How retail banking can adopt a multi-product approach to create customer loyalty in a digital world
When you think about your financial institution, what comes to mind? Most consumers seek strength, reliability, and security as table stakes, while convenience, service, and innovation are differentiators. Over the past decade the face of retail banking has been transforming and while consumers allocate brand preference according to these characteristics, the way banks are delivering it is dramatically changing.
The changes could seem alarming as branch banks have decreased by 13,000 over the past decade. National banks have been steadily transforming their branches to reduce staff and direct customers to high-functioning ATM's that meet all but a few customer needs. Internet banking has evolved mightily to become sophisticated mobile apps that let customers perform daily banking chores as well as track their budget, deposit checks, and send wire transfers.
The one constant amidst the change is relationship banking. In what seems a lifetime ago, a "relationship banker" was a human being who knew most everyone who walked through the branch doors and spent time combing through daily account reports calling good customers who may have overdrawn an account and alerting them to rectify the issue so that checks wouldn't be returned.
As of the end of 2019, there were about 86,000 branch banks and 21,000 credit union locations in the US. With the focus increasingly on reducing staff levels and using technology to deliver service, how does any financial institution build relationships with its customers? Loyalty programs in financial services have almost exclusively centered on credit cards for decades. For a brief period, rewards became a large part of the debit card offering, at least until the 2010 Durbin amendment to the Dodd-Frank law capped debit card interchange fees.
Seeking to break loose from credit-card centricity and deepen relationships with customers in a more holistic way, the definition of relationship banking was rewritten. Banco Popular, a 100-year-old institution and the largest in Puerto Rico, launched Premia, a Total Relationship Banking (TRB) program that rewarded customers for acquiring and using multiple types of accounts at the bank. Participation in Checking Accounts, Home Loans, Home Equity, Credit Cards, Vehicle Loans, and Lifestyle Loans all earned rewards. Just two years after Banco Popular launched its program, Citi launched Thank You Rewards. Still running today, it operates with the same broad concept.
A new wave of Total Relationship Banking programs
Both Premia and Thank You have stood the test of time and we fully expected to see a swath of TRB programs flooding the retail banking market. The flame died out for a period of time, probably as the market adjusted to the impact of the Durbin amendment, but the availability of card-linked rewards and a new commitment to building customer relationships has sparked a wave of TRB programs, with credit unions leading in this effort to create loyal customers.
Northwest Federal Credit Union based in Northern Virginia has NOW Rewards, a program that rewards for multiple retail banking products and offers a rich spectrum of reward options. Members of the credit union need only to log into their online banking to gain quick access to all the information they need. Rewards range from card linked retail offers to fuel discounts.
GTE Go Points is another well-developed relationship banking program. The program is unique because it includes all the expected redemption options (Gift cards, merchandise, travel, etc.) but also allows customers to earn "Go Points" offers which are exclusive to this program. Redemption options link to internal bank products such as discounts on auto loan interest rates, refunds on balance transfer fees, free boxes of checks, ATM fee reimbursements, and more.
GTE’s intent is to provide incentives to customers to use many products beyond credit cards. The Go Points program is entering its 3rd year and you can learn more about how it works here. Paul Hinrichsen, Product Manager GTE Financial said this:
"We partnered with ampliFI Loyalty Solutions to create this program because we were able to build out a relationship rewards program that set us apart in the marketplace. Offering rewards that go beyond just credit card points but encompass all of our products has been hugely successful at GTE!"
Affinity Federal Credit Union adopted a slightly different path to adding to its loyal fan base. In partnership with the Major League Soccer team, the New York Red Bulls, Affinity issues a cobranded credit card that includes access to benefits within the credit union as well as exclusive benefits and experiences from the Red Bulls football club. Features of the card include:
- 3X points for Red Bull Arena purchases and Red Memberships, plus all sporting goods stores
- 1.25 points on all other eligible transactions
The program includes earning accelerators including a first purchase bonus of 3,500 points and a 15,000 bonus upon spending $2,500 over the first 90 days of account opening. Rewards leverage the enthusiasm of the true soccer fan, with access to unique fan experiences, signed signed jerseys, and lots more gear and swag from the Red Bulls team.
We talked with Rachael Peterson, Vice President, Relationship Management of ampliFI Loyalty Solutions to find out more about how these programs are working and to know if they are truly driving results. Peterson cited one $3.5 billion asset financial institution in the Midwest that launched a "total rewards" program to drive member engagement and loyalty across a variety of FI products and services, including transactional accounts such as credit card and debit card, as well as behavioral and relationship accounts. The program awarded customers with points for credit and debit card usage, with a point enhancer for high usage accounts (more than 30 transactions per month). Points are also rewarded for opening online banking accounts, using direct deposit, and adopting e-statements for accounts.
So how has the program performed? The largest growth seen was an increase in direct deposit enrollments monthly, which increased 356% compared to their starting monthly volumes. Large increases were also seen in online banking and e-statement enrollment. In addition, the FI noted a 61% increase in the number of consumers using their debit card 30+ times per month. Ms. Peterson expanded,
“For many consumers, rewards drives their decision to sign up for the card so it is essential to make the rewards program relevant and meaningful in order to increase the stickiness and to keep the card top of wallet, offering relationship rewards is a great way to do that.”
Overall, the results show that consumers respond very positively to loyalty incentive programs designed around specific behaviors, such a setting up direct deposit or enrolling in online banking. Those behaviors further drive consumer engagement with the FI and combine to create a successful tool in amplifying consumer loyalty and engagement.
With these strong examples in the market, are we to believe that relationship banking will become a mainstream trend? We turned again to ampliFI Loyalty Solutions for insight. ampliFI has the most well developed perspective on this market and a delivery model to brings these programs to life, so we wanted to also ask about the challenges of getting a relationship banking program off the ground.
Peterson told us that several key challenges need to be addressed when planning a relationship model:
- Since credit cards are high frequency financial tools used in daily spend, special attention must be given to make sure customers can earn meaningful value through the adoption and use of other retail banking products.
- Coordinating the goals and objectives of leadership across lines of business can be a challenge. The business model and profit mechanism for auto loans and mortgages is quite different from deposits and investments. Experience in negotiating for a structure that works across the financial institution is a key to success.
- Treating the relationship banking program like an internal "coalition" program can unlock success. This means that the credit card group might operate the program point bank and "sell" points to other product areas to meet their individual objectives. This keeps accounting clear and allows each line of business head to focus on their unique needs.
If banks are to connect with customers on a stronger, more enduring level, it will be a relationship approach that wins. Emotional connections with FI's may be a stretch for many, but there is a realistic opportunity for credit unions and others to build on their personal service models and use a relationship approach to deliver way more value than what is needed to offset switching costs.
For the FI's who put the customer first and recognize the value of a relationship, not just a product, the nature of retail banking can be spun in their favor. Relationship banking may or may not become a mainstream trend like credit card rewards, but it is clearly a powerful tool that retail banking executives can adopt with success.
