidly, we marketed a $50 cash bonus, and we didn’t make the requirements tight enough,” she explains. “Not only was everyone jumping on board, but they were posting it all over the forums: ‘Here’s free money!'” The big lesson to take away: If you do choose to use a cash bonus offer, parse the language carefully.

Coleman says another disadvantage is a financial institution, by instituting a sign-on bonus, might be wasting their resources on what would have happened regardless.

“If you really feel you need to buy the business to acquire new customers or members, just realize you may be creating churn and increasing your acquisition costs for a new relationship that may come your way organically,” Coleman says.

Read More: Growth Is Impossible Without Faster Digital Checking Account Opening

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What About Other Kinds of Cash Bonuses?

McLachlan doesn’t advise against ever using cash bonuses on some level — but points out they are far less effective during the customer acquisition process.

“I would never tell someone not to do it,” McLachlan says. “I would just tell them to make sure they know why they have to do it and to make sure they can measure the impact.”

For example, she recommends financial institutions channel cash bonuses into rewards for customers continuing to engage with the bank or credit union.

Specifically, if a marketing team wants newly onboarded banking customers to try out mobile banking, a cash bonus would be a strong method. McLachlan suggests mailing new customers a $10 paper check as an example, telling them the only way to deposit it is with the bank or credit union’s mobile check deposit tool.

“You just taught them something, you’ve rewarded them for learning it, and they’re probably going to do it next time. That’s a great use case for an incentive,” she explains, adding split testing is also critical to measure the ROI of different bonus incentives.

Thinking Outside The Box:

Cash bonuses might not be an effective method for onboarding. But, they can be useful in other ways, if marketers are willing to get creative.

Both Coleman and McLachlan agree some financial institutions may resort to sign-on bonuses for word-of-mouth referrals. Although it can be a good tactic in some cases, both argue there can be disadvantages to that method as well.

“When financial institutions incentivize referral behavior, they could actually be de-valuing the relationship and creating an offer that can’t easily be discontinued once started,” Coleman explains. “Loyal customers will refer friends and family naturally because there is a high level of confidence in a community bank or credit union.”

Onboarding Alternatives to Sign-On Bonuses

It would be natural at this point if your marketing team said: “If we get rid of sign-on bonuses as a way to attract new customers, what other methods can we use that will work better?

A community bank’s lack of megabank-scale resources isn’t always a bad thing, the MANTL article points out. Smaller financial institutions are often closer to their local communities and can find unique, niche ways to appeal to new customers.

There are plenty of other options to try out, some which be more far more effective than a sign-on bonus ever could be, the article states. Among them: deposit matching, community give-back programs, wellness campaigns, Christmas card and vacation accounts and accountant incentives.

Learn More: Banks Duke it Out to Give Consumers a Cash-Back Christmas

Matching customer deposits, for one, can encourage customers to set up direct deposit with their new bank account and is more likely to build “long-term loyalty instead of a short-term payout,” MANTL notes.

Other solutions — like wellness campaigns that motivate people to follow through on New Year’s resolutions and Christmas club/vacation accounts — can be great methods for creating a stronger relationship with customers based on their individual needs.

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