Over the past few years, we have seen significant changes in the banking industry, including new legislation which has affected what products are offered, how much money the banks can make from each; and how consumers use banks and their products. These changes will greatly drive how banks define their brand and market themselves.
Legislation enacted in 2010/2011 has completely changed the way banks make non-interest income from two key sources; debit cards and non-sufficient funds (NSF) fees. The Overdraft Opt-In policy (July 2010) required bank debit card users to opt in to overdraft protection, rather than automatically enrolling the card user. As a result, debit cards are now a declining source of income for banks. The Durbin Amendment (July 2011), capped the interchange/swipe fees charged on debit card transactions (from .44 to .24) for banks with assets over $10 billion. With these two legislative changes alone, banks have lost billions in fees and need to look for other ways to make up the lost revenue.
So where do they start? Let’s take a look at what we do know about acquiring a new customer and how technology and the Millennials (Gen Y) are changing the way that we bank.
Checking accounts are still the lead product in acquiring a new customer, but are at best a break-even proposition for banks. The statistics show that, on average, a customer that has only one product with their bank has a relationship of 18 months with that bank, while a customer that has three products has an average relationship of almost seven years. The earning potential of a customer substantially goes up as the product set increases. Bank managers need to do a better job in cross-selling new customers at the time of opening a new account and a better job selling existing customers on the next best product within the first 90 days of the relationship. Banks are in a continual cycle of acquiring new clients and cross-selling their existing clients. There are very sophisticated target marketing tools that enable banks to accomplish both by tailoring messaging and offers. Good bank marketers turn customer insights, banking behavior and lifestyle habits, into an automated segmentation process that assigns segment codes to each customer. This enables communications to be well targeted, smarter and more relevant to the customer.
While revenues on debit card interchange fees have been significantly reduced, credit cards have not been affected. However, Gen Y tends to use credit cards differently than Baby Boomers. According to American Express, Gen Yers “tend toward financial conservatism, avoid debt and tend to avoid credit.” This has helped push American Express towards prepaid products. American Express is rolling out a newer, cuter, physical prepaid debit card called bluebird.
Demographic sectors such as the Millennials are seeking non-traditional payment methods, paving the way for pre-paid cards. My prediction is that new payment products will be offered by non-bank entities, which will alter the competitive landscape for the banking industry. For the short-term, banks will need to do a good job at marketing targeted pre-paid cards to customers based on income and credit scores. Once the pre-paid cards become more mainstream, banks will need to mass market this product to a larger group of customers.
Another marketing opportunity is mobile banking, which will ramp up in 2012, driven by the increased usage of smartphones and tablets. Most banks have not kept pace with the growing usage of the Internet and the preferred method of exchange for the Millennials. Today’s consumer still wants a bank branch, but how they use it is changing. Bank marketers need to embrace mobile banking before their customer seeks out another institution that offers this service. Take a look at Ally Bank. They have a product called Popmoney, which allows you to send money to anyone in the United States and all you need is an email or mobile phone number. Bank of America has text banking that allows you to check balances, transfer funds between your accounts, pay bills and find nearby branches and ATM’s.
In today’s age, there is a broad availability of robust data and marketing technology tools to facilitate a better customer experience. Bank marketers need to embrace all that is available to them. Times are changing at a rapid pace and, as marketers, we need to keep ahead of the curve.
Photo Credit: Flickr’s madbadger2742