Banks can generate 20%+ ROE by providing targeted products and services delivered through digital channels, with wallet-share (aka loyalty) being the new metric of success.
The topic of Business Strategy and implications to Customer (Member) Loyalty, Revenue Growth and Profitability are rather timely as Banks and Credit Unions prepare for the Annual Strategic sessions. Specifically related to checking accounts, every Bank and Credit Union ought to be asking questions including: How effective and efficient has the customer acquisition program led by checking account product sales been? How effective is the cross-sale plan that is based on WOWing the checking account customer into additional product sales? How much products have been upsold, on average, to a checking account led acquisition? How much revenue and profit have the checking account led acquisition customers generated for the Bank or Credit Union? Perhaps the experience of your Bank or Credit Union is an outlier, but the data is overwhelmingly and unequivocally negative. That is, checking accounts are effective only at increasing the count of checking accounts (and perhaps the wallets of certain vendors who continue to sell the value of the checking account). 10 years ago, the checking account may have been the gateway to a broader wallet-share, revenue and profit growth, but circumstances have changed and the checking account is a liability – in all senses of the [Read More...]
Do Credit Unions, as a group, understand Business Strategy? The findings are not encouraging based on the survey of nearly 500 Credit Unions conducted by Aite Group. Though the focus of the survey was limited to Credit Unions’ Online- and Mobile-Channel business objectives – the findings give us much cause for concern. The survey found that 88% of Credit Unions believe that Up / Cross-Sell of Existing Members is a key business objective for online offering and 87% believe that online is a key business strategy for Acquiring New Members. So far so good… However, just 27% of Credit Unions believe that Generating Revenue was a key online objective. So, just to restate… nearly 90% of Credit Unions want to cross-sell and acquire new members, but less than 30% are interested in generating revenues! In which case, why bother cross selling and trying to acquire new members? Here is another doozy. More than 90% of Credit Unions believe that a key business objective of their online offering is to Maintain Competitive Parity, while at the same time, 85% also believe that Obtaining Competitive Differentiation is a key business objective. Again – how can you ‘keep you with the Joneses’ and differentiate [Read More...]
Cross-selling, despite significant focus and investment, is ineffective at most Banks. Based on Deloitte survey conducted in August 2012, just 54% of consumers have more than just a basic checking account at their Primary Financial Institution (PFI) or elsewhere. Of those that own multiple banking products, only19% owned 3 or more products in addition to the checking account with their PFI compared to 49% who have 3 or more products with another Bank or Credit Union. Bank and Credit Union executives must therefore ask themselves questions including: - Why are consumers not purchasing banking products (in addition to the checking account)? - Why are consumers not purchasing banking products with their PFI? Customer Satisfaction with Banks and Credit Unions Nearly 90% of consumers are satisfied with their Bank and Credit Union. The high customer satisfaction has resulted in the average tenure of nearly 6.5 years, with 40% of the customers staying with their Bank or Credit Union for more than 10 years. Contrary to popular belief, consumer trust in Banks is neither weak nor waning and an average banking relationship lasting about as long as an average marriage in the US. Ownership of Banking Products Excluding Checking [Read More...]
Banks and Credit Unions executives continue to be challenged to improve effectiveness of product and service pricing. Never more so is true than when it applies to Checking Accounts – the staple of a banking relationship and the stepping-stone to a deeper Banking relationship. Consumers are Satisfied with their Bank or Credit Union Although many surveys seem to indicate that the vast majority of consumers hold a negative view of Banks and Credit Unions (FIs) and their practices, the reality of consumers’ actions are very different. 88% of consumers are satisfied with their Primary Financial Institution (FI) according to Deloitte’s Retail Bank Pricing survey conducted in August 2012 with over 4,200 checking account customers. Just 7% of consumers expressed some level of dissatisfaction. This figure correlates well to the historical trend of 8% – 10% of consumers who switch their Primary Financial Institution annually. Consumers Disinterested in Paying for Previously Free Products & Services Not surprisingly, most consumers are very sensitive to price increases, especially for products and services that were previously offered at no charge. Given same level of service and same products, consumer reaction to fee increases is … not positive. After all, very few of us enjoy [Read More...]
Serge Milman, Principal Consultant at SFO Consultants is pleased to present a Free Webinar to Community Bank and Credit Union executives on the importance of Business Strategy to growing revenues, improving loyalty, and enhancing operational performance. Community Banks dominate the industry with 91% of the total institutions, but generate just 8% of the industry’s profits. Intense competitive pressure from traditional and non-bank competitors is exploding with ‘too much money chasing too few good deals’ leading Banks and Credit Unions to sacrifice yields and/or suffer from collapsing loan portfolio both of which result in deteriorating ROE. The panacea is on to find a solution, and many are turning to tactics including serving the un/under-banked, GenY, deploying PFM and P2P capabilities, engaging in the cut-throat game of competition based on price, while some have determined to follow the ‘hope and pray’ strategy. Regardless of the approach, most Community Banks are seeing a deterioration of their value, with trading values (for public Community Banks) and average acquisition multiples (for Community Bank acquisitions) at substantially below 100% Book-to-Value. Deploying tools, capabilities and addressing new customer segments may make sense for some, but does it make sense for all Community Banks? In the landscape of [Read More...]
Banks are initiating aggressive customer acquisition programs, and a recent Fed reports helps with the finding that household wealth rose by $3 trillion in the first quarter, to $70.3 trillion. On average, household wealth at the end of the quarter was $613,635, about 11% below the 2007 peak but a sharp rebound from the lows set just a few years ago. That’s the good news… The bad news is that the Net Worth of the older generations has recovered and in some cases exceeded previous peaks, the case is far from the same for the younger generation (those under the age of 40). As can be seen in the chart below, the Net Worth of those under the age of 40 has declined and remained depressed at around $100,000, while the older generations average Net Worth has risen to ~$700,000 for 40-61 year olds and over $900,000 for those over 62 years of age. This information is crucial to Bank and Credit Union executives focused on customer acquisition, customer retention, cross-sell strategies and more generally, value creation for customers and growth / profitability for the Bank. Understanding customer segments is essential. Understanding customer preferences, needs, and wants is a pre-requisite for succeeding [Read More...]