Checking Hinges on Referrals, Online Openings

CUNA's E-Scan Website
July 7, 2010 | COMMENTS

When the going gets tough the tough get … more checking accounts. So says Robert Giltner, consulting partner with financial services strategy firm Velocity Solutions.

There are two primary ways to add accounts and grow revenue, says Giltner—referrals and online openings.

When it comes to transaction accounts, one key going forward is word-of-mouth referrals. The number of members who refer friends and family is a critical measure of your growth potential and market presence. Top performing banks get 40% of their total openings from referrals, and these accounts have higher balances, stay longer, and bring in other accounts.

In a nutshell, the best members come from the referrals of satisfied members.

Referrals don't need to be left to chance, and a strategically managed referral process can leverage technology to make it turnkey and Internet-savvy. Automated tracking of who actually recommends the institution provides a far richer return on investment than heavy-handed promotions. After all, notes Giltner, consumers who chase rates once will move again when they spot a better deal.

Online openings

“How will prospects find you? They will find you online,” Giltner said in a May presentation, “Driving Revenue from the Web: Online Acquisition and Opening,” sponsored by the Bank Administration Institute.

Research from Seattle-based NetBanker predicts that by 2015 half of all U.S. checking accounts—and more than 63% of accounts opened by consumers under age 35—will be sold via the Internet.

Checking accounts currently offer the highest return on investment of any financial activity to drive earnings growth, according to research conducted by consultancy Novantas. The projected value of the typical checking account is between $500 and $2500 over the life of the account, Giltner said.

Even so, Giltner noted that checking account acquisition has historically been hindered by mass marketing and media strategies that show declining results and the inherent limitations of the branch network's geographic reach. In addition, there's an incremental cost of between $150 and $250 to open each new account, so institutions typically take a year or so to break even on the accounts.

The increased ability to both market and open checking accounts online “has unique features that allow for rapid account growth,” Giltner said. While credit unions are limited by field-of-membership restrictions, banks can acquire new accounts in and out of their conventional geographic service area.

Nonetheless, even institutions with limited geographic coverage can more easily target certain demographic groups with more focused products because they're reaching out to a broader swath of consumers than they could through a branch or direct mail.

The difficulties of getting funds into new checking accounts has historically provided one major hitch that drove otherwise online-prone customers into a branch. But even this barrier is falling away due to recent advances such as consumer-oriented remote deposit capture via mobile phones or home-based scanners, as well as making Automated Clearing House transfers via PayPal. “These advances are answering the last question of how to make a deposit into a new online account,” Giltner said.

This article originally appeared on CUNA's E-Scan Online Research & Advice Portal. Reprinted with permission.