Banks have always known the value of building a long-term relationship with their customers. As legacy banks face growing competition for Fintech startups, however, relationship banking has grown even more important.
Part of that focus reflects a realization among many banks that they’ve hit a ceiling when it comes to generating overdraft revenue on basic checking accounts. In order to continue growing their revenue, they’re increasingly looking at trying to capture more share of wallet and attracting customers that offer more complete value to the bank.
Mass affluent customers, who typically use multiple banking products, represent one area where banks can find that revenue growth, and banks are starting to aggressively court them. The mass affluent market—defined as consumers with more than $100,000 in investable assets or a household income of $100,000-$150,000—is large and very competitive.
Banks believe—correctly—that if they can get mass affluent customers to switch over their total banking relationship, they’ll likely be able to hold onto those customers, who often have the potential to evolve into private banking clients. That’s why they’re working so hard to capture that market.
Making it stick
Relationship banking is all about creating a sticky experience and entrenching a customer within a bank’s business. Once customers set up direct deposit, automatic bill pay, switch over their brokerage portfolio, they’re unlikely to go through that transition process and paperwork again anytime soon. That’s why banks are willing to shell out real incentives—think $1,000 bonuses—to customers who make the switch.
The incentives vary, depending on which product the bank feels can best lure the customer over. It’s always a value exchange, and the key is to find an incentive that offers the most value to your specific customers, in order to get them to bring over their entire business.
For banks focused on cross-selling their mortgage lending business, that might mean waiving closing costs or discounting the rate for existing customers. For investment clients, it might mean 40 free trades per year or a discount on managed-account fees. Financial institutions are looking for the value exchange that will help you secure the entire share of wallet, so that when it’s time to do business, a customer thinks of them first.
Market research can help banks figure out what type of incentive might work best in their market. A bank offering a discount on a HELOC rate in a saturated market might not get the same response rate they’d get with a more tailored incentive.
Holding the line on pricing
Digital technology is also becoming an important component in digital banking and will likely become even more crucial in the future. Relationship banking clients may ultimately have more enhanced personal financial management tools or increased access to robo-advisers than other customers do.
Offering incentives and rewards, along with preferential treatment and service, has helped larger banks avoid competing strictly on price. That’s why many legacy banks have been able to hold the line of low deposit interest rates, while online banks have been aggressively increasing their interest-rate payouts.
By creating a differentiated experience for customers, banks who are doing relationship banking well are creating long-term customers whose value will only grow over time.
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