While short-term KPIs of acquiring customers may sound appealing, if a strategy isn’t put in place to activate them – your bank could actually be losing money
On average, customer acquisition costs vary from $200 up to a few thousands dollars for wealthier customers. Net new customers are an important KPI but, as I often remind banks, unless they activate the product they are offering, the job is merely half done. This issue is most prominent in the world of cards. For example, Citibank had a credit card activation rate of 68%, while Fifth Third’s was just 49%. Low activation rates represent a lost opportunity in optimizing customer lifetime value, as well as a waste of marketing resources used in cardholder acquisition. This means that almost 50% of your marketing spend is not useful and if you add the operational cost of opening an account and leaving it “dormant” you have a negative loss carrying for years. For example, the cost to keep an account open can vary from $200 up to $400. If we do a quick back of the envelope calculation. A new customer can cost you between $400 to $600 minimum, if they do not activate and use the card, you end up with an estimated loss of $1200 minimum over 5 years.
If we look at “new banks,” the activation issue is higher as they double down on their investment on marketing. Even if they have a lower maintenance fee due to a more modern infrastructure (e.g. UK challenger bank cost to keep an account open is $80) they experience a way lower adoption rate. Moreover, the number and value of transactions happen to be much lower than your “standard” bank account. This is due to only approximately 20% of customers deposit their salary into the challenger bank’s account. Most challenger bank customers use their card mostly for daily low value transactions or to take advantage of a promotion and then forget about it.
However, some banks are great at driving activation and creating unique customer experiences. Below are the key aspects of a successful activation process that drives not only spend, but customer lifetime value.
- A clear path to success – When you look at an end to end journey it’s important to have a clear 90 day product onboarding roadmap with the right control in place to enable you to bring customers back on track. Banks today have multiple channels to reach out to a customer and should use it to orchestrate a unique experience that can start from in branch to their home banking. As long as banks are getting in touch with relevant offers, customers don’t tend to be annoyed.
- When you order a new card or a new product, there’s always a bit of excitement. What I’ve found, especially in North America, is that your credit card acts as a status symbol. If you can flash out a platinum amex or a black card it’s a sign of wealth. Based on this, it’s important to keep the customer engaged during the delivering process. How you can do this is through:
- Quiz – you can send them quiz about the product to drive product awareness and give them a reward they can use right away when they get the card
- Digital payment – provide them, where available, access to x-wallet to drive quick adoption
- Offers – enable your customers to benefits from personalized offers to drive that top of the wallet mindset to increase customer lifetime value
- Experience – banks should focus on really engaging experiences. Financial services firms today offer fairly flat journeys. Personalization does not mean displaying a banner in your mobile app based on what you click in a previous email or the individual’s name at the top. The experience needs to focus on understanding the customer lifestyle. Leveraging predictive features, offers, relevant content results in better customer experiences which means brings greater ROI. For instance, banks in the USA with better customer experiences saw an increase in compounded deposit by 46% compared to competitors with poor customer experience
- Translate data into personalized products and real-time offers. The amount of data available on individual customers or prospects has exploded in recent years. The challenge is to convert data into actionable nudges and highly relevant offers for customers that are delivered at the right moment. Credit-card companies have long offered discounts on specific spending categories or with specific retailers. Today, they can improve loyalty and share of spending by providing location-specific offers right when a customer enters a coffee shop, movie theatre, or car dealership.
- Data – As vast amounts of data is captured by tech firms on consumers’ behaviour and preferences, one of the last bastions of valuable information is transaction data and financial behaviour. To retain unparalleled access to this data, banks will need to continue to own the transaction layer, giving them a full view of inbound and outbound activity, to form a complete picture of consumer balance sheets. Data is the critical infrastructure to deliver the above points in an efficient manner. In turn, banks must educate customers of the importance of sharing data as a benefit.
Getting started with your activation strategy it’s pretty simple but requires some adjustment and better orchestration of experiences in order to be relevant to the customer.
- Acquiring customers is always more expensive and less profitable than doubling down on deepening the relationship or having a higher activation rate
- Have a clear first 90 days sales choreography
- Invest in data and how you can use external data sources to supply some structure
- Provide highly personalized journeys
- Offers, offers, offers – provide economical benefits for your customers