Hoosier Banker 39 from worsening financial performance during an economic downturn, the data illustrates that having more customers certainly helps. How Do Customers ‘Cushion’ Profitability? Noninterest income. Banks executing a growth strategy simply have more noninterest income. As the customer base increases, noninterest income also increases – not because of regular service charges, but instead through more customers utilizing income-producing services, such as interchange income (average of $60 per account, per year) and valuing overdraft services (average of $90 p/a/p/y). Graph 2 illustrates the impact that focusing on growth and having significantly more customers has on noninterest income. More low-cost funding. A checking account is the first product purchased at a bank for 70% of consumer households and for 55% of businesses. Checking deposits are the lowest-cost funding available, with business checking deposits having a cost of funds of less than 0.01%. This translates into improved net interest margin. Relational intensity. Checking customers buy additional products and services. Growing retail and business checking customers affords your bank first right of refusal on other products and services 73% of the time, averaging 5.64 retail and 5.86 business product and service relationships. Loans from local markets. Having more customers also allows your bank to lend more money to more people in your local communities. These loans tend to have less risk. Keys to Accelerating Customer Growth Get product right. People hate fees. Compressed margins and decreased profitability can lead to the discussion of increasing monthly service fees or adding minimum balance requirements. Graph 3 shows research on the criteria consumers use when selecting a banking provider. Interestingly, comparing consumers of all ages with consumers under 40 years of age produces little difference regarding what people desire. Compression in bank earnings will have little impact on what consumers want from their banking partners. Your retail and business products must be compelling if you want to have the greatest opportunity to grow core customers. Invest in training your team. Too often our industry treats training as an event rather than a way of life. Employees who do not understand your products and services will never be able to recognize opportunities with customers, let alone speak in terms of benefits. It is crucial your institution commit to ongoing training initiatives regarding all of your products and services. Marketing to grow. Increase your spending on strategic marketing. • Proactive: According to Novantas, 65% of consumers consider only two options when they move their checking accounts, meaning that 65% of your current customers already know where they would bank if they didn’t bank with you. You must be top-of-mind before consumers and businesses decide to switch, and your marketing must create the opportunity for them to pick you. • Targeted: Use data and analytics to help you understand where to market before you market. Your marketing resources must be allocated to target consumers and businesses which haven’t chosen your bank yet, but could and should. • ROI-focused: Define what and how you will measure success before you market, not after. Make sure your marketing investment is working to create tangible, measurable results. The past informs the present, and banks that stay focused on growth reap the greatest rewards. While it may not be intuitive, now is the perfect time to make sure you have all of the right strategies in place to capitalize on the growth opportunities that present themselves in any economic environment. HB GRAPH 2 GRAPH 3
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