Onboarding new bank customers Here today but gone in 90 days?

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1 Onboarding new bank customers Here today but gone in 90 days? Ron Lee Executive Vice President Client Services marketing + technology sundog fax: th st s floor 6 fargo, nd

2 Onboarding new bank customers: Here today but gone in 90 days? An analysis of the onboarding opportunity, with a review of traditional and high-tech ways to welcome new customers during the fragile first 90 days of a new customer relationship. This white paper will: Outline market trends and issues impacting onboarding programs Examine the troubling statistics of client attrition and churn Highlight some of the more effective ways that banks are addressing the onboarding opportunity, from traditional to high tech Show results some banks are seeing; and finally, Provide key steps to get started now with onboarding efforts Introduction In the context of banking, onboarding is the welcoming of and bringing on board new customers to a banking relationship through a managed experience and structured series of contacts. Onboarding represents an untapped area of bottom-line impact and competitive distinction for banks at a time when financial institutions are fighting for deposit share, customer retention and consumer trust amidst a financial-industry crisis. However, even with onboarding programs in place 80% of banks use some type of onboarding program in the United States banks still face high attrition rates among new customers, up to double or triple the average rate of established customers (Wachtel, 2007). These numbers represent a huge leaky bucket. And such numbers keep bank marketing executives awake at night. Attrition approaching 25% from first-year free-checking customers kept me awake when I oversaw product management and strategic development for a publicly traded, $5 billion bank holding company with more than 130 locations across 12 states. What I observed in the industry is that banks are quick to focus more dollars and retention efforts on mature (e.g., more profitable) customers, but often overlook the huge opportunities that a new customer affords. Yet, having been on the public-company side, it is easy to overlook that new-customer segment when you consider the have-to-meet-quarterly-numbers, pressure-cooker environment that bank marketing executives work in. Done well, strategically designed and managed onboarding programs have been proven to drive deposit growth, increase cross sells and products per household, increase satisfaction and deepen loyalty all during the critical and fragile window of a new customer s first 90 days. 2

3 The range of onboarding programs While onboarding programs run the gamut of home-grown programs all the way to tech-savvy, data-driven CRM programs, some onboarding programs appear to be nothing more than project-based after-thoughts that are quickly conceived, soft-launched, and then tepidly supported by management and the front line. Consequently, such flavor of the month programs quickly wither, instead of becoming effective programs integrated into a bank s culture, values and overall customer-experience strategy. Compounding the onboarding issue is the sheer capacity of bankers to deal with increasingly complex jobs, products and regulations, let alone managing yet another to-do such as onboarding. McAdam & Spitler (2007) found the following: Complexity on the front lines is a growing problem in banking, as institutions continue to multiply the tasks expected of front-line employees. However, experts at BAI Research and Novantas LLC argue that this complexity can also present opportunities for competitive advantage if handled appropriately by managers. These opportunities lie in five areas: employee hiring, retention and engagement; training, coaching and sales management; platform tools and processes; tactical prioritization; and response readiness. At the same time, recent reports suggest banks and vendors are figuring out both back to basics and hightech ways to frame up effective onboarding programs. Those who are doing it well are seeing measurable impact in satisfaction, loyalty and cross sells in the first 90 days. Even though bankers appear to agree on a need for onboarding, they don t necessarily agree on the onboarding program s objectives: Some go right for the cross sell; others build relationships first. Cross sell at all costs? Some bankers view onboarding as a way to sell more products first, thereby making the client less likely to eave. Wachtel (2007) from an ABA (American Bankers Association) Bank Marketing article suggests banks create structured programs to cross sell to new customers as a way to "lock them in" and retain deposits on the retail side. Supporting this view is technology vendor Harland Financial Services (Retaining and Growing, 2008) which states: Onboarding is a sequence of proactive communications choreographed to cross-sell products and services to new accountholders precisely when they are most willing to buy and when they are most in need of these services. This continuous engagement provides the institution the opportunity to promote products and services that have a high stickiness factor which include DDA-related products and services such as direct deposit, online banking, debit cards, and bill pay. Engaging new accountholders with sticky products and services makes it more difficult for them to defect or rebound to their previous service provider. Get to know you first? Other bankers and analysts argue that cementing relationships first with new customers is the way to drive loyalty essentially earning a banker the right to talk later about appropriate products and services, as opposed to unloading a proverbial dump truck of meaningless offers in the first 90 days (Frawley, 2006). Aite Group Analyst and blogger Ron Shevlin (2008) argues this idea, and suggests the cross-sell logic of onboarding should be focused on relationships, not transactions, to earn the right to ask for more business later. In this camp is Deluxe Financial Services (2008), which offers financial institutions its proprietary customer-experience focused Welcome HomeSM Tool Kit: We know that loyal customers buy more services, stay with your financial institution longer and recommend you to others. We also know that the early days of the relationship set the tone for future success or failure. The goal is to make customers feel welcomed, engaged and significant from day one. That s why Deluxe partnered with financial institutions and experience experts to create the Welcome HomeSM Tool Kit. This start-to-finish branch solution captures best practices for gaining lasting loyalty among customers by focusing on the first 90 days of the relationship. 3

4 Onboarding Pain Points and Opportunities Boiling it all down, the onboarding problem has its roots in two main causes: 1. Customer Churn: Let s face it, consumers have so many choices when it comes to banking relationships, where products are perceived as commodities. If they don t like the bank, they move on or leave for better offers, often from non-traditional banks. Bankers call this churn, and it costs banks big bucks. 2. Banks Bottom Lines: At the same time, as banks face increasing financial pressures to be more efficient, raise core deposits, grow their customer base and sell more products and services (let alone survive amidst the global credit crunch), they are trying various ways to attract new customers (up to $300 to acquire a new customer, according to American Bankers Association and Deluxe), keep the ones they have, and increase their share of wallet. One strategy to help keep new customers is onboarding. Losing sleep over onboarding Looking at recent attrition statistics, it s no wonder bankers are losing sleep and why there appears to be renewed interest in retooling onboarding programs to make the programs work better. As presented by Kelly Bigelbach, Chief Experience Champion at Deluxe Financial Services, the problem of attrition is very real. In a Webinar called Transforming Your Business One Experience at a Time, (June 2008), she cites the loss in share of wallet among banks, and illustrates how costly attrition and churn are: During the first year, attrition rates are steep: 15% to 30% of new customers will close their accounts and leave. Of those, 50% close their accounts within the first 90 days. Of those who leave, the majority close their accounts on the 74th day. If that wasn t bad enough, more than 70% of new customers who come into a bank today to open a new account will also retain their relationship at their old bank. According to techtarget.com (2005), attrition results in churn of bank customers, or the number of customers who discontinue a service during a specified time divided by the number of customers. Shergill (2005) states that churn is costing banks $15 billion annually. Davis (2007) has found that customers leave for other bank s better offers of free ipods, gas cards, cash, and sadly, even toasters, when they open a new account. Hovanesian (2004) from Business Week confirms the billions of dollars banks are loosing to churn, and says their apparent inability to engage customers means that banks scoop up just $1,000 of the $3,500 that the average American household spends each year on financial services. Why do customers leave? Key reasons often cited by customers include bad experiences with call centers, dissatisfaction with customer service, displeasure with fees, frustrations with products, job changes or transfers, or just plain shopping for a better deal. Even the ubiquitous bread-and-butter free checking account is a factor: According to market research by Hale (2006), the number-one reason people change banks is to secure free checking, not necessarily to obtain better services. Consumers simply don't want to pay a fee to manage money that is already theirs. 4

5 Case Study: Onboarding Issue/Opportunity Here is a quick summary of the onboarding issue and opportunity one upper Midwest bank faced a $5.3 billion bank holding company with more than 130 locations across 12 states. Problem: 25% attrition from its first-year, free-checking customers. Solution: The bank embarked on a five-market, free-checking pilot test in five states targeted at 200,000 prospects over three months. The pilot included a welcome or onboarding component. The program consisted of a direct mail campaign in three waves, with the testing of three offers for opening a new account: cash, electronics or consumer choice, followed by a systematic series of onboarding follow-up calls and communications. The pilot netted approximately 1,000 clients. Acquisition costs were close to $250/client factoring in all costs. Applying the bank s attrition run rate, they initially expected to lose up to 25% of new customers in 90 days or less, or 250 x $250, or $62,500, plus the loss of future earnings potential. Customer profiles showed over time that a new customer with free checking, debit card, overdraft protection, a CD, NSF fees, check orders, savings account, online banking/bill pay with a consumer loan could represent more than $1,100 in annual gross revenue to the bank. To stem the attrition of free-checking churn, the bank tested a home-grown, client-welcome or onboarding component. This program helped decrease attrition and boosted products per household 30% for an estimated additional income of $250 per household in the first year. Adding it up Do the math on the cost to acquire and retain customers when you re losing up to 30% of your new customers in the first 90 days, and it s no wonder why bankers are still trying to solve the onboarding problem. 30% of new customers leave in the first year 50% of those leave within the first 90 days of account opening (Harte Hanks Research, 2006/Deluxe Presentation) Such attrition costs banks $15 billion a year (Jaidev Shergill, Deloitte Consulting, 2005) Industry spends $300 to acquire a customer (ABA/Deluxe) Creating loyalty isn t a nicety; it is a business necessity, (Deluxe, Not if to do it, but how to do it better In some respects, the onboarding problem seems so simple: It is not so much Do we need it, but rather, How can we do it better? Underneath the apparent simplicity of launching an onboarding program are a host of strategic considerations. Left unaddressed, such factors could spell disaster for the bank s efforts and turn away new customers: How do we undertake onboarding in a way that fits with our culture and brand, so it doesn t get seen as yet another project of the month, or one that will quickly die out? How do we retool an ineffective onboarding program, so we can engage with our clients, keep more clients, sell more products and make more money (while managing to a flat budget), capture data and communicate with and engage our clients in meaningful ways? 5

6 How do we get our front-line employees fired up about this when we are asking so much more of them? How do we manage a program, from marketing, operations, technology and client service perspectives, that drives measurable and demonstrable ROI? How do I get this done on top of all the other initiatives at a time of tight budgets and resource constraints? Drilling down even further, onboarding issues appear to be centered at the bank and consumer levels: Banks Have constraints overcapacity, resources, funding, earnings Have been less than stellar in their execution of onboarding programs that tout, Hey, we re doing it too to show action, not results Have a lack of strategic priority given to such a program Are unable to get one view of a customer due to data being housed in different technology silos, making it difficult to manage the customer experience Miss opportunities to connect with consumer in meaningful ways Miss cross-sell opportunities at appropriate points Face high costs of acquiring a new customer Are impacted by high costs of losing a new customer in the first year, which hurts the bottom line Are faced with a global financial crisis. Consumers Are fragile in the first 90 days Are tired of being treated like a number Will not hesitate to leave, hence the high attrition rate of new customers Are fickle, and will shop rates See bank products as a commodity Lack loyalty May mistrust banks given the spate of recent problems, mergers and acquisitions, drop in stock prices and dwindling confidence Closing the Gap So how or what can help banks close the onboarding gap and solve the problem? What are examples of home-grown and packaged solutions? How can technology be an enabler? Type of Program Company or Vendor Overview of Onboarding Solution Customer Experience Focused Deluxe Financial Services A customer-centric business approach designed by bankers for bankers, the Deluxe Financial Services Welcome Home SM Tool Kit (2008) provides customers with the kind of positive relationships they desire from the outset one that makes them feel welcomed, engaged and significant. This start-to-finish branch onboarding solution captures best practices for gaining lasting loyalty among customers by focusing on creating a superior customer experience during the first 90 days of the relationship. The Welcome Home SM Tool Kit uses methods piloted across the country by a collaborative team of 12 bank executives. The Tool Kit systematically shows bankers how to improve the customer experience, by paying close attention to the bank environment and employee interactions. It offers a clear road map to create an exceptional customer experience by focusing on communications, education, measurement (employee and customer loyalty) and delivery. Hundreds of banks now use this program, and these banks are seeing: 7%-21% reduction in attrition 10% to 140% increase in products sold per household 12% - 63% reduction in employee turnover 6

7 Type of Program Company or Vendor Overview of Onboarding Solution Data-driven focused Harland Clarke Marketing Services Harland Clarke Marketing Services (2008) uses its background in MCIF (Marketing Customer Information File) technology combined with modeling, to develop targeted communications specific to each individual accountholder. Called Intelligent Onboarding, the program helps build long-term relationships by engaging new account holders and growing them into satisfied, profitable and loyal customers. This solution helps to successfully onboard new account holders through a solution that: Integrates digital technology, business intelligence and marketing expertise across multiple channels (including online only accounts); customizes components to meet banks needs and provides segmentation capabilities that enable immediate accountlevel targeting; and measures performance to assess program effectiveness and quantify results. Home Grown, welcome-program focus Super-regional community bank, $5 billion in assets Free checking pilot test followed by initial onboarding/call center contact The program used its call center staff to make welcome outbound calls to new clients for quality control checks in the first two weeks of a new account being opened. When contacting new clients, the call center staff: Thanked them for their business. Ensured they received their check card, PIN number, checks. Answered any questions they had regarding products and services. Discussed potential gaps in current financial services and where appropriate, offered referrals to local bank for personal financial review. Educated all new clients about convenient services offered by the bank. (Telebank and Online Personal Banking). Received feedback regarding the service they received from the branch. This program helped decrease attrition and boosted products per household 30% for an estimated additional income of $250 per household in the first year. High-tech, SaaS (Software as a Service) focused SunTrust, using SalesForce.com Opportunity Although not a direct onboarding initiative, SunTrust (2008) turned to SalesForce.com for a customized solution to continue differentiating the bank with excellent, personalized customer service. SunTrust decided that an enterprise sales and contact system would facilitate better information, deliver insight into new opportunities, help improve customer service, increase cross selling, generate new revenue, and help shift the culture toward increased collaboration and accountability. SunTrust deployed Salesforce SFA (Sales Force Automation) in two stages to almost 3,000 users in its commercial and business banking divisions. In the process, SunTrust integrated with customer relationship systems to provide a consistent view of client data and customized Salesforce to support its unique sales process. Results Achieved significant revenue growth above 5 percent Generated thousands of additional sales opportunities Resulted in a consistent sales process that increased employee productivity and customer satisfaction. Other banks and financial institutions use SalesForce for new employee onboarding, lead routing, business development, and integrating core banking systems with CRM tools. 7

8 Benefits So what are the rewards from implementing an onboarding program? Cement customer relationships early in a manner conducive to the way many customers want to transact business (via Web, personal contact) Allow customers to opt-in to types of onboarding they want (high tech, high touch), when they want Make money: Increase retention, loyalty, cross sells, services per household, accounts per household by up to 10% percent Gain and keep new customers Drive customer acquisition costs down Increase customer profitability Use full end-to-end tracking from start of new customer relationship to lifetime value Employ predictive modeling (right products, right time, next most logical product or bundle to offer) Create competitive advantage against competitors New customer attrition is approximately 30% in the first year. 50% of those accounts are lost in the first 90 days. Seeking a Solution What should you look for in seeking a solution? When implementing onboarding at the bank I worked at, we examined a cross section of the company, focusing on systems, process, people, operations/technology, client delivery, compliance, sales and marketing. The questions we asked ourselves, and those I d suggest to any banker considering onboarding, include: Do you possess technical, marketing, operations capabilities, bandwidth and budget to launch or retool your onboarding program now? Does your staff have time to implement a solution? Do you have a marketing and technology consultant to help? Can you track all the way from a lead through a sale to a series of managed communications in the first 90 days to the overall lifetime value of a client? Can you quantify the value of a new customer? Is your contact center equipped to handle virtual contact and duties? Is your Web technology able to enable secure , chat? Do you have one single view of the customer across all business lines (retail, business, mortgage, trust, investments, leasing)? Can you track current trends in attrition and compare that to national trends? What is your marketing allowable in new client acquisition spending? Conclusion As this white paper has outlined, onboarding represents an untapped area of bottom-line impact and competitive distinction for banks at a time when financial institutions are fighting for deposit share, customer retention and consumer trust. Some banks are figuring it out and are seeing deposit growth, increased cross sells and products per household, increased satisfaction and deepening loyalty all during the fragile period of a new customer s first 90 days. Regardless of the type of onboarding program you embark on, traditional to high-tech, ensure you have addressed the strategic considerations, plus seek management and employee support, so it won t turn into a project of the month that fizzles out shortly after launch. Instead, design a program that connects the dots to your internal technology and data platforms, lets your front lines engage new clients in meaningful ways ( wow them and woo them), and let the onboarding program evolve into a key component of your overall customer-experience strategy. 8

9 Next Steps Still losing sleep over your onboarding program? Not even sure where to start? If you already have an onboarding program, are you getting the most out of it? Do you need support in establishing onboarding measures/metrics? Are you interested in ramping up the technical side ofonboarding? If you have an onboarding program, now is the time to re-evaluate it and add interactive marketing dimensions to meet your customers where they want to be met, when they want to be met. Stop losing sleep by contacting Sundog today. As a marketing and technology company, our experts have been on both sides of the table and have helped manage onboarding programs to drive business results and happy clients. 9

10 References Bigelbach, Kelly, (2008, June 29). Deluxe Financial Services presentation, Transforming your business one experience at a time. Davis, K. L. (2007, April 11). Tulsa-area bank of the west gives away toasters in effort to remind. BNET. Retrieved June 12, 2008 from Frawley, Andrew J. (2006, April). Customer Loyalty Begins at Day One. Direct Marketing News / Click Tactics Inc. Retrieved July 8, 2008 from Hale, J. A. (2006, July 24). Consumers rarely raise banks above commodity status. Indianapolis Business Journal. Retrieved June 12, 2008 from Hovanesian, M. D. (2004, Dec 6). End of the big bank bonanza. BusinessWeek. Retrieved June 12, 2008 from McAdam, Paul & Spitler, Rick. (2007). Making complexity manageable. BAI. Retrieved June 12, 2008 from Shergill, Jaidev. (2005) Deloitte Consulting LLP Financial Services Strategy. Deluxe Corp. Retrieved June 12, 2008 from Shevlin, Ron. (2008, Feb 28). Cross-selling should not be part of on-boarding. Aite Group. Retrieved June 12, 2008 from Wachtel, Christopher. (2007, December). Everyone knows it s a good idea to greet new customers. ABA Bank Marketing. Retrieved June 12, 2008, from (2005, June 27). Churn rate. TechTarget Retrieved June 12, 2008 from (2006). Welcome home tool kit. Deluxe Enterprise. Retrieved June 12, 2008 from deluxe-fi-welcome-home-toolkit.pdf (2008), SunTrust Banks Exceeds Sales Growth Goal and Enhances Corporate Culture with Salesforce CRM, retrieved Dec. 4, 2008, from: (2008), Intelligent Onboarding, Harland Clarke Marketing Services,. Retrieved Dec. 18, 2008, from 10