Attention, bank CEOs: You might want to think twice about slashing that marketing budget.
There is growing evidence that marketing dollars are more effective than branch activity when it comes to acquiring customers and retaining the ones you already have. These efforts — from digital channels to direct mail — are challenging the branch’s traditional role.
Although expensive, these efforts will be extremely important in coming months to stem deposit runoff and compete with nimble digital disruptors.
The pandemic served as the genesis for many of the latest trends. Branches were far less available during the height of the pandemic as many closed or shortened hours. Consumers and businesses gravitated toward online channels; many have stayed there.
In fact, the number of new checking accounts gained in 2020 through marketing surpassed those opened through branch networks for the first time, according to the annual Curinos U.S. Shopper Survey. Because primary checking accounts are the most predictive factor of customer primacy, this was a watershed moment for retail banking.
And the numbers continue to surge. For accounts gained through marketing, digital media were — and remain — the dominant means of acquisition. In the fourth quarter of 2022, 76% of customers who opened a checking account shopped for it through a bank website, websites that compare banks or social media research. That compares with 28% who visited a branch. And 53% of checking account shoppers surveyed reported some form of online/mobile banking capabilities as the top reason for choosing their primary bank.
It’s no surprise that digital disruptors like neobanks, direct banks and fintechs are capitalizing on this preference, often through innovative products and appealing, user-friendly virtual experiences. And it’s coming at the expense of traditional providers, especially smaller players that continue to struggle to attract and convert customers through digital means. Direct banks (those with banking charters) and neobanks (those partnering with chartered banks for funding) now account for 39% of all new checking accounts, up from only 21% in 2018, according to Curinos research. In the same period, the share of new checking accounts through national and regional banks shrank from 76% to 58%. (See Figure 1.)
Figure 1: Primary Checking Account Opened By Bank Type By Year
Direct Mail Makes A Comeback
As prevalent as digital acquisition has become, it is hardly the only method of marketing acquisition. After a staggering falloff at the start of the pandemic, where spend fell by more than two-thirds, direct mail is staging a resurgence and now is equal to about half of digital spending. (See Figure 2.)
Figure 2: Consumer Banking Industry Marketing Spend By Media By Year
Much of the rebound can be attributed to the emergence of incentives for new-account openings. According to the latest U.S. Shopper Survey data, 40% of shoppers chose their primary bank because of an incentive, more than two-thirds of which were cash incentives. Offers also included cash incentives linked to direct deposit, as well as those tied to product bundles that are designed to win the entire relationship. These offers have been a direct response to the challenges of attracting and retaining deposit balances amid rising rates and greater churn.
Digital may be effective in attracting new customers, but as Curinos has often reported, these digital new-to-bank customers typically display lower balances and are much more likely to attrite, thereby exhibiting a lower projected lifetime value. They’re also much more likely to have opened the account fraudulently. When it comes to risking an offer of cash incentives, some as high as $200 for maintaining a $500 balance, banks therefore have increasingly chosen direct mail, a more established and reliable method of reaching stickier customers. More than coincidental, its rebound has been in tandem with the increasing use and value of these cash-incentive-based acquisition and retention offers. (See Figure 3.)
Figure 3: Direct Mail Trend For Consumer Checking Account Acquisition
But any direct mail success has come at a cost, according to Curinos Marketing Analyzer, a cross-bank marketing data set across 16 financial institutions. Banks that consistently used direct mail in the first half of 2022 found that their cost per acquisition (CPA) shot up to more than $1,000, from less than $500 at the beginning of the year. The marked increase is an indication of how much harder direct mail needs to work in an increasingly digital age. In the same period, banks consistently using digital saw their CPA settle below $200. Meanwhile, providers that rely on direct mail saw the share of new accounts sink to below 25% while those consistently opting for digital stood at almost 45%. (See Figure 4.)
Figure 4: Consistent Direct Mail vs. Consistent Digital
The apparent disconnect between spend and return reflects the limitation of looking at CPA alone. As mentioned above, customer lifetime value (CLV), which can be derived using the right targeting, needs to be considered as well. There’s no lasting advantage to gaining a low-balance or no-balance customer, or even a high-balance customer who’s likely to leave at the next attractive offer.
More Marketing Dollars Are Working Harder
Because of the steady rise in interest rates, many depositors have woken up and are shopping for higher yields. This has led to current customer profitability models exhibiting longer payback periods and lower returns. As a result, marketing spend now exceeds the pre-pandemic level of 2019 after pulling itself out of a pandemic-induced trough, but the emphasis is now as much on retention as acquisition. (See Figure 5.)
Figure 5: Trend Of Consumer Deposits & Brand Marketing Spend
Whether for acquiring or retaining customers, it’s clear that investing in marketing dollars for both digital and direct mail is paying off. This is the case even though those dollars are working much harder than they had to before the pandemic due to higher rates. It’s also clear that even at elevated levels, their efficiency in these channels is eclipsing that of branches.