Publications & Resources

March/April 2008
Focus: Building Franchise Value

So You Want To Improve Customer Loyalty?
It All May Hinge on Your Checking Account Services

By Bob Brunner

In today’s highly competitive marketplace, where both depository and non-depository competitors contend for your customers and consumer prospects, it is more important than ever that your bank develop, update and expand those services that solidify and deepen personal relationships that lead to improved customer loyalty, based on high long term value recognition.

Most bank officers will point to improving customer loyalty as a key element in their strategy to increase core deposits, create differentiation and lower the cost of funds. However, many banks find this broad and somewhat ambiguous strategy is coming up short in today’s economy. They will often explain that established bank marketing tactics may no longer be adequate inasmuch as a growing number of customers and consumer prospects are now selecting banking services based on their interest rates and convenience rather than brand and tradition.

For example, when free checking was introduced, it represented a truly effective marketing tool – producing a strong and recurring positive experience for customers as well as a significant point of differentiation for the bank. Today, however, with nearly every financial institution offering this product, the marketing value of free checking has decayed to a point where it is now considered a commodity service that offers little or no competitive differentiation and serves questionable value in developing profitable relationships or customer loyalty.

Competitive Factors

Checking accounts rarely exist in isolation. A number of financial products are strongly linked to checking accounts and are usually liquid asset account related (savings, CDs and money market accounts). Consumers have historically chosen to keep their checking accounts at the local depository institution. As a result, their other liquid assets also fell within the domain of the local bank.

However, as comparisons of “high yield” checking to “no yield” checking become more commonplace, one could expect that a growing number of consumers would be willing to offer their liquid asset accounts (note the plural reference) to those financial institutions that offer the higher rate checking account options.

Internet-based institutions recognize both the liquid asset linkage to checking accounts and the decayed loyalty associated with the “free checking” product. They have made it clear that their introduction of internet-based high yield checking is fully capable of closing the gap between checking accounts and money market accounts and ultimately will provide them with the optimum environment from which to generate a matrix of multi-path product relationships and positive experiences with bank customers attracted by their high yield checking account service.

Further complicating the competitive environment is that a growing number of brick and mortar depository institutions are introducing high interest checking to satisfy their customer base as well as to provide an incentive for consumer prospects.

Tactical Suggestions

Many experts believe that future success in the financial industry will be enjoyed by those financial institutions that capitalize on multiple service opportunities that surface through consumer relationships. Therefore, banks should strongly consider revising their checking account portfolio to include a high yield checking account product(s).

Use your local depository bank status to your advantage. Advertise and communicate to your customers and consumers that your high yield checking account service comes with all the benefits and comfort of a local institution – providing an asset service that non-depository, non-local institutions and internet-based investment firms cannot match.

Because these high yield checking accounts are “linked” to other required services, account holders convert to the use of technology-based, cost saving services that strengthen the financial institution’s bottom line. Other benefits include opportunities to:

  • Differentiate your checking account product from your competitors’
  • Generate revenue via new deposits
  • Decrease costs by converting customers to cost-saving technologies
  • Increase retention rates
  • Increase earnings as customers participate in more fee-based institutional services
  • Increase debit card transactions

High yield checking satisfies sales approaches and business models that seek to attract and benefit customers that previously were drawn to rates offered by non-primary financial institutions.

Banks that offer online services such as high yield checking can present the best of both worlds to their customers and prospects. Banks can take advantage of their technological assets and traditions to establish themselves alone at center stage of a new customer service environment – one that provides the personalized attention of a local depository institution in concert with a wide selection of internet and technology-based products.

Bob Brunner is vice president, Western Region at Strunk & Associates, L.P., a financial institution advisory service headquartered in Houston, Texas. He can be reached at 702-658-5496 or bbrunner@strunklp.com.

Unauthorized reproduction of all or part of this material without the express written consent of the author is strictly prohibited. All rights reserved.