As overdraft restrictions, interchange fee limits, and consumer protection proposals dribbled out of Washington, many commentators predicted the end of a hallowed retail banking strategy: giving stuff away.
Stripped of the ability to earn hefty back-end fees on basic products, the thinking went, banks would stop trying to juice the volume of new accounts by offering free checks and promotional gifts.
But while many banks have indeed cut back on the tactic faster than you can say "free toaster," new data suggests that one of the retail banking industry's biggest players is doggedly sticking with it.
According to an account study released Thursday by J.D. Power & Associates, JPMorgan Chase & Co. is still heavily promoting such deals — and winning a disproportionate chunk of business from doing so.
Among more than 3,000 bank customers who had recently opened new accounts, 41% of those who opted for Chase did so primarily as the result of a "promotional gift/cash award," a rate that was more than triple that of Bank of America Corp. and five times greater than that of Wells Fargo & Co. and Citigroup Inc.
Free stuff isn't Chase's only retail attraction: It had the lowest rate of customers who seek to avoid the company among the biggest banks in the J.D. Power study, and it performed well on perceived proximity of branches.
But consumers' recall of Chase's advertising pitches for free checking and promos were far more prevalent than similar advertising by rivals, suggesting that Chase is either more dedicated to making such appeals or somehow far more effective at it.
The data provides a rare glimpse into marketing strategies, a subject banks tend to keep under wraps. Combined with ad spending data from call reports, the study adds to evidence that Chase is in the midst of a retail advertising push outstripping its big-bank peers.
Commercial banks spent $2.5 billion on advertising in the first quarter, down 18% from two years earlier, according to SNL Financial. While big competitors cut spending — Citigroup's was down 54%, and B of A's dropped 5% — in the same period, Chase's outlay grew 12%, to $642 million.
Some industry analysts saw the move by Chase, coupled with its overall spending on advertising, as a sign that the company is bullish on retail banking at a time when others are still tentative.
"They see this as an opportunity to grow," said Bart Narter, senior vice president of the banking group at Celent, who recently received a mailer offering $150 for opening a Chase checking account — despite already being a customer. "They're acting like a predator" — with rival banks as the prey.
But promos also come with risks. By definition, they are an attempt to buy business by sharing some of the money the bank could have spent on other marketing approaches. Whether those new clients stay depends on a bank's ability to win their loyalty through good service and convenience — and whether other banks are making richer offers.
Moreover, industry consultants say, a badly orchestrated promotional gift campaign could lure customers who are more trouble than they're worth.
"The person who makes $200,000 a year is probably not moving their banking account every two months to get a $100 bank card," said Aaron Fine, retail banking consultant for Oliver Wyman. There's no doubt promos will bring in bodies, he said, but "it has to be something that you think is going to attract the customer that has a higher balance."
A Chase spokeswoman said the bank's current marketing "is not that different" from what it's done in the past, but declined to comment further.
But the bank's strategy does contrast with that of its competitors — most of all Wells.
In an interview, Lisa Stevens, Wells' regional president for California retail banking, said the company was increasingly forgoing a marketing strategy based on cash incentives because it believes it can usually bring in quality customers through other methods.
Wells does use cash promos on occasion, but the J.D. Power study's conclusions, which Stevens said seemed plausible with regard to her experience at Wells, suggest that such attractions account for less than a tenth of the company's advertising — and result in an even smaller percentage of accounts actually opened. Factors such as convenient locations, good past experience, and competitive interest rates were cited far more frequently as a reason for banking with Wells Fargo.
Wells' wariness of gift promos stems from concern that they draw people with little intention of developing a deeper relationship with the bank.
"The strategy for us is always about cross-selling to the customer, helping them with all their financial needs, and keeping them versus having them open up a whole bunch of checking accounts all over the place," she said. (The bank offers stuffed toy horses to customers considering opening accounts and sometimes promises to make a charitable donation in a new customer's name. Stevens said she does not consider these equivalent to a cash incentive.)
Promotional gifts and cash awards can still have use for Wells, Stevens said, but it generally seeks to target these at customers who have recently moved into Wells' coverage areas and have little exposure to its brand. As Wells integrates the 2008 acquisition of Wachovia Corp., she said, it will likely cut back on cash incentives even further.
Yet not everyone is sure that accounts opened for cash incentives are less fruitful — particularly if Chase is the only one of the biggest banks to pursue it.
"If a lot of banks have abandoned the battlefield on promos and totally free checking stuff, maybe JPMorgan Chase sees this as a way of being contrarian in the marketplace," said Michael Beird, head of J.D. Power's banking practices group. Though the staying power of relationships created through such offers is a concern, he said, "There's still evidence to support that customers are enticed by these types of offerings."
A reliance on such promos would make even more sense, Beird said, if Chase is successful in persuading its retail customers to sign up for the bank's overdraft protection and associated overdraft fees. By pursuing a message that Beird describes as "you don't want to embarrass yourself" by having a transaction denied, the bank may be able to switch the perception of overdraft fees from being punitive to a fee for a valuable service, he said.
Though it reveals a significant difference between how Chase and the other behemoth banks are marketing themselves, the J.D. Power data also shows some big-picture similarities among JPMorgan Chase, Wells, Citigroup, and B of A. All have significantly higher rates of success at every stage of a customer's selection process, from basic brand awareness to ultimate capture rate. And all benefit from the sheer volume and convenient locations of branches and ATMs.
Not everything cuts in the big banks' favor, however. Beird said that smaller institutions tend to get better marks from their customers for service. And that, noted veteran analyst Gary Townsend, president of Hill-Townsend Capital, is hardly the sort of thing survey data is necessary to point out.
"Branch network and ATMs are really important, but then the other part of it is service and typically we've seen in the large cap space, whether it's Bank of America, or Citi or JPMorgan, they don't service their customers through the branch systems typically well," Townsend said.
