We talked to Mark Schwanhausser, Javelin's Director of Omnichannel Financial Services, about why engaging account holders is critical to becoming the primary financial institution.
What do you think banks and credit unions can do to better engage account holders, and do you think it matters?
It matters because engagement is one of the key elements in creating a solid return on investment. Right now banks and credit unions do a decent job of giving consumers the ability to perform regular transactions at their own convenience, but they can drive up engagement even further by figuring out how to use technology to get a clearer sense of what account holders need and who they are on an individual basis.
The attention to personalization is critical. Financial institutions need to start providing insight and advice to account holders in a way that positions the financial institution as a trusted advisor. What we're talking about here is becoming the primary financial institution. You win when you're the primary institution. Nobody wants to be in the secondary position — or at least none of the clients I work with want to be in the secondary position. They want to be in the primary position because they want first dibs on the long-term relationship with their customers.
If customers are just parking money with you, then you’re not in that primary position. However, if they're coming in on a regular basis to check their balances, to check transactions, to pay bills — and if they have their direct deposit coming in and are swiping their debit cards — then you can know they view you as their primary financial institution. That means you're winning the game.
If you do things right and show that you understand them by providing personalized insight, you build trust. Then when it's time for them to borrow for a car or to get a new credit card, to help put a kid through college, to buy a house, to start saving for retirement or investing their money that they've saved for retirement, you have a chance to be at the head of the line. If you do it right, you might even be the only one they turn to because they're satisfied that you're going to give them a good deal.
All of that hinges on the idea of being the primary financial institution, and that only happens if you're winning the engagement game.
So engagement is critical to becoming the primary financial institution?
Yeah, and for what it's worth, this is the key takeaway from a project we worked on with Deluxe. We looked at new checking account customers and evaluated them based on whether they were using direct deposit, paying bills through the bank, and swiping the debit card. If they did all three of those things, we categorized them as a fully engaged customer.
What we found was that fully engaged customers were four times more likely to identify that bank as the primary institution. These customers were buying more products, almost three times as many products, as the other customers. The payoff in our calculations came from the credit card, the car loan, and the mortgage loan — the long-term relationship.
So it's not just about opening a checking account. Opening a checking account is just setting the stage for a long-term relationship with a long-term ROI that's coming from cross-selling revenue. This revenue comes from a deeper interaction from the bank. More products, more interaction.
We’ve heard you talk about Moneyhawks before. How do financial institutions best engage with Moneyhawks?
Well, let’s first define what we mean by Moneyhawks. These are the 13% of consumers who are the most affluent, the most profitable consumers. They're digitally engaged. They are the ones who are going to turn to a mobile device first but will also use online banking. They'll call your call center. They'll go to your branches. They are engaged with the bank in a variety of ways. Again, they are your most profitable customers. But they're also your most fickle. That's part of the challenge.
They're overseeing a lot of accounts. More institutions come into play for them, so they're more complex and they're more engaged. And they want to stay on top of their money through a variety of channels. That’s one of the things that they're judgmental about.
We also have talked about this in the context of digital account opening or opening an account in general. One of the big debates in the industry that I see, and I think it's a healthy one, is that there is a camp that says when somebody is opening up an account it’s a great time to cross sell them other products. You can sell them a better mortgage rate, one that will save them money. But we have data that strongly shows that the best institutions focus initially on engagement. Get the trust built. Get the habits established so that the consumer becomes loyal. Then develop those cross sales over time.
That's good. Lead with engagement and focus on the long game. But what about account holders who switch? Do you have data on why certain people switch banks?
We do have data on why people switch. We look at both why they left the bank and why they went to the new bank. Clearly some of the big reasons people switch banks are because they move, get angry about fees or become dissatisfied with customer service. Those three things are perennial pain points that need to be dealt with.
But what you'll see is that the role of digital banking is also critical. And the importance has been rising in terms of mobile. Moneyhawks and young consumers increasingly demand a better mobile experience, and they’re willing to switch banks to get it.
How does the branch fit into all of this?
Banks need to recognize the fact that customers are doing fewer routine activities in the branch. Once they recognize that, they can make sure those activities are available on digital channels and then rethink what the branch does. The branch will not go away and should not go away. It is still an effective tool, and it’s best for dealing with higher margin opportunities.
So it's about taking advantage of the strengths of the branch, taking advantage of the strengths of online banking, and taking advantage of the strengths of mobile banking. Banks need to enable customers to pick and choose the best kind of service for any particular kind of transaction. If customers are just checking their balance, that's a terrific opportunity for mobile. If their needs involve questions, face-to-face relationships, or exploring a new product, that's a terrific opportunity for the branch.
As a banker, you have to recognize that customer expectation habits are changing. So how do we take advantage of those? How do we not get caught by surprise by this? How do we develop a better relationship for our customers who will mix and match?
Okay, so let’s say that a financial institution has anticipated that customer expectations have changed and they have a variety of products available to meet these expectations. How does this financial institution let their account holders know about these products?
In many cases, this is one of the biggest challenges that banks or credit unions have. They turn things on and then they don't market them well or don't explain them. So there's an opportunity with every visit to teach account holders how they could be turned into digital consumers. If somebody comes into a branch to deposit a check, that's an opportunity to explain to them that remote deposit is available. One of our clients actually provides two dollars to account holders who come in and learn how to deposit a check through an ATM or mobile device. They use it as a teaching opportunity.
There's always an opportunity for teachable moments like these. That would be one aspect of what you do inside of a branch. Look for the teachable moments that expose how the digital channel is a better experience for them. Not just another experience, but a better experience.
That's good. So what would you say most banks and credit unions are missing? What's the biggest thing that they're missing in being able to attract Moneyhawks more effectively?
One of the key things that banks have to do is help consumers better oversee their finances. Consumers need help in dealing with the anxiety that comes with money, and financial institutions should make it easy for them to automate the routine parts of their financial lives with things like bill payment. They should also help consumers understand the flow of their cash.
One of the key things is to provide an aggregated one-stop view so consumers can see all their accounts, even those not with that particular bank. It’s also important to develop an alert system that keeps consumers on top of their finances, so they can stay on track of their top financial goals. The place that gives account holders a sense of confidence will win and retain users. That to me is the heart of where banking needs to go.
And that ties back to the idea that financial institutions should be interested in the long-term relationship.
Absolutely. If you can have an account holder say “I’ve changed my behavior because of my bank or credit union,” then you’re in a good position to be the primary financial institution. You’ll be the first place they turn when looking for a new loan. It’s all about building a long-term relationship instead of a commoditized relationship.