Customer Development
With consumer choice at an all-time high, financial services providers are under increasing pressure to acquire and retain profitable customers. What strategies should we use? What tools should we invest in? How should we measure success? These questions are being intensely debated by banks and fintechs alike.
They are also being debated by FICO subject matter experts, in this FICO Exchange featuring FICO's Tom Johnson, a senior director of consulting, and Alex Johnson, a marketing director.
Alex Johnson: In a recent conversation with an online lender focused on the personal loan space, I heard something that blew me away. They were telling me about their aggressive growth plans for 2019 and I asked them what acquisition channel they was going to be using to drive that growth and they said…
…wait for it…
prescreen offers sent out in the mail! This was a fintech that has been loudly telling bankers and industry observers that they are re-inventing financial services and yet their primary acquisition channel, the key to their aggressive growth plans, is the Post Office. What?
Tom Johnson: There is a reason direct mail and batch marketing have been around for 40 years. Driving new customer growth for all financial institutions is hard and batch marketing is one of the few proven approaches they have.
It’s not the tools, it’s how they’re used. One of our largest and most innovative banking customers is a huge batch marketing user. However, the way they use those offers is completely different and innovative. They use those offers to interact online with potential customers at times and places that they believe the customer will be open to consider a new financial product.
Alex Johnson: And that's exactly the point right? The underlying process for generating a pool of pre-approved offers can still happen in batch, but if you're not shifting the interaction point where those offers are delivered out of the mailbox and into various digital channels, you've fallen behind.
Perhaps a reason for optimism, according to a recent story in the Wall Street Journal - "The number of mailed credit-card offers hit a five-year peak of 4.6 billion in 2016 and has fallen since, according to research firm Mintel Comperemedia."
Tom Johnson: It may not be as simple as direct mail is bad and digital is good.
Alex Johnson: HOW DARE YOU CHALLENGE MY TENDENCY TO OVER-SIMPLIFY!
Just kidding…please continue
Tom Johnson: It is all about what is the right way to engage your customers or potential customers. A Fintech or other new entry into the market may have enough “brand intrigue” to get a potential customer to open a direct mail piece, but a standard bank may not. The more tools you have in your toolbox and the more flexible you can be, the more successful you will be.
Analytics and the ability to test and adjust strategies quickly is the real key. It is really hard to know the right approach and mix of tools unless you can do testing and analyze the data. The right answer will also change over time as market and consumer conditions change. Adapt or die.
Alex Johnson: Speaking of the need to adapt, the biggest shift we may see isn't between which channel to use for new customer acquisition, but rather a shift in focus away from new customer acquisition altogether. Have you seen what's happening in the premium credit card space?
Tom Johnson: I have. The $$ being poured into new customer acquisition and rewards seems unsustainable.
Alex Johnson: Right, exactly. Reminds me of Major League Baseball in the aftermath of Moneyball; suddenly every team was paying a premium for on-base percentage (which completely defeated the purpose). Smart teams immediately pivoted to looking for other overlooked player attributes.
Going along with this premise for a second, if we accept that new customer acquisition is becoming "overpriced," where should smart lenders look for better value?
Tom Johnson: The Moneyball example is a really good one for banks and other financial services providers to keep in mind. The goal is to build a profitable portfolio at the lowest overall cost, not to acquire every new customer you can possible get. There are very few net-new customers in the market, so banks end up stealing the same customers back from each other and that can get prohibitively expensive.
In my conversations with banks, an increasing area of focus is cross-sell and growth within existing portfolios. This is a huge opportunity and one that banks have historically underinvested in. Obviously the dominant cross-sell model that banks have relied on in the past—sales incentives for branch employees—has become a little less attractive in recent years…
Alex Johnson: And that is another long topic, for another time.
