Kevin Mountford, CEO of PBF Solutions examines the key approaches that challenger banks should take to attract and retain new customer deposits
What’s the main challenge facing any challenger bank? It’s attracting customers and deposits: after all, regardless of their business model, every bank has to fund its balance sheet. However, thinking purely in terms of ‘how do we attract enough customers’ is too simplistic. As well as securing initial deposits, challenger banks also need to build sustainable, longer-term business and avoid high customer turnover.
So how should they go about doing this? I believe banks need to consider a four-stage approach, from targeting the right kind of customer, to simplifying the account application process to retaining and building on the relationship with those customers.
Identifying the right customers
In the banking sector, too many of the wrong type of customer can be just as damaging as not enough customers – but how the ‘right’ and ‘wrong’ kind of customer is defined varies between banks. Those banks with a price-led business model are naturally more focused on bringing on customers with initial deposits, and will be less weighted towards cross-selling and extending those initial deposits when they reach maturity.
We would always recommend diversification as a key strategy for longevity. A new customer pool formed entirely of rate-sensitive depositors, that are liable to switch at the first sign of an interest rate change, does not make for a sustainable, long-term business. Being known as a purely price-led player brings both benefits and challenges, and offering a single product is likely to encourage a spike of switches when that product reaches maturity.
A largely untapped customer group outside of retail depositors that challenger banks may want to consider, is the small business sector. Research from the UK Federation of Small Business found that the country’s 5 million-plus SMEs hold, on average, £61,000 on deposit, and so are an attractive target for targeted savings products and marketing campaigns.
Attracting customers to your bank
This is where a solid, targeted marketing strategy is critical. Banking customers are still notoriously reluctant to switch to new suppliers, with the Current Account Switching Service (CASS) estimating that fewer customers switched last year than in 2014. So now, more than ever, accurate market insights into customer wants and behaviours are absolutely critical – and these must be used to shape product development. Your promotion strategy must be agile, too. Traditional banks are often slow when it comes to adjusting their products and marketing in line with what customers want, so this is a key opportunity for challenger banks to stand out and attract savvy customers.
Bringing customers onboard
Once a customer is interested, the onboarding process must be smooth, efficient and as easy as possible for the customer to follow. A significant proportion of retail and SME banking customers actually begin their onboarding journeys on smartphones or tablets, so a mobile-responsive application platform is a must.
Bringing an unfamiliar brand to the marketplace means that it is more critical than ever for your customer journey to deliver solidity, robustness and a quality experience. It is, after all, the only factor on which your potential customers can judge you. An overly complicated or hard-to-use application process can lead to high application abandonment rates.
Finally – and this is an element that is often ignored – you need to think about how to keep those customers once you have won them. As outlined above, how you achieve this will vary according to your business model. But whatever your bank’s strategic aims, delivering a positive customer experience is absolutely essential. Part of this is about the tools and technologies that your customers use to engage with you – as ever, these must be user-friendly and efficient. Another key element is developing and adjusting your products to match customers’ needs and behaviours.
In essence, challenger banks need to focus on the four ‘Ps’ of marketing – product, price, placement and promotion. They need to develop a product (or set of products) that not only support their business aims, but also match their target customers’ wants and needs. The products need to be priced appropriately. They need to achieve the best placement and promotion of their online application and onboarding platform across price-comparison websites and digital publishers, in order to achieve wide yet targeted distribution, and to reach as many potential customers as possible.
To help them do this, challenger banks can partner with specialists that have the marketing insights and technical capabilities to help with one or more of the stages outlined here, from identifying the right market niche, to developing product offerings and targeting those market sectors optimally. The biggest opportunity for challenger banks is to be more agile than their traditional high-street bank counterparts – to use technology, and market and customer intelligence to develop products, pricing and promotional strategies that attract and retain deposits to meet and exceed their goals.