Jul 11
27
In a prior post, I suggested that raising rates elsewhere in order to compensate for a lowered debit interchange rate cap might not be prudent in every case.
“To raise or not to raise” isn’t really the question. In fact, stated that way, it’s a trick question. It assumes an all-or-nothing approach. Not all clients are created equal, and treating them as if they are — something too many banks are unwisely all too eager to do — is a costly tactical mistake.
The 80-20 Rule is alive and well in banking. In fact, in banking, the 90-10 Rule often applies. That is, 10 or 20 percent of a bank’s clientele tend to account for 90 or 80 percent of its profits. That much is not news to bankers. But you might think it was, given the way so many banks take a one-size-fits all approach to targeting and pricing.
A strong brand appeals to a core. This necessarily entails being willing to appeal less to people outside the core. When a bank markets and prices indiscriminately, its ends up spending way too much acquiring and keeping unprofitable clients, way too little acquiring and retaining profitable ones, and, in the end, not appealing to anyone in particular. Trying to appeal to everyone is more than the antithesis of branding. It is a misallocation of resources.
It is wiser to separate clients into tiers according to their potential profitability. Clients who more than carry their own weight — in average deposit account balances, average loan balances, product use and share of wallet, to name a few — may be the group you’ll want to cultivate most aggressively. And that may make them the last group you’ll want to risk annoying with increased feeds in the wake of the Durbin Amendment.
Yet you would have every reason, both marketing-wise and bottom line-wise, to consider raising fees paid by marginal clients.
So instead of jumping straight to “to raise or not to raise,” here are some questions to consider first: What is the expected Lifetime Value of each tier of clients? How much will it cost to replace a profitable client who defects because of increased fees? And, for that matter: Are there some clients who, by moving on due to a fee increase, will leave your bottom line better off?
With the recent announcement that the Fed is setting the debit interchange rate cap at 21 cents, the financial services community breathed a collective sigh of relief.
To be sure, 21 cents is less than what was charged in the past. But it’s better than the 15 to 20 cents that the market expected, and a lot better than the originally proposed 12 cents.
This is not to say that the new rate doesn’t represent a sizeable decrease. It does. The interchange revenue stream hasn’t completely dried, but its flow has certainly diminished.
How will banks make up the difference?
At first blush, it might appear tempting to impose new fee structures on checking accounts and other services.
Proceed with caution. Events of the past few years have left the public, shall we say, not too enamored of the banking industry in general. Granted, your financial institution may have a reputation for pristine ethics and rock-solid stability. Even so, right now we operate in an environment in which the public and the media are only too eager to paint all financial institutions with one wide, cynical brush.
In other words, this may not be the best time to answer a rate decrease in one place with a rate increase in another. In my next post, I’ll explain why the question of whether or not to raise rates on other services is, in fact, a trick question. And I’ll propose a more “customer-centric” way of approaching the problem that may serve you better.
How financial institutions leverage social media with their customers is clearly a work in progress; and where this will trend in the future is very much to be determined. Will it be used primarily as a community tool or focus more on lead generation? Will it be a place to push products or primarily for engaging fans via contests and promotions? As FI’s continue to test the waters, ASB Bank in New Zealand has implemented a function that I think is one trend we will see rise in popularity over the coming months/years.
ASB’s Facebook page functions as a “Virtual Branch” where anyone (customers or prospects) can chat live with bank representatives about everything from home loans to savings accounts. The design evokes that of walking into a bank branch and the avatar of the female representative (albeit slightly eerie) emphasizes that you will be talking to a human. They are even covering their bases from a security perspective by prominently stating that chats will not appear on your (or their) Wall.
While I don’t have any stats on the success ASB has seen with this, judging from their over 17,000 fans (0.3% of New Zealand’s entire population), their social media efforts are working well. Even more importantly, efforts like these can ultimately save FI’s money by reducing call center volume and resolving issues quickly and easily for customers.
So what do you think about ASB’s Virtual Branch application? Would you live-chat with your bank through Facebook?
Jun 11
9
The Customer Response Summit [#crsummit ] is a powerful event meant to be a place for leading edge companies to share ideas, best practices and success stories with each other. I had the privilege to speak at the event and was a key contributor to a superb display of thought leadership in one of the hottest topics around… Social Media in the enterprise.
Below are a few of my key takeaways:
Incubate and Conquer
This was a theme of this event. Leading edge corporations have all taken the approach to test this space in a very similar way. We have seen this time and time again with the introduction of new technology or ways of communicating. It is a cautious, methodical, logical approach to “testing the waters” and it is proving to be very effective so far.
Experience Reigns over Cool!
One might have imagined that in order to address users that come in from Social Media, you might need someone “who could speak that language” (i.e. a young person who lives Social) but this was not entirely the case. Experienced staff is being handpicked that possess a deep understanding of company products and services while at the same time are well connected within the enterprise. These are folks that are able to promptly get to the right source of information and get the answer to the customer fast and effectively.
End to End Experience Management
The ability to add the Social inputs into the existing database of customer interactions is the only way to put the entire picture together for each client and provide an end to end experience. Also, integrating this data with information collected from online chat sessions can give you customer data that is powerful beyond measure.
The most compelling message I got from this event was confirmation of two things I have always believed to be fact: 1. Social Media and the Enterprise are simply meant to live together. Our affiliate banks have tremendous opportunity to engage with their client base and community in ways we never thought possible. 2. The other fact is that we are merely scratching the surface on the true value that Social Media can bring to the Enterprise. This is no longer considered a race that companies must jump into, but a marathon where only the nimble and strong-minded companies will survive.