PREVENTING DEPOSIT OPTION AND REWARD GREMLINS

Banks searching for low cost deposit balances may want to look into two tools that we will cover at the next High Performance Workshop coming up in Los Angeles, Sept 27th and 28th (e-mail if you would like a brochure, but we have limited space in limited areas). One tool is the "build-to-suit" personal or business checking account that lets customers choose up to 5 free options from a basic package of 10 and 2 premium options from a list of 14. The basic package can include e-mail alerts, theft protection, ID security, free checking, online banking and no fee credit card to name a few. Meanwhile, the premium package includes options such as waived foreign ATM fees, cash-back rewards, interest options, charity donations, annual cash rewards, overdraft protection and a host of other options. In addition, customers can choose to pay $2 and $5 per month for each additional option beyond the bundle of 7. In some of our test marketing, the build-to-suit account ranked higher than several bundled package options and showed promise in retaining customers, as well as attracting new ones. Since this product is still fairly new in the market, we are in the process of gathering data on sales cycles, sell-through rates, costing and usage. It is our hope to gather quantitative information that will help banks better understand these products utilizing both our Liability Coach and Relationship Profitability services. While this product sounds solid at first pass, we wonder what small deposit gremlins lurk in the details. During testing in many cases, we have seen bank personnel steer their customers towards interest and high cost options (free ATM fees). The result is higher cost checking and additional system overhead of administering the program. This problem is further exacerbated by the cannibalization of existing checking accounts, as well as the payment of 3rd party administration fees. Because of these complications, banks need to spend more to advertise, market and train, further increasing costs. On the customer side, about 45% of the time, restrictions (usage of signature debit transactions, online bank usage, etc.) have caused penalties to be evoked and interest earnings to be foregone. This digital outcome has proven painful for some banks. They either end up with upset and confused customers or with higher cost/more interest rate sensitive depositors. The worst part about a program like this is that banks fail to plan an exit strategy. Once customers are involved in rewards or options account, it is hard to transition them. While we like these products, we are trying to figure out a way to make them more profitable for banks. If your bank utilizes either a rewards checking product or a build-to-suit deposit package, contact us. You can help be part of our research in exchange for the aggregated information and recommendations. For those attending our Workshop, stay tuned for the findings.