The economics of acquisition are fundamentally changing. Rising competition and soaring marketing costs are chasing relationships that have become less valuable from wallet fragmentation, retrenchment on fees and, potentially, interchange legislation and settlement. While the average cost per acquired relationship has risen to a range of $600 across the industry (Figure 1), marginal acquisition (i.e., incremental acquisition to an FI’s ambient acquisition—acquisition without campaigns) has risen to over $1,400. Smaller FIs that don’t capture their share of lending, credit card and investments can wait more than seven years to break even on marginal acquisition.
Figure 1: Marketing Analyzer Benchmark CPA | 2018-2025 1H
Note(s): CPAs calculated using Brand, Consumer Checking, and Sponsorship spend | Source(s): Curinos Analysis, Curinos Marketing Analyzer
Impact of a Good Offer without Marketing, and Vice Versa
- It reduces the response to prospects who are already aware of and considering your brand, thereby limiting the audience to only your captive audiences. With marketing, on the other hand, we see averages of 100-150% lift in response over controls.
- It cannibalizes your existing margin. An example of this is when an institution promotes its deposit and loan specials primarily in branch, where existing customers see the offer. Even though it may require a minimum in new balances, the program more likely reprices customers or members who have lower deposit rates or higher loan rates as a part of the gain—significantly increasing the marginal cost of funds.
- Marginal customer and balance acquisition (i.e., customers and balances that won’t walk in the door or come to the website organically) has to overcome the barrier of a prospect’s trying your brand. For many institutions, incentives and rate offers help clear that barrier, although brand differentiation and proof points also play a role. Marketing without a financial incentive (rate, cash or points) results in lift of only 0-5% over control, while campaigns promoting an incentive see lifts to response of between 40% and 60%, making the investment worth it.
- Incentives drive not only greater response, they also drive purchase from prospects that have lower brand propensity. This results in incremental acquisition, rather than simply converting customers already in the lower funnel more rapidly.
- Besides yielding higher response rates, well-designed balance and account offers (cash or rate) result in higher funding rates—up to 20% higher—than non-incented marketing.
- Marketing with the allure of an incentive creates a halo effect that reduces the weighted cost of acquisition. As much as 40% of the uplift comes from prospects that either don’t qualify for the promoted product or didn’t choose it.
- Cash incentives and rates appeal to different cohorts of customers. By varying between rate and cash offers, FIs can broaden their appeal. Learning and targeting for the differences can further improve performance.
Finding Your Sweet Spot
Marketing rates and incentives go together like chocolate and peanut butter: by mixing them consistently FIs will drive better response, funding and reach.
Identifying the right balance requires effective analytics that focus on acquired value over traditional cost per acquisition (CPA) or customer acquisition cost (CAC). The least expensive balances will be from organic acquisition—customers or members walking in (or clicking in) off the street. But because most organizations are targeting positive balance growth of 2-3%—less for the overall market—you’ll have to pony up to achieve your goals. To optimize that investment, these key metrics of acquisition’s new economics equation need to be considered:
- Marketing Cost per $10K Acquired (CP$10K). Measures the impact of balances gained. Campaigns with incremental rate benefits drive more customers and higher balances, reducing CP$10K. Campaigns without rate or incentives drive fewer customers and fewer dollars, increasing CP$10K.
- 12-Month Balance Retention Rate. Measures how much of the balances acquired are retained. Maintaining high rates on deposits and low rates on loans, as well as organic acquisition, have a positive impact on balance retention. Promotion and incentives have a negative impact because they tend to attract flightier deposits.
- New Balances. Measures how much of the acquired balances are new to bank. Depending on the mix of marketing, targeting and offer, the percentage of new balances can change widely, especially to the extent balances already held are repriced or incented.
- Promo-interest and Incentive Costs. These increase the cost of the acquired balances but also increase the efficiency of the marketing spend.
- 12-Month Cost of Acquired Funds. Measures the total cost of incremental balances based on the combination of each campaign, showing side by side the resultant tradeoffs of marketing, rate and incentive. Lower percentages represent less expense.
Putting it All Together
This illustration shows in six scenarios how the interplay of marketing, incentives and rate affects deposit acquisition. While it doesn’t take into account the effect that market share, unaided awareness or product differentiation influence response rates, it does directionally demonstrate the new economics of acquisition. Its value is not to help evaluate whether a strategy is good or bad, but rather to help frame a strategy, from least to most expensive, that will meet your goals or exhaust your budget in the attempt.
Curinos Solutions Designed to Help
Curinos brings solutions every step of the way to provide market insight and tactical support in realizing your balance goals as inexpensively as possible:
- Deposit Analyzer identifies both average rates and acquisition for your peers, providing you with context on how effective a rate may be in attracting deposit balances.
- Deposit Optimizer enables you to track offered rates for your peer set and understand the impact of rate on acquisition. New features enable you to add marketing investments to understand the impact they have in combination with rate.
- CurinosOne Capture and Partner Supporting Prospect Targeting Solutions provide a platform or campaign support solution that helps identify audiences with a greater propensity to:
- Seek a new deposit relationship
- Choose your brand (not generically a new account)
- Bring deposits that remain after promotions
- Use debit or credit as the primary transaction channel
