March 07, 2013

Effective customer on-boarding continues to be a challenge for many institutions. Banks have a very limited window to engage new customers, increase new account balances and grow share of wallet before households lose interest in the many new customer communications and offers being sent their way.

In many cases, the customer may switch to another bank entirely. According to the American Customer Satisfaction Index (ACSI), about 10-20 percent of customers switch banks each year. Additionally, a December 2012 report from ACSI indicated that while customer satisfaction has improved as an industry whole, it is mostly the result of continued high customer satisfaction among smaller banks and credit unions, and from an increasing number of consumers having moved from large banks to smaller institutions.

Taking a closer look at the customer satisfaction quandary, J.D. Power & Associates indicated in its annual survey of retail-banking customer satisfaction that new customers are the least satisfied and the most likely to leave. In fact, the report revealed that new customers are nearly three times more likely to show attrition during the first ninety days of opening a new account.

However, this short grace period is the optimal time for banks to establish long-lasting and profitable relationships with new customers. The challenge is that in the crucial first year of a relationship when the customer is most inclined to develop a positive or negative brand experience, a bank is least likely to possess the necessary data to accurately engage a customer according to his or her true potential.

For some new accounts, banks typically only have information on initial opening balance. Many banks rely on this extensively to assign treatment groups and decide which new customer should receive premium offers. However, the initial balance amount can be misleading as some customers open new accounts starting with a relatively low balance, perhaps to take advantage of a special offer or to begin a new, low-dollar amount direct deposit program. Opening balance often does not present an accurate depiction of households’ wealth and growth potential. As a result, potentially high opportunity customers may be placed into sub-optimal treatment groups and upsell opportunities are lost.

Banks require additional information to effectively identify high opportunity customers from day one in order to appropriately distribute resources, grow deposits and increase share of wallet; therefore, banks should look closely at new account opening processes and thoughtfully develop a strategic approach to better on-board and retain new customers.

Superior Customer Experience And Effective Cross-Selling

To win over customers, banks must not only deliver a superior customer experience, but also be particularly attentive during the first 90 days when the relationship is most vulnerable.

A case in point – Fifth Third Bank has more than 1,300 branches across 12 states, but despite its size and extensive customer base, it reaches out to customers three times within the first 90 days of a relationship. After two days, it thanks the customer; after two weeks, it reaches out again to ensure the relationship has been fully activated; and again after two months, to begin cross selling.

To successfully cross-sell and better identify customers who have a high potential for expanding the relationship, Fifth Third relies heavily on household total assets and total deposits estimates to better gauge the potential profit of new customers from day one using only the customer’s ZIP+4 code and age. This is especially helpful in determining which new customers are likely to be Mass Market, Mass Affluent, or Affluent, based on a view of their total estimated financial position, as opposed to just the starting balance.

As in the case with Fifth Third, a thoughtfully-designed on-boarding program, featuring a regular schedule of reaching out to customers to make sure service levels are satisfactory and offer relevant new products and services, is a proven way to put wary customers at ease and create life-long relationships. Customers consistently have better satisfaction when they feel like someone cares, and the most effective on-boarding program makes sure he or she knows the institution is excited to have that person as a customer.

The Right Products, Price And Channel

Another challenge of on-boarding is to offer the right products at the right price and through the right channel to new customers, especially on a real-time basis. Banks lack insight on their new customers and should leverage third party data and technology to better optimize cross-sell efforts, expand the relationship and improve profitability.

For one bank with more than $1 trillion in assets, its primary challenge was to source an enterprise solution for real-time assessment of a customer's viability for a product offer. The bank wanted to streamline their enterprise business processes to give front-line customer service representatives a fast, consistent way to offer new products and services at the point-of-sale. The bank also wanted a centralized solution for offering the right product to the right customer, regardless of channel. In order to respond to changing market conditions and competitive threats, they required the control and flexibility to quickly test and deploy new strategies.

The bank selected a third-party business process automation platform that allowed the bank greater control over its enterprise-wide business decisions for new product offers. The solution provides business users the ability to quickly and easily add and edit business rules, test and deploy new product strategies, and determine risk thresholds in real-time.

As a result, the bank achieved higher profitability through its ability to process custom offers for up to ten products in a single transaction; increase offer, acceptance and utilization rates; enable end-users to perform their own what-if modeling prior to production; and respond quickly to changing market conditions.

New customers can still be nettlesome, but the data available to banks today offers a tremendous amount of insight. In addition, it can be integrated into the point of sale to support better offer management – a huge evolution in banking and an ideal strategy for keeping wary new customers close.

Dennis Hooks is Retail Banking Leader at Equifax.