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Race to Quality: Rethinking Digital Onboarding

The quality of customers originated through digital channels is of growing concern to traditional banks, particularly as the COVID-19 pandemic has accelerated the shift to digital by three to five years in just a few months. Although many banks have found success driving more customer acquisition to digital channels, the quality of these new customers is typically poor – from the time of funding through to retention.

New Curinos research shows that these problems may be even worse than believed, especially when it comes to balance size and retention.

To meet these challenges, Curinos believes banks must take a programmatic approach to improving onboarding: identify focus areas and set target performance for each, prioritize and triage opportunities for rapid execution and measure progress relative to peers.

From Bad to Worse

While some bankers have seen digital account opening growth help offset lost new-to-bank origination from closed branches, results from Curinos’ Origination Quality Benchmarking have found there are common failures among banks and large gaps in balance size and quality. (See Figure 1.)

Figure 1: Increase in Digital Sales During the Pandemic

Source: Curinos SalesScape Comparative Analytics (June 2020)

Figure 2: Digital Benchmark vs Branch Benchmark

Source: Curinos SalesScape Comparative Analytics (June 2020)

Note: Segment Represents Number of Accounts in Each Balance Segment

This isn’t simply a theoretical measurement or an apples-to-oranges problem. One big issue is that these new digital accounts just never really get going. Digitally-originated relationships are less than half as likely as branch originations to achieve “base quality” by reaching $100 or more in balances at the end of month one, according to the Curinos research.

Even considering only the accounts that do achieve base quality, there is still a large gap in balances. In the first month, branch-originated balances are more than four times larger than those from the digital cohort. The gap also widens by the fourth month as digital cohorts, on average, underperform on retention and balance growth.

Curinos research shows marked differences in what is driving gaps between branch and digital. For some, retention is the key driver. For others, initial funding or balance growth are more important factors.

Curinos has identified customer experience as the primary driver of the difference, not demographics. One doesn’t need to look too closely to find that banks don’t make it easy to form relationships online. The emotional attachment and information exchange that is driven by a personal account-opening experience just hasn’t been replicated in the digitally-led environment.

Digital experiences are typically engineered for convenience and speed and are highly standardized. This ignores the many opportunities to create engagement. Among myriad issues, key areas stand out: initial funding, ability to complete the process of setting up the account, a lack of sufficient explanation about products and a lack of opportunities to sign up for additional products. In contrast, the branch experience, even if clunky, is highly effective.

Things don’t get any better after the point of sale. Again, there are common drivers: one-size-fits-all digital communication approaches, premature handoff to in-life management and underleveraging of surplus branch resources. In fact, it may make sense to slow down and even increase the cost of account openings by reaching out to the right new prospects.

Identifying the Problem…

Perhaps the hardest thing about working on improving digital quality is that there are so many credible drivers and opportunities to explore. (See Figure 3.) Many bankers face an overwhelming number of proposals and are challenged to prioritize what merits investment, where to spend scarce test-and-learn resources, and what just sounds good on paper.

Figure 3: Quality Improvement Levers

Digital Targeting & Opening
  • Shift targeting from “propensity to buy” to “expected value”
  • Restructure offers to encourage higher-quality customers
  • Evolve test-and-learn framework to be more dynamic and closer to value
  • Enable zero-friction fulfillment at time of opening
Initial Activation
  • Shift targeting from “propensity to buy” to “expected value”
  • Restructure offers to encourage higher-quality customers
  • Evolve test-and-learn framework to be more dynamic and closer to value
  • Enable zero-friction fulfillment at time of opening
Relationship Deepening
  • Leverage excess branch capacity to engage with digital new-to-bank customers
  • Move from one-size-fits-all campaign communications to AI-based digital test and learn
  • Build omni-channel banking check-up experiences to ensure customers are getting the most out of their banking and uncover opportunities to add value

Source: Curinos Analysis

For example, to increase funding rates and first-month balances, banks could invest in a suite of functional changes that might appeal to the rational consumer: technology that enables and encourages more funding options, policies that permit larger initial deposits and incentives like a bonus rate tied to the size of a funding deposit.

A key question, of course, is whether these investments help create an experience that target a more emotional response and boosts trust or confidence in the relationship. The answer will depend on the bank’s starting point, objectives and particulars of the customers. A parallel and equally important question to consider is if funding is the right place to focus investment or if digital engagement and downstream deepening will generate a higher return.

To identify focus areas, Curinos suggests that banks must first diagnose the current experience and performance. This needn’t be a protracted process that requires detailed journey mapping and deep analytics. With clear objectives, the prioritization of opportunities will be easier. They can then be triaged into those that can be deployed immediately, those that require test and learn and those that are unlikely to provide a sufficient return.

…And Tackling It

Too many organizations are using one-size-fits-all approaches.

Curinos sees two clear areas for improvement that most banks could benefit from today. First, digital teams must coordinate better with their front-line branch counterparts where excess capacity is underutilized and the technology to distribute and manage distributed calling has been battle-tested during COVID-19 temporary closures. Getting a program right is no simple matter, especially given the underlying reward structures and channel silos that have been created over many years. Some banks are already experimenting to find the right branch model for their circumstances. NAB, for example, has slashed branch hours to create segmented workdays. This is a must-solve challenge.

Second, banks must increase the personalization of critical early engagement and deepening outreach. Too many organizations are using one-size-fits-all approaches to customer communication instead of moving the customer efficiently through the account-opening process. Every new customer gets the same cadence, ask, messaging, creative and channel mix. The more advanced banks are creating variation based on simple demographic segments and very basic rules (e.g., avoiding marketing credit cards to ineligible customers.) AI can be leveraged here to create micro segments and test-and-learn exercises that create personalized strategies that lead to better performance.

Beyond these areas, each bank will have a different and evolving agenda. Given the speed of changes in this space, we see it as critical to have continuous monitoring of program performance relative to peers and on an absolute basis. It is important to understand where the bank is making individual gains versus a rising tide lifting all boats.

Improving the process of digital acquisition and retention have certainly been on bank to-do lists for the last couple of years. Too often, however, other pressing issues took precedence. The COVID-19 pandemic has reinforced that banks should catapult this to the top of the list.


Treasury Sees Implications From Digital Onboarding, Too

Director, New York

Given the rise of digital deposit acquisition and the marked difference in funding quality compared with branch deposits, it is critical that treasury groups provide an accurate behavioral analytic view of deposit quality for the purpose of deposit valuation and broader balance sheet management.

Treasury must evaluate whether to adjust funds transfer pricing segmentation frameworks to include a customer acquisition channel dimension. Based on insights from the Novantas Origination Quality Benchmarking, a channel segmentation would improve the overall accuracy of product and business profitability calculation by capturing the difference in long-term stability (or expected life) of deposit balances.

Absent such a segmentation, Treasury runs the risk of overvaluing deposits and misjudging the liquidity and interest rate position of the bank. This situation may become more severe as digital acquisition becomes the norm unless progress is made to close the quality gap.

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