Risk is a four-letter word in the banking world these days. “Don’t take any,” is the prudent answer for most financial institutions.
We’ve seen what happens when lenders stray too far from traditionally sound practices by getting involved with exotic loans and dipping too far down into the subprime consumer ranks.
The repercussions of this type of dangerous lending were poorly understood, and in some cases perhaps ignored. However, changing the approach to customer acquisition is one risk banks need to take if they want to be positioned for growth and increased profitability.
With a significant shift in consumer attitudes about debt and increasing regulation, financial institutions need to focus on Demand Deposit Account (DDA) opening. This is the best way to create new accounts and become “sticky” with their customers.
This change in consumer behavior is perfect timing for financial institutions seeking to increase wallet share with current customers and garner new ones. It is important for banks to focus on differentiating their DDA offering from their competitors and make it appealing to a broad customer base.
If they execute this fundamental banking relationship well, by providing a superior customer experience and product, the door will be opened for cross-selling other deposit, investment and credit products.
The stickier a customer relationship becomes through multiple accounts at one institution, the less likely they will be to move their money elsewhere. More cash on hand and less customer attrition is the winning combination lenders are trying to achieve in today’s market.
There are several things banks can do to enhance their approach to DDA. The most important aspect of a great DDA offering begins with the customer. An exceptional customer experience is just as important, if not more important, than the product pitch and technology used behind the scenes to make the right offer.
At a recent industry conference, a presentation confirmed how effective account opening processes for customer onboarding can bring lift. The activities are straightforward; greeting customers when they enter the bank, calling them by name and asking what they need before pitching just any product. The data shared during the presentation showed an increase in product acceptance of 20% by following these basic customer service principles. Not a bad leap.
Once the customers’ needs have been properly addressed, there are other considerations in launching a more effective DDA offering.
First, by adding a layer of sophistication to the DDA opening process banks can decrease their likelihood of opening bad accounts. This can be done by incorporating a richer set of consumer data sources into the decisioning portion of the account opening process to help banks weed out the bad and secure more of the good.
Knowing that a potential customer holds super-prime status is great, but you also want to know how many inquiries for DDA accounts they’ve had in recent months.
Those inquiries may mean they are a bad risk, positioning for bust-out fraud or that the consumer is looking for something specific in an account and just shopping around. Better data helps banks open more DDA accounts while lowering their risk exposure.
LexisNexis Risk Solutions and Early Warning Services are two information solution providers that offer alternatives to traditional DDA data sources. A hosted DDA solution brings the advantage of one connection to many data sources, meaning fewer headaches when it comes to integration and managing failover.
Second, instant decisioning at the point of sale improves the customer experience and ultimately opens more accounts. This is already being done successfully by many lenders for instant prescreen credit card offers and it makes sense to utilize this approach in other areas of the institution.
Third, to gain efficiency banks can provide their DDA opening and instant prescreen capabilities in the same platform, which enables shared logic. Not only can business logic be updated in one place but integrating these capabilities allows for more effective cross-sell, relationship pricing and debit rewards decisioning. Additionally, with more accounts being opened online banks now need to support multi-channel integration for their DDA offering.
Finally, using an offers repository allows banks to easily review past offers made to individuals across all channels and lines of business. Storing offers in a central location supports multiproduct cross-sell and allows institutions to make multiple tailored product offers to a customer. This decreases the friction created when a customer is offered the same product during every interaction and saves the cost to re-decision each time an offer is presented.
In closing, institutions that incorporate new approaches to customer acquisition will recognize lower costs and a streamlined process will promote more product sales. While there is always risk in trying something new, this change still supports traditional DDA opening activities, such as evaluating closed for cause, fraud, KYC and OFAC database information.
Bringing more intelligence to the account opening process helps banks better serve their customers and protect their brand. It is a matter of having the right tools to make the right offers, combined with exceptional customer service that will put banks in a prime position to open the best DDA accounts and expand that relationship across lines of business within the institution through cross-sell.
Tom Johnson is vice president of product development for Zoot Enterprises. His email is tom.johnson@zootweb.com.
