Publications & Resources
January/February 2009
Focus: Funding & Liquidity
Turbocharging Account Acquisition: Proven Strategies Capitalize on New Technologies
By Bob Sterner
Winning new checking account business has gotten tougher than ever for traditional banks as consumers ignore free checking and other giveaways that once hooked them and as they move online. Consumers continued to open accounts at banks with branches near their homes or work for years after they learned how to bank without actually visiting these offices very often. But that is changing quickly now. An estimated 20% of all transaction accounts are opened via the Internet or with banks that consumers found with Internet search engines. And that figure will only get bigger.
As challenging as the environment is, however, a number of banks are turbocharging their account acquisition efforts with a timeless strategy that's benefiting from the combination of science and technology.
The Power of Referrals
Recognizing the power of satisfied customers, many banks are actively managing
the referral process. And it works. Top-performing banks regularly report that
they get 30% or more of their total account openings from referrals. Banks with
referral programs document that 10% to 15% of their current customers will bring
in at least one additional new customer each year. With 1,200 customers at an
average branch, that means an additional 120 to 180 new accounts per year.
Before implementing an organized referral program, an
average bank will open around 200 new accounts per year, meaning that those
additional 120 to 180 new accounts will boost overall account openings by about
75%. Busey Bank in
The work at Busey and other banks squares perfectly with the thinking in The Ultimate Question, a recent book by Bain & Co. management consultant Fred Reichheld. Reichheld argues that companies with sustained growth in just about all industries have enthusiastic support of their customers, who actively promote their interests. Indeed, he says a business's growth potential can be defined by the number of referrals it gets.
In banking, customers who come in on the recommendation of another customer are especially likely to fund and actually use their new accounts, to bring multiple relationships to a bank and to keep their business in one place for some time. In other words, they're the best bets to become engaged and therefore handsomely profitable customers.
Technology Transforms Process
Building a business around referrals, however, demands a lot more than sitting
back and hoping for the best. Encouraging referral business requires creating a
buzz about a bank and careful execution of a process that leverages satisfaction
of existing customers.
Banks are learning to use social networks, the Internet and e-mail to get people talking about them. In most cases, however, managing referral opportunities starts with automated tracking and reporting about each referral made. This wasn't so easy in a paper-based world, but is quite reasonable with electronic communications.
Paper-based referral programs typically involve branch personnel giving customers forms that they in turn give to their friends. When the friend brings the form back to the bank and opens an account, the bank gives rewards program credit to both the customer and the friend. It's a good start. But tracking the flow of paper is difficult.
Now banks can point customers to online forms where they can provide contact information for their friends. And the banks follow up. The beauty of the system is that banks know exactly how many referrals customers make and exactly how the friends are responding. That means banks can experiment with offers and make adjustments as experience suggests.
The next step in drumming up referrals is concentrating efforts on the customers who make recommendations most often. Even among satisfied customers, only a relatively small portion will go out of their way to recommend a bank. Thus, it's important to court these customers and structure rewards to really show appreciation for their referrals.
Lastly, a managed referral strategy includes tracking results at each branch. Whether an organization is selling checking accounts or industrial widgets, it's critical to know which sales tactics work well and which are not so successful. Analyzing referral results for individual branches leads to identifying best practices and starting conversations among managers about applying those best practices throughout an organization.
Busey Bank, for example, has determined that community events at branches and collateral material in the hands of sales people make a big difference.
Growing the Customer Base
A steady stream of referral business can spell the difference between
solid growth and steady erosion of a customer base. But it isn't an entire
acquisition plan. Internet capabilities, rewards and pricing are still important
topics in any planning session about gathering deposits. Branches, too, will
remain an important part of community banks' retail delivery strategy for many
years to come, and not just because banks have big investments in the
facilities. Even as branch transaction traffic declines and declines, they
remain an excellent venue for presenting a bank's expertise in financial
matters. That can lead to cross selling and relationship building.
Still technology-based referral work is a must for branch banking operations. It works perhaps because it rests on one of the banking business's foundation principles – that asset quality should be carefully nurtured. The asset in this case is perhaps the most important asset a bank has, its base of loyal customers.
Bob Sterner is the executive vice president for My Rewards® (www.myrewards.net), a leading provider of rewards strategies for financial institutions. He can be reached at 910-254-9383 ext. 130 or at bob@myrewards.net.
Unauthorized reproduction of all or part of this material without the express written consent of the author is strictly prohibited. All rights reserved.