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Aite Group published a series of reports on 2012 trends in financial services. The following is a summary of the idea I contributed:
As American football is gripped by Tebowmania, a new “Tebow” will become prevalent in the world of financial services:
Total Benefits of Ownership (TBO)
TBO will be adopted by many banks and credit unions as a new approach to marketing bank accounts in 2012 and beyond.
Banks’ and credit unions’ approach to marketing checking accounts has evolved over the past 10 to 15 years. FIs have evolved (if you want to call it that) from:
- Rational marketing (“We have higher rates/lower fees!”) to…
- Emotional marketing (“We help you achieve your dreams!”) to…
- Hysterical marketing (“Move your money away from the evil big banks!”).
2012 will bring a return to a more rational (i.e., quantitative) approach to marketing: Competing on the total benefits of account ownership.
The formula for TBO is simple:
TBO = Interest earned + Rewards redeemed – Fees paid
FIs’ and consumers’ current ability to calculate TBO is practically impossible, however.
Until recently so-called free checking accounts promised no fees, but through overdraft fees, foreign ATM fees, stop payment fees, wire transfer fees (need I go on?), consumers paid out plenty for their checking accounts — but could barely forecast those fees in advance.
If interest was earned in checking accounts, or affiliated savings accounts, few consumers could tell you how much interest they earned in a given year, nor forecast that amount looking ahead.
And if you think debit rewards are dead, tell that to UnionBank who’s giving 5% back on debit card spending to new account applicants.
Looking ahead, merchant-funded incentives will become more prevalent. I admit that calling an offer for a discount a “reward” is a bit of a stretch. But if you earn a discount based on your spending, the amount saved should be attributed to the benefits of account ownership.
As FIs continue to re-price their checking account offerings to motivate consumers to hold more accounts or higher balances, demonstrating the total benefits of ownership will become the way banks and credit unions will attempt to differentiate themselves.
As consumer activism continues to rise, the way for financial institutions to respond is by demonstrating the value they provide — by quantifying it, and compete on the basis of it.
Executing on this won’t be easy, however. FIs will need technology offerings that deliver the essence of TBO:
Enabling prospects to model their behavior to forecast expected TBO, and enabling existing customers to calculate actual TBO on a real-time basis.
FIs will need the ability to aggregate accounts (internally), compile customer activity across channels and products, and track rewards and merchant-funded offers.
Sound too complicated? Think it’s too much effort for consumers? You’re underestimating the increased desire among consumers to make smarter decisions about their financial lives, their desire for more transparency, and the ability of technology — particularly mobile technology — to make this a reality.
You’ll have to read the report to see which technology firms we think will be the leaders in the development of these capabilities, how TBOmania will play out, and the other trends Aite Group is anticipating.