Customizing Sales & Service for Profitable Customer Segments

Customizing Sales & Service for
“Profitable” Customer Segments
Nate Wehunt, City National Bank
Paul McAdam, FIS

Agenda

• Size the market for loyal and profitable banking customers

• Relationship banking for “Profitable” customer segments

• Tailoring sales and service to the “Profitable” segments to deepen
relationships and wallet share

• Leveraging a blend of in-person and online interactions that maintain
and/or rebuild trust

Primary research conducted by FIS:
• Online survey of 3,000 U.S. consumers
• Fielded August 2011
• Nationally representative

2

Value propositions supporting customer
intimacy dominate

Executives’ perceptions of their financial institutions’ market positioning

Relationship leader 60%* Customer
intimacy
Customer service leader 31% positioning

Advice leader 2%

Convenience leader 2%

Product performance leader 2%

Price leader 1%

Other 2%

* Read as: 60% of respondents believe relationship banking is the primary value proposition their financial institution
communicates to the marketplace.
Source: FIS Enterprise Strategy, July 2011; n=351
Source: FIS Enterprise Strategy, July 2011

3

Consumer loyalty is multidimensional and
segments can overlap

• Functional
– Believes products & services create
value
– Trust the provider
– Willingness to recommend Functional
• Transactional
– Willing to repeat purchase
– Share of wallet increases
• Emotional Transactional Emotional
– Appeal to individual’s values
– Customer identifies with the brand
– Personal relationship
– Most sought and least attained
– Switching is minimal

Source: FIS Enterprise Strategy, August 2011; n = 3,000

4

45% of primary DDA customers exhibit at least
one of the three types of loyalty

Loyal vs. Non Loyal
Primary DDA Customers
1. Has product /service expertise
2. Willing to recommend
3. Trust the organization
4. Prefer using primary checking account
provider to meet all financial needs
Loyal
5. Willing to repeat purchase
Non-loyal 45%*
55% 6. Have recommended at least 2 times
7. Have personal relationships with
employees
8. Even if overcharged, would not defect

* Read as: 45% of primary checking account customers are loyal

5

Functional and transactional loyalty dominate
financial institution loyalty

Functional
20%

Transactional
22% Emotional
3%

* Read as: 22% of primary checking account customers have functional loyalty

6

We’re in uncharted waters

• “I am a BoA customer for 20 years. Even
though my balance exceeds the fee waiver
threshold I will probably take my business
elsewhere if BoA charges its less well off
customers this outrageous fee.”
• “My debit card uses MY OWN money; debit
cards save YOU check handling/processing
costs. There is no justification for this fee!”
• “I am sick and tired of banks looking for ways to
take my money because they can't pay for their
own mistakes.”
Molly Katchpole

Source: Change.org, October 12, 2011

7

39% of primary DDA customers are currently
profitable to their provider

Profitable vs. Unprofitable Potentially Profitable
Primary Checking Account Primary Checking Account
Customers Customers

Unprofitable
19%

Currently
Profitable
Unprofitable
39% Potentially
61%
Profitable
42%*

* Read as: 42% of primary checking account customers are potentially profitable

8

Six segments based on loyalty and profitability

High Unprofitable Potentially Profitable Profitable
Loyals Loyals Loyals

9% 18% 17%

Loyalty to
Primary FI
Unprofitable Potentially Profitable Profitable
Non-Loyals Non-Loyals Non-Loyals

10%* 24% 21%
Low

Low High
Profitability to Primary FI
* Read as: 10% of consumers are in the “Unprofitable Non-Loyals” segment.
9

The primary FI captures a small percentage of
assets with all but “Profitable” segments

$240,000 Deposit & Non-retirement Investment Balances by Segment
$220,000

$200,000

$180,000
Total deposits and investments
$160,000

$140,000 With primary checking account provider
$120,000

$100,000

$80,000

$60,000
43%
$40,000
28%
$20,000

$0
Profitable Loyals Profitable Non- Potentially Potentially Unprofitable Unprofitable
(17%) loyals (21%) Profitable Loyals Profitable Non- Loyals (10%) Non-loyals (9%)
(18%) loyals (24%)


10

The primary FI captures the majority of deposit
balances from the “Profitable” segments
$80,000
Deposit Balances by Segment
$70,000

$60,000
With primary checking account provider
$50,000
Total deposits
$40,000

$30,000

$20,000 82% 68%

$10,000

$0
(18%) loyals (24%)


11

The primary FI captures a small percentage of
debt with all but “Profitable” segments

$140,000 Loan balances outstanding per segment

$120,000

$100,000 Total loans and credit card debt

$80,000 With primary checking account
provider
$60,000

$40,000 62% 64%

$20,000

$0
(18%) loyals (24%)


12

Large variations in profitability among the six
segments
350
Profitability Indices by Loyalty and Profitability Segments
300

250 Primary checking account profitability index

200 Overall profitability index

150
Average = 100
100

50

0

-50
(18%) loyals (24%)


13

The level of fees paid by Profitable Non-loyals
may contribute to their dissatisfaction

Percent of consumers paying no fees for primary DDA and average fees paid per month

70% $17.01 $18.00
65%
60% $16.00
60%
$16.09 56%
$14.00
50%
$12.00

40% $10.00

30% $8.00

$6.00
20%
$5.47 $4.00

10%
$2.00

0% $-
Profitable Loyals Profitable Non-loyals Rest of Population

Percent paying no fees Average fees per month among those paying fees


14

Three programs to encourage relationship
consolidation with ~50% of customers
Actions that motivate consolidation with primary DDA provider

54%
No interest in further consolidateing
45%
with primary FI
52%

17%
Preferred interest rates on my Profitable Loyals
18%
accounts based on total balances
9%
Profitable Non-loyals

13% Rest of Population
Ability to design my own rewards
14%
program from a menu of options
18%

9%
Lower fees because I use self-service
16%
forms of banking
13%


15

DDA and card-based rewards resonate most
strongly with Profitable Loyals

Impact of rewards programs on maintenance of primary DDA relationship

49%
Checking account rewards separate
36%
from cards
33%

44%

Debit card rewards 29%

29%

Profitable Loyals
Profitable Non-loyals
36%
Rest of Population
Credit card rewards 34%

33%


16

Profitable Non-loyals are less confident and
knowledgeable regarding their finances

Confident I will have enough money Have the time and knowledge to
for a comfortable retirement manage all of my own financial
33%
affairs
56%

43%

20%

16% 31%

Profitable Loyals Profitable Non- Rest of Profitable Profitable Non- Rest of
loyals Population Loyals loyals Population


17

The primary DDA provider can benefit from
greater “financial advisor” credibility

Have a Financial Advisor Financial Advisor works with their
primary checking account
provider
29%
28%
43%

28%
25%
14%

Profitable Profitable Non- Rest of Profitable Profitable Non- Rest of
Loyals loyals Population Loyals loyals Population


18

Profitable Non-loyals conduct the fewest in-
person interactions

Interactions with primary DDA provider per month

Online and mobile
10.7 banking
9.1 9.4

Branch and phone
call with live rep
2.7 2.2 2.5

Profitable Loyals Profitable Non-loyals Rest of Population


19

Servicing and SELLING online is essential

Branch Transactions Online & Mobile Transactions
(Billions) (Billions)

49.0

42.7
14.7
14.1 13.7 13.3
35.6

29.8

2010 2011 2012 2013 2010 2011 2012 2013

Source: TowerGroup, “The Customer Has Left the Building: Selling Through Self-Service Channels,” June 2011

20

Even among older generations, branch usage is
rapidly declining

Banking method used most often Percent citing branches as channel used
most often (by age group)
Telephone,
3% Mobile, 1%
52%

Mail,
6%
Branches,
ATM,
20%
8%
37%

27%

24%
22%

Internet,
62% 13%

2007 2008 2009 2010 2011

Source: American Bankers Association and Ipsos Public Affairs, August 2011

21

Online channels play vital roles in new product
shopping

Preferred method of receiving new product information Methods used to research
products
Email to computer 51% 77%

Mail 49%

Within online banking 41%
44% 46%

At bank’s website 36%

Talk with rep at branch 28%
16%
Email or text to mobile phone 15%

At ATM machine 14%
Research Products Research Products
Telephone call 12% 2005 2010

Prefer NOT to be contacted by In-Branch Online
7%
bank
Source: Novantas, “Annual Multichannel Preference Study” as cited in Novarica,
“Consumer Usage of the Mobile Banking Channel,” January 10, 2010

22

Tactics to deepen relationships with
“Profitable” segments
Profitable Loyals Profitable Non-loyals
Product Packages • Target investments • Target investments and
deposits
Financial advice • Opportunistic • Strong emphasis
Consolidation • Preferred rates based on • Preferred rates based on
balances balances
Fees • Do not increase • Decrease
• Eliminate with • Eliminate with
consolidation consolidation or self-
service behaviors
Rewards programs • Checking, debit & credit • Checking & credit card
card programs programs
Sales approach • In-person and online • In-person and online
• Greater in-person • Greater online emphasis
emphasis


23

Customizing Sales & Service for Profitable Customer Segments

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